Payday lenders have been around for years. And during this time they have notoriously taken advantage of unsuspecting military families by offering high-fee, high-interest payday cash loans. Once hooked, these families wind up in a never-ending downward spiral of debt. That is why lawmakers stepped in with the Military Lending Act.
Military Lending Act (MLA)
Part of the 2007 National Defense Authorization Act that went into effect October 1, 2007, the MLA was enacted in an effort to protect military consumers from predatory lenders. It places certain limitations and requirements on loans to members of the military and their families.
Created to end what many felt was the blatant targeting of service members, it is intended to put an end to debt issues which threaten the security clearances of military personnel. According to Consumer Affairs, the Pentagon documented the devastating impact predatory lending had on troop morale and combat readiness.
Three Areas Targeted by MLA
The Department of Defense (DoD) regulation focuses on the major problem areas which include payday cash loans, vehicle title loans and tax refund anticipation loans. Each of theses targeted areas are defined under the DoD rule.
A payday cash loan is defined as a loan that:
- has a term of 91 days or less
- does not exceed $2,000
- requires the borrower to provide a check or other payment instrument or debit authorization which the creditor agrees to hold
Vehicle title loans are defined as loans that:
- have a term of 181 days or less
- are secured by a motor vehicle registered for use on roadways
- allows the lender to retain title to the vehicle until the loan is repaid
Tax refund anticipation loans are defined as loans that:
- grants the creditor the right to receive all or part of the borrowers income tax refund as repayment of the loan
All three loan types are defined as closed-end credit transactions or credit that is repaid in full, including any interest and finance charges, by a specified future date. In addition, the Military Annual Percentage Rate (MAPR) cannot exceed a rate of 36 percent. This includes interest, fees, credit service, renewal charges, credit insurance premiums and other fees for other products that might be sold in connection with the loan. This law exempts only residential mortgages and loans to purchase personal property.
What Military Personnel Can Do
If you are in the military and find yourself in a financial crunch, you do have options. Here is what the DoD suggests all service members should do.
- Have an emergency fund with at least $500 in savings.
- Seek out military aid societies which provide grants and no-interest loans to service members in need.
- Look for a small, low interest loan from a Federal Direct Insurance Corporation (FDIC) insured institution. Currently, there are financial institutions on about 51 installations providing these types of loans.
Keep in mind any loan made in violation of this law is automatically “null and void.” The Military Lending Act is not enforceable outside the U.S.
Contact Us Today and see if our service can work for you to save you money in getting out of the payday loan trap.
