FDIC Urges Low-cost Bank Loans for Military Personnel

by Mike Bevel, CollectionIndustry.com

What better way to say ?thanks? to the men and women of the U.S. military than by offering them low-cost bank loans? Nothing says, ?Support our troops? like encouraging debt.

After bemoaning the fact that many who serve in the military are unfairly targeted by payday loan outfits, who charge outrageous amounts in interest for often paltry sums of money, Sheila Blair, chairman of the Federal Deposit Insurance Corp., says the time is ripe for financial institutions to step in to attract new military customers — some of whom live from one paycheck to another.

“Military personnel and their families are frequently turning to high-cost providers for their financial services needs,” Bair said at an FDIC-sponsored conference to discuss military banking. “The adverse impact on cost of credit on the military should not be underestimated.” The conference was covered by Reuters, among others.

However, banking lobbyists aren?t as keen over this now product proposal. They worry that the law essentially creates another regulator, the Defense Department, which will be required to work with the banking regulatory agencies to implement it by October 2007.

Currently, there?s a new cap on interest rates charged to U.S. military personnel ? also troubling to the banking industry. Many financial institutions are scrambling to lift the cap, and many banking lobbyists ? when not worked up about working with the Defense Department ? worry that a precedent could be set that could spill into financial products outside the military. Heck, why limit low-cost bank loans to military personnel?

That?s a rhetorical question.

A recent Defense Department report showed the number of personnel security clearance withdrawals and rejections within the Navy due to financial problems jumped to 1,999 cases in fiscal 2005 from 212 cases in fiscal 2002.

Bair said banks have the infrastructure and imagination to create affordable lending services, and savings plans to meet the needs of military customers.

“The broader question now is whether the financial services industry and their regulators can effectively encourage the type of products, services and outreach that will liberate these customers to enter the mainstream market,” she said.

Fred Becker, president of the National Association of Federal Credit Unions trade group, praised Bair for discussing the issue and allowing credit unions to “discuss and display to the banking community the programs that many credit unions already have in place to combat predatory lending.”