The Military Lending Act of 2006 was intended to cap loan interest rates for service members at 36%. But based on a recent survey, 11% of enlisted troops have used payday loans, bank deposit advances, vehicle title loans, pawn shops and installment loans, where interest rates exceed 36%.
In accordance with a Defense Department report recently submitted to Congress, officials need to do more to re-direct troops away from predatory lenders, and their high-cost credit alternatives. To that end, defense officials are developing more thorough rules to enhance protections for troops.
If troops were blocked from using such high-cost loans, they might seek out lower-cost options that they otherwise might not have looked at. Loans from military banks, military relief societies and credit unions would present better options for those who serve. Additionally, financial counseling would be of great benefit. Even so, most of the enlisted service members who replied to the survey said they would be uncomfortable accepting help from a service’s relief society, and half of them were concerned that their commander would find out.
Under the Military Lending Act, lenders of certain forms of consumer credit cannot charge military borrowers an annual percentage rate of more than 36%. But Congress gave the DoD extensive authority to determine the various types of loans covered under the law. The DoD’s 2007 regulations address car loans, traditional payday loans and refund anticipation loans. The report notes that some lenders have transformed their products in such a way that they skirt the DoD’s limited regulations, and continue charging high-interest rates to troops.
Recently, Congress directed the DoD to survey troops, financial counselors and legal assistance attorneys to decide if additional protections are required for military borrowers.
Most service members who replied to the survey have accessibility to secure, low-cost credit, have very few problems with finances, and report minimal use of high-cost credit. However, for those who have used the high-cost loans, the affects can be financially catastrophic. Of the 11% of enlisted troops who used high-cost loans, four out of five encountered at least one financial difficulty within the past 12 months.
Consumer advocates have long pushed the DoD to close the gap that lenders search out for ways around the 36% rate cap. It is morally abhorrent to fleece those who put their lives at risk to protect the freedom of their fellow Americans.