By Debbie Gregory.
It’s often been said, it’s not what you make, it’s what you keep. To that end, last month President Barack Obama announced a significant expansion of regulations that protect U.S. military-service members and their families from predatory lending practices, making it harder for financial firms to charge high interest rates under current laws.
Under the revamped rules, the definition of consumer credit expands to cover all payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, and credit cards extended to service members.
These products will now be subject to the current 36% interest rate cap service members and their families receive under the Military Lending Act (MLA.) That is far lower than the effective rates some paid for short-term, small loans—such as for vehicles or to cover expenses between paychecks—that can cost service members thousands of dollars in interest.
“For too long, predatory loans have trapped some members of our military in an endless cycle of debt, adding financial strains to families that already bear the burden of defending our country,” the White House said in a statement. “By distracting our troops with financial challenges or forcing them to leave military service to pay off debts, these abusive loans negatively impact military readiness.”
Payday lenders prey on service members and their families at twice the rate that they use to target civilians, U.S. officials said.
“If they’re charging outrageous rates, it’s hurting service members and their families, and, by extension, the nation’s defense,” said Holly Petraeus, assistant director of the Consumer Financial Protection Bureau
MLA falls under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the controversial bill passed five years ago, which administration officials said provides Americans with a wide range of consumer protections.
Pentagon officials say they aren’t able to track how many individuals have been affected by payday lenders. Such financial institutions typically target enlisted military personnel, who often require short-term loans for small amounts of money to cover car payments, to obtain advances on tax refunds or other kinds of loans.
According to Pentagon officials, in 2013, 41% of enlisted personnel had obtained some kind of credit. About 11% of enlisted personnel in the active duty military have obtained payday loans, which include vehicle title loans, pawnshop loans and other high-interest loans.
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Financial Regulations Protect Servicemembers: Military Connection: by Debbie Gregory