Military drafts anti-predatory lending rules WASHINGTON (Reuters) – The U.S. Defense Department will propose curbing lending practices it considers predatory, such as payday loans, car title lending and tax refund anticipation loans, to military service members and their families, a draft of the proposal showed.

“A major concern of the department has been the debt trap some forms of credit can present for service members and their families already burdened with debt and recurring bills,” the Pentagon said in its proposal. There would be a 60-day public comment period on the Pentagon proposal, according to the draft, a copy of which was obtained by Reuters on Monday. So-called closed-end loans would be subject to a 36 percent cap on interest rates and fees under the proposal. Credit cards, home mortgages, lines of credit, loans to buy cars, and other services would not be affected. The draft proposal is not as broadly written as some in the financial services industry thought it might be. “They are looking for a way to protect the men and women in uniform from payday lenders and at the same time ensure that they have access to financial services,” said Fred Becker, president of the National Association of Federal Credit Unions (NAFCU). Virtually every man and woman in uniform has access to a credit union, Becker said. “It remains a work in progress,” he said, noting that NAFCU and other financial services groups would have more to say once they read the entire proposal. Last year, Congress passed a law as part of the Defense Department’s reauthorization bill mandating the Pentagon to work with federal regulatory agencies to draft anti-predatory lending rules and implement them by October 2007. The Pentagon had urged Congress to set the interest-rate cap at no higher than 36 percent based on concern that service members were falling deeper into debt. Being deeply in debt distracts troops and hurts their ability to focus on military missions, according to the Pentagon. U.S. financial regulators have said the number of denials of security clearances to military members due to financial problems has soared over the last several years. “Overall, it is fairly thoughtful and balanced,” said Nessa Feddis, senior counsel for federal regulations and laws at the American Bankers Association. Sources who have seen the draft said they expected the proposed rules to be published on Wednesday in the U.S. Federal Register.