Credit unions serving military personnel have seen a drop inconsumer loans, which trade groups attribute to regulationsdesigned to protect service members from lending abuses.

CUNA and an allied group, the Defense Credit Union Council, senta seven-page letter to the Defense Department to share data CUNAcollected on possible effects of the Military Lending Act (MLA) oncredit unions. They also repeated their call for the department tomake changes using interim final rules.

However, a law professor and former regulator said the changessought by credit unions involved narrow issues involving small sumsthat could create exceptions that could put service members atgreater risk of being exploited by predatory lenders.

The MLA was passed in 2006 to protect service members frompayday loans and other predatory practices that created financialcrises for military personnel, sapping morale and consuming timefor service members, sometimes while on combat tours in Iraq andAfghanistan.

The final regulations were announced in July 2015,and began going into effect last year. Meanwhile, CUNA and othertrade groups have continued to seek clarification and changes for certainprovisions they argue interfere with offering loans that benefitservice members.

In February, CUNA told the Defense Department that it wouldcollect data that “would demonstrate the adverse impact the MLAregulation is having on some credit unions' ability to lend toservice members and their families.”

CUNA's economics department combed NCUA call reports andsurveyed 3,500 members online. Among the 615 responding creditunions, the survey found:

• 58% of respondents said the MLA is burdensome, with 15% sayingit was “very difficult” and 43% saying it was “somewhat difficult”to comply with.
• 59% need more clarity, with 27% “strongly” agreeing MLAguidance is unclear and 32% “moderately” agreeing.
• 11% have eliminated and 5% reduced share-secured loans becauseof the burden of MLA restrictions on the level of funds that can becounted as collateral.
• 2% have discontinued indirect car lending programs because ofconcerns about MLA definitions that conceivably could leave creditunions with worthless loans if consumer disclosures weren'tproperly made by the dealer originating the loan.
• 5% said they had at least one other product they eliminatedbecause of MLA concerns. These included unsecured lines of credit,overdraft lines of credit, payday alternative loans and creditcards.

Based on NCUA call reports, CUNA found that credit unions withmilitary fields of memberships experienced an unexpected decline inthe number of unsecured personal loans per member from 2015 to2016. The number of loans per member had been rising steadily froma low of 12.0% in 2011 to 14.5% in 2015.

“Based on this trend and with continued improvement in economicconditions, we would have expected the demand for loans to continueto rise. We estimated the ratio would continue to rise to 15.2% for2016, yet the ratio decreased to 13.7%,” the May 11 lettersaid.

“Even more significant, while only 47% of non-military creditunions experienced decreases in their portfolios for PALs (PaydayAlternative Loans) between fourth quarter 2015 and fourth quarter2016, 86% of military credit unions experienced decreases in theirportfolios for PALs during this same time-period,” it said.

Among all U.S. credit unions, PALs rose 9.5% to $129.5 millionin 2016, accounting for 0.01% of the $847 billion in total loansoutstanding Dec. 31, according to NCUA. By contrast, about $50billion in payday loans were made in 2014.

Christopher L. Peterson, who had a hand in drafting theregulations, said the criticisms from credit unions involve tinyamounts of loans, but the changes they seek can create risks toservice members by creating loopholes companies offering payday,title and other predatory loans have proven adept atexploiting.

Peterson researched the impact of payday lending on servicemembers in the years preceding the MLA's passage, and went to workfor the Consumer Financial Protection Bureau after its creation in2011. He has recently returned to full-time teaching at theUniversity of Utah.

Peterson said while the regulations might create someinconveniences for some credit unions, those inconveniences arewell worth the protection they give service members. “My hope isthat credit unions will be patient.”