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Yashewski Comments to Department of Defense on Proposal Affecting Service Members and Dependents
Friday, January 2, 2015 6:55 AM

On Dec. 26, Cornerstone SVP Regulatory and Compliance Counsel Suzanne Yashewski sent a letter to the Department of Defense (DoD) regarding its proposal to amend the rules on Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, which implement the Military Lending Act (MLA).

In her letter, Yashewski expresses Cornerstone's support of the existing DoD rule governing consumer credit to servicemembers, but opposes changes to it and requests a credit union exemption.

"Although well intentioned," Yashewski said, "we believe the proposed changes to the rule will have several unintended consequences which may inhibit credit unions from continuing to provide high-quality, reasonably priced financial services to our military members. Therefore, we respectfully request that you exempt credit unions from the proposed changes to the rule."

Yashewski cited the existing highly regulated and over-burdened credit union industry, which is particularly hard on small credit unions.

Yashewski suggested that the DoD's well-founded concern regarding abusive practices by predatory lenders instead be focused on regulatory changes for problem entities and programs. She requested exempting such programs as the credit union payday alternative loan (PAL), which is currently permitted under the rules adopted by the National Credit Union Administration and state credit union commissions.

"If the DoD proposal passed as drafted," Yashewski explained, "credit unions would no longer be able to offer these much needed services to military members. Under NCUA's rule, federal credit union PALs are subject to an interest rate cap that is currently 28 percent, which is a special exception to the general interest rate cap."

Yashewski wrote that credit union PALs provide an NCUA-regulated quality short-term, small-dollar loan product that service members and their families have come to expect and rely on, and thus should be exempt from the proposed rule.

The letter also requested, if the DoD does not exempt credit unions, that the DoD refrain from making changes to the process by which creditors determine whether a consumer is a "covered borrower" using the Defense Manpower Data Center (DMDC) database.

Currently, a consumer must provide the creditor an identification statement advising that he or she is a "covered borrower." However, under the proposal, the burden for determining "covered borrower" status would shift from the consumer to the creditor.

Yashewski pointed out the creditor's exposure to potential liability, which could jeopardize or reduce the availability of credit to servicemembers; and she urged the DoD to utilize a self-disclosure process to provide a safe harbor for creditors under which the consumer would be responsible for informing the creditor of his or her "covered borrower" status.

Read this and other Cornerstone comment letters.

If you have questions about this comment letter, please contact Suzanne Yashewski at (512) 853-8516 or