The Department of Defense is, for better or worse, not at all dependent on donations from credit card companies to keep their doors open, so they can go ahead and say whatever they feel like about the matter. How do they define predatory lending (PL) in their report? (Their report doesn't touch on mortgages.) PL seeks out young and inexperienced borrowers with bank accounts and steady jobs who have flawed credit; they make loans "based on access to assets (through checks, bank accounts, car titles, tax refunds, etc.) and guaranteed continued income, but not on the ability of the borrower to repay the loan without experiencing further financial problems." So the first isn't bad; it's what we expect from anyone who is going to be lending to distressed consumers. The second is more worrisome. How much worse does it get?
"Predatory products feature high fees/interest rates, with some requiring balloon payments, while others pack excessive charges into the product. The result of their efforts is to obfuscate the comparative cost of their product with other options available to the borrower." This is where reforms like the vanilla product option would have done a lot of good; high fees and balloons are considered bad, but why? Because, by increasing confusion about the actual price of a commodity, they keep the price mechanism from doing its job. One does not have to be a major Hayekian to think that not being able to use prices as a feedback mechanism to firms, by forcing them to compete on a clearly identifiable price, doesn't allow the market mechanism to do its job.
And lastly: "Most of the predatory business models take advantage of borrowers' inability to pay the due loan in full and encourage extensions through refinancing and loan flipping. These refinances often include additional high fees and little or no payment of principal." This is the subprime model of course; 80% of subprime loans were refinanced within 30 months, collecting a nice prepayment penalty (usually denoted in terms of months of interest, to make it harder for consumers to think in terms of the mortgage itself.)
So what is to be done? The DoD, after instituting a wide range of financial education programs, concluded:
Although the Department of Defense provides extensive financial training, a significant number of Service members ... still fall victim to easy credit widely available around bases or online. Education does not trump the marketing of these loans and the easy availability of quick cash with few questions asked... Additional educational efforts to curb the use of potentially harmful short-term lending products can only go so far. As with many other forms of abusive practices, some limits are also needed in the supply of these services.
Education helps, but there are some things that should be off-limits. So what do they propose in terms of additional limits? They requested, among other items: