Like any other people, military families with a cash crises often look toward short-term, high-cost solutions such as payday loans, vehicle title loans, and refund anticipation loans. These types of loans can be the start of a downward cycle of debt, and it is better to stay away from them whenever possible. After years of truly predatory loans, Congress enacted the Military Lending Act of 2006 . This Act contains a variety of protections to keep military families from being harmed by bad loans.
Who is Covered By The Act?
Active-duty servicemembers, National Guard or reservists on active orders for 30 days or longer, and their dependent family members.
What Sort of Loans Are Covered By The Act
The three specific loan types that are covered are payday loans, vehicle title loans, and refund anticipation loans. They are more specifically defined by the Consumer Federation of America thusly:
- At stores or made via the Internet or telephone/fax
- Loans up to $2,000 (one or more loans)
- Closed-end (single advance of credit over fixed term)
- Term of 91 days or less
- Based on check held for future deposit or electronic access to account for future payment
Vehicle Title Loans
- Term of 181 days or less
- Secured by title to a registered motor vehicle owned by a covered borrower (except to buy the car)
Tax Refund Anticipation Loans
- Closed-end credit
- Tax refund goes to creditor to repay loan
Many types of loan products are NOT included in this act. These include regular installment loans, credit card accounts, rent-to-own contracts, mortgages, vehicle purchase financing, and lines of credit.
Be aware that predatory lenders have created new products specifically designed to avoid the restrictions of the Military Lending Act of 2006.
What Protections Are Included In The Act?
The Act contains the following key provisions:
- Interest and required fees and costs may not exceed an annual percentage interest rate of 36%. This specifically does not include late or default fees, which are permitted and may bring the total loan cost above 36%.
- Loans may not require a customer’s check, debit authorization, allotment order, or vehicle title.
- Loans must not have a pre-payment penalty.
- Lenders may not roll-over, renew, refinance, or consolidate any loan unless it improves the loan terms.
- Lenders must clearly disclose the terms of the loan, the truth-in-lending disclosures, and the repayment obligations both verbally and in writing.
- Borrowers may not be permitted to waive any of their legal rights.
If you believe a lender has violated the terms of this Act, check with your installation’s legal office for advice on how to pursue a remedy. Options include notifying the state credit regulator (www.paydayloaninfo.org/state-information), filing a complaint with the Consumer Financial Protection Bureau (www.consumerfinance.gov/complaint/), file a complaint with the Federal Trade Commission Military Sentinel (www.ftc.gov/sentinel/military/index.shtml), or seek help from a private attorney.
If you need financial assistance, the military relief societies provide financial counseling and interest-free, short-term loans. Please utilize these resources before using commercial lenders who may be more interested in earning money than taking care of their customers.
As you can see, this Act contains many protections for military families. It is good to be aware of them. Even if you don’t need this information yourself, this information may help a friend. Also, keep your eyes and ears open. There has been discussion of extending or modifying some parts of the Act to further protect military families.