Military Lending Act Archives

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

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.