Loopholes closed in Military Lending Act
by Carol Thompson
President Obama recently announced that the Department of Defense (DOD) is finalizing updated Military Lending Act rules that close harmful loopholes to better protect our troops and their families from financial abuse. 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. 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, according to a White House press release.
The Military Lending Act, adopted in 2006, was designed to protect service members and their families from predatory loans; however, many lenders have ignored the law and rabidly pursue those behind in their debt. Because military personnel can lose their security clearance for bad debt, they often go to lenders who offer high interest rates, sometimes as high as 300-400 percent. Then, it becomes nearly impossible to make the monthly payments on military pay.
Some lending institutions bypassed the Military Lending Act by enforcing arbitration clauses. Arbitration is reportedly now banned as well under the new rules.
“With this action, the department takes an important stand against companies that can prey on our men and women in uniform. This new rule addresses a range of credit products that previously escaped the scope of the regulation, compromising the financial readiness of our troops. Today, with our regulatory and enforcement partners, we stand united in support of our service members and their families,” said Deputy Secretary of Defense Bob Work in a press release issued by the Department of Defense.
The rule applies the protections of the Military Lending Act to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards. The implementing regulation provides several significant protections extended to active duty service members and their families, including:
*A 36 percent Annual Percentage Rate limit. This cap, which is referred to as the Military Annual Percentage Rate or MAPR, covers all interest and fees associated with the loan. This limit now includes charges for most ancillary “add-on” products such as credit default insurance and debt suspension plans.
*The MLA prohibits creditors from requiring service members to: submit to mandatory arbitration and onerous legal notice requirements; waive their rights under the service members’ Civil Relief Act; provide a payroll allotment as a condition of obtaining credit (other than from relief societies); be able to refinance a payday loan; or be able to secure credit using a post-dated check, access to a bank account (other than at an interest rate of less than 36 percent MAPR), or a car title (other than with a bank, savings association or credit union).
*The changes to definitions of credit in the final rule bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.
The changes to definitions of credit in the final rule bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.
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