Pentagon Weighs In on Consumer Protections

BY Carolyn O'Hara  March 9, 2010 at 4:09 PM EST

The Pentagon has thrown its hat into the ring over a new consumer protection agency. Politico reports Tuesday that military leaders want a consumer watchdog to oversee auto dealers and prevent them from making predatory sales to servicemembers.

The New York Times also reported last week that the Defense Department signaled its support for consumer protection proposals. The story said Treasury had found an “unexpected ally” in the push as evidenced by a letter from Clifford Stanley, under secretary for personnel and readiness, to Michael Barr, the assistant Treasury secretary for financial institutions.

The Defense Department would “welcome and encourage” protections for “service members and their families with regard to unscrupulous automobile sales and financing practices,” the under secretary for personnel and readiness, Clifford L. Stanley, wrote in a letter to Mr. Barr on Feb. 26.

Military clients have been victims of ” ‘bait-and-switch’ financing, falsification of loan applications or other documents, failure to pay off liens on trade-in vehicles, ‘packing’ loans with items whose price tag bears little or no relationship to their actual cost or value, and discriminatory lending,” among other schemes, Mr. Stanley said.

The questions of how to tackle consumer protection – Should there be a new independent agency? What powers should it have? Should it exist under another regulator like the Fed? Will it actually have teeth? — are the major stumbling blocks as the Senate Banking Committee prepares to unveil its financial reform package, perhaps later this week.

This is hardly the first time the military has concerned itself with consumer protections.

Since 1994, the military has required personnel to receive financial literacy training. At first, it seemed that required education had little effect: A 2005 report by consumer advocacy group Center for Responsible Lending found that 1in 5 active-duty military personnel had been payday borrowers in the past year and that “predatory payday lending costs military families over $80 million in abusive fees every year.”

As a result, military leaders, seeing that the number one reason holding back service members from getting security clearances was debt, were key in pushing Congress to pass the Military Lending Act in 2007, which took aim at the proliferation of payday lenders around military bases and capped interest rates on loans made to service members at 36 percent.

Frontline and the NewsHour produced a joint report last November on the military’s motives behind that effort and the effect it has had since on service members’ debt. As Lowell Bergman reports, military financial counselors say that the payday loan problem is under now control, and that the required education programs are slowly changing the culture of debt in the armed forces.

That record has left some commentators wondering: If those financial protections are good enough for the military, why aren’t they good enough for the rest of America?

MARTIN EAKES, Center for Responsible Lending: If it’s right to protect our military service members, why is it not also right to protect our teachers, our policemen, our firemen, our other first-responders, and really the other citizens of America?

CAPTAIN MARK PATTON, U.S. Navy: It’s not the military’s position to say what is right for the American public. However, I was surprised to find out that the police departments in San Diego, as well as the city administration, both contacted me and were very interested in what we were doing to protect our sailors, because they had the same issues.

You can watch the full report below: