Action in Congress

Oct. 1, 2006

“Hands Off Guard,” Warn Govs

Congress got an earful from state governors of both parties who blasted a House provision in the 2007 defense authorization bill giving the President emergency powers to federalize the National Guard without a governor’s consent.

The National Governors Association, in a letter to the House and Senate Armed Services Committees, urged conferees working on a final compromise defense bill to reject a House provision allowing the President to take control of National Guard in the event of “a serious natural or manmade disaster, accident, or catastrophe that occurs in the United States, its territories and possessions, or Puerto Rico.”

The Aug. 1 letter to committee chairmen and ranking members notes that the House doesn’t define what constitutes a “serious” disaster. The letter also argues that when the issue is one of national security, and state government becomes incapacitated, the President already has authority to take control of a state’s National Guard under the “insurrection act.”

The governors, however, clearly oppose any action by the federal government to pre-empt their authority when natural disasters occur.

“We are responsible for the safety and welfare of our citizens and are in the best position to coordinate all resources to prepare for, respond to, and recover from disasters. When federal aid is needed, it should be coordinated by the governors,” the state leaders advised lawmakers.

The letter said the governors “feel very strongly about protecting [their] constitutional responsibility.” Therefore conferees should “drop this provision” from the bill, the letter urged. No such provision appeared in the Senate version of the bill.

The letter was signed by Arkansas Gov. Mike Huckabee (R), who was then NGA’s chairman; Arizona Gov. Janet Napolitano (D), NGA’s current chairman; and every other US governor. Huckabee told reporters that the House plan “violates 200 years of American history” and continues a pattern by the federal government of trying to turn states into mere satellites controlled by Washington, D.C.

Lending Practices Probed …

In a matter of increasing interest to Capitol Hill, a Pentagon study confirms the growing prevalence of predatory loan practices aimed at service members. The study also endorsed a Senate-passed initiative that would help protect service members from commercial debt traps.

While 11 states have toughened laws against abusive loans, the study found most have done little to discourage payday lenders from exploiting cash-strapped troops with costly loans. The steady incomes of service personnel make them prime targets.

Short-term lenders typically offer loans in return for access to paychecks, car titles, or income tax refunds. The risk of default is low with guaranteed military incomes—but predatory lenders count on service members being unable to easily repay the loans.

In passing its version of the Fiscal 2007 defense authorization bill, the Senate agreed to an amendment from Sen. Jim Talent (R-Mo.) and Sen. Bill Nelson (D-Fla.) to strengthen safeguards against abusive loans for military personnel. The legislation would cap annual interest rates at no more than 36 percent and would require lenders to present service members with a clear explanation of loan rates and terms. (See “Action in Congress: Payday Lenders Under Fire,” September, p. 35.)

A House-Senate conference committee was to decide whether to include the Senate initiative in a final version of the defense bill.

… and Case Study Presented

The DOD study cited the experience of an Air Force E-4 who got a $500 payday loan that she agreed to pay back in two weeks—plus an interest payment of $100. Unfortunately, the senior airman took out another payday loan to cover the first and then took out multiple rollovers on each.

Finally, to pay off the loans, she sought help from an installment loan company. That company loaned her $10,000, at a 50 percent annual interest rate. Her total cost finally to pay off the pair of payday loans was $12,750, and the total obligation on the installment loan was $15,000—all from borrowing an initial $500.

The Pentagon report endorses the 36 percent interest rate cap voted by the Senate as well as a requirement that loan terms be unambiguous.

It also recommends that lenders be prohibited from requiring as part of loan contracts that service members waive their right to take legal action against lenders or to waive any special legal protections otherwise given them by law, and that states be prohibited from allowing lenders to charge nonresident military members higher loan rates than state residents pay.

The report found that the average payday loan to service members was $350. Interest rates ranged from 390 to 780 percent per year.

Service Education Efforts

The services strive to educate their younger members on managing their money and brief them on alternatives to payday loans, including loans available from military relief agencies such as the Air Force Aid Society, Army Emergency Relief, and Navy-Marine Corps Relief Society.

But short-term loan companies are ubiquitous in communities surrounding military bases. The number of payday lenders outside the gate has almost tripled since 1999, from 8,000 to 23,000. They also are increasingly effective at pushing their loan products to service people via the Internet.

Citing the DOD report’s finding that lenders target “service members to make a quick buck at the expense of their livelihood and future,” Talent urged conferees to support the Senate provisions.

“Our military families deserve better,” added Nelson. “This report once again shows us the need to protect our service men and women from unscrupulous lenders.”

The Military Coalition, an umbrella organization for three dozen service organizations including the Air Force Association, joined with consumer groups to draw the attention of conferees to support the initiative.

Working the other side is the Consumer Credit Research Foundation, a lobbying group for the financial services industry including payday lenders. The CCRF released a report in June claiming payday lending problems are exaggerated and that “fewer than 13 percent” of military enlisted members had taken out a payday loan in the last year.

The DOD study cited CCRF’s own findings. CCRF found that 75 percent of non-payday borrowers and 74 percent of payday borrowers felt the government should limit interest rates—even if it means fewer service people will be able to get credit.

Survivor Benefit Plan Pressure

House-Senate conferees shaping a final defense authorization bill are feeling heat from a lot of directions this year, including widows of disabled military retirees and their advocates.

Sen. Chuck Hagel (R-Neb.) and Sen. Bill Nelson (D-Fla.) urged conferees not to compromise away two Senate-passed changes to the military’s Survivor Benefit Plan.

One would end a reduction in benefit plan payments that occurs when survivors of disabled military retirees begin drawing tax-free VA Dependency and Indemnity Compensation.

Another would accelerate the effective date of the SBP paid-up rule by two years (to Oct. 1, 2006) for retirees who are 70 years old and who have been paying premiums for at least 30 years. (See “Action in Congress: Top Conference Items,” August, p. 24.)

The House did not act on these proposals.

Military Coalition Concerns

The Military Coalition, in its own letter to conferees, highlighted several key provisions it wants the lawmakers to embrace. The supported compensation improvements include:

  • A House-backed military pay raise of 2.7 percent, rather than the 2.2 percent raise that is sought by the Administration and endorsed by the Senate.
  • The call by the House to expand the premium-based Tricare Reserve Select program to any drilling reservist.
  • Full concurrent receipt, retroactive to Jan. 1, 2005, for retirees with 20 or more years of service who are rated “unemployable” by Veterans Affairs. This provision was endorsed only in the Senate version of the bill.

Recruiting Violations Increase

A new Government Accountability Office report finds that allegations and service-identified incidents of military recruiter wrongdoing increased from 4,400 cases to 6,600 cases from 2004 to 2005.

Substantiated cases of misconduct rose from just over 400 to almost 630 cases, and criminal violations more than doubled from just over 30 to almost 70 cases.

More worrisome for the Defense Department, the report found, is that the services don’t have procedures in place to monitor recruiting violations effectively.

DOD doesn’t require the services to keep and report data on recruiter irregularities, nor has it set criteria for characterizing irregularities. This makes it difficult to compare and analyze data across services and limits DOD’s ability to judge when corrective action is needed.