JACKSONVILLE, Fla. – To protect service members from payday lenders, high-cost installment lenders and other abusive credit providers, the Department of Defense has issued a new rule to update the Military Lending Act -- a 2006 law that capped interest rates and add-on fees to members of the military and their families at 36 percent.
Regulations implementing the law released in 2007 capped rates for just a small number of loan types, such payday loans of 91 days or less and auto title loans of 181 day or less. By extending the term or restructuring the loan, lenders have continued to target service members, impacting their security clearance and jeopardizing their careers.
"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."
Landry partners believe that cracking down on abusive lending will ensure payday lenders and others no longer threaten military readiness with predatory loans.
The final rule will:
Apply market-wide to all high-cost credit products that target service members, including payday, auto title and installment loans designed to evade the 2007 protections;
Recommended Videos
Cap interest and add-on fees at 36 percent for loans issued to service members and their dependents;
Prevent lenders from using junk fees such as credit insurance, debt cancellation or debt suspension to circumvent the 36 percent interest and fee cap.
Preserve service members' access to the courts by prohibiting forced arbitration agreements;
Research by the Department of Defense released last year found that as many as one out of every 10 enlisted service members continued to be targeted by high-cost credit designed to evade the Military Lending Act.
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.