“Modernizing the Military Lending Act gives service members and their families the financial protections they deserve and ensures that unscrupulous lenders can no longer evade the law”, said Karen Landry, executive director at War on Poverty-Florida, “The final Military Lending Act rule will protect service members from financial abuse and keep safe and sustainable lending available to our men and women in uniform”.
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But in its initial implementation of the law in 2007, DoD narrowly limited the types of credit covered to payday loans, vehicle title loans and refund anticipation loans.
The Defense Department on Tuesday significantly expanded regulations to protect military services members and their families from predatory lenders.
“The Defense Department is closing these loopholes, so we can protect our men and women in uniform from predatory lenders”, he continued. The loans are void if lenders violate the MLA, and bad actors also are subject to civil and criminal penalties.
The new rule also will count charges for extra products, like credit default insurance, in calculating the military annual percentage rate “so lenders can not skirt the rules by imposing extra fees”, said a White House fact sheet on the changes. “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.
For example, on many small, short-term loans, an application fee of $20 to cover processing costs, added to an interest rate of 24.6 percent, would push the effective military April above 36 percent. Debbie Matz, chairman of the board of the National Credit Union Administration, said the annual percentage rate under the Military Lending Act includes fees that are normally exempt from the April charged to those outside the military community. To assist industry in complying with the MLA, the new rule will go into effect October 1, 2015, and have a staggered compliance dates. Additionally, service members will still have access to no-interest loans, grants, and scholarships from the four military relief societies, and not all credit products will be affected by the regulation; notably residential mortgages and purchase-money loans (to buy items like cars) are excluded from the MLA’s definition of “consumer credit”. Since that time, sharks have evaded the rules by simply extending the terms or restructuring the loans – thus allowing them to continue to target service members (something that often impacts their security clearances and even jeopardizes their careers).
In an effort to further protect members of the military and their families from abusive financial practices, Reed recently introduced the Military Consumer Protection Act (S. 1565).
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The department asked the public for their perspective on changing the existing rule in June 2013, and published the proposed rule in the Federal Register for public comment September 29, 2014.
