By Debbie Gregory.
The Obama administration and U.S. Department of Defense issued a new rule to clamp down on predatory lenders who take advantage of American servicemen and women
When service members return from active duty, they’re more likely to face severe financial challenges than civilians. That’s why the Obama administration and Department of Defense have updated the Military Lending Act—a law that capped interest rates and add-on fees to members of the military and their families at 36 percent. Unfortunately, the original regulations implementing the law capped rates for just a small number of loan types, such as “payday loans” of 91 days or less and so-called “car title loans” of 181 day or less. Since that time, unethical loan sharks have evaded the rules by extending the terms or restructuring the loans.
The new rule is an important advance to control the widespread abuse in the payday and small loan market. Research by the Department of Defense released last year found that as many as one out of every ten enlisted serviceman and woman continued to be targeted by high-cost credit designed to evade the Military Lending Act.
Unfortunately, service members are almost twice as likely as their civilian counterparts to carry some credit card debt from month-to-month. Furthermore, twice as many service members as civilians have paid less than the minimum required payment in the last 12 months.
The DoD estimates that the final rule will reduce involuntary separation caused by financial hardship, resulting in a savings of $14 million a year or more.
With the winding down of the wars in Iraq and Afghanistan, the U.S. economy, especially the job market, is challenging. The transition to civilian life has been tough for many veterans. But hopefully, with this new ruling, they won’t be starting out civilian life already in debt.
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Protecting Those Who Serve: Military Connection: by Debbie Gregory