Changes to Military Lending Act better protect service members

| August 28, 2015 | 0 Comments


Monica K. Guthrie
Army News Service

FORT SILL, Oklahoma — In July, the Defense Department closed loopholes against financial firms, protecting service members from institutions that have, among other things, charged interest rates in the triple digits.

President Barack Obama announced the changes to the Military Lending Act, or MLA, during the 116th Veterans of Foreign Wars National Convention, July 21, in Pittsburgh.

“In 2006, Congress enacted the Military Lending Act, in an effort to protect active duty service members from predatory lending,” said Capt. Jon Kotilnek, chief of legal assistance at Fort Sill. “The act prohibits lenders from charging more than a 36 percent military annual percentage rate (MAPR), which includes the following costs: interest, fees, credit service charges, credit renewal charges, credit insurance premiums and other fees for credit-related products sold in connection with the loan.

“The MLA requires lenders to disclose, both in writing and orally, the MAPR,” Kotilnek continued. “Furthermore, lenders are prohibited from rolling over loans unless the new loan results in more favorable terms for the service member.”

In the past, the act helped protect service members; however, creditors began finding loopholes to entangle military customers by offering products, such as rolling lines of credit, that didn’t fall under the law, allowing them to charge excessive rates. The new wording protects service members by including charges for “add-on” products, such as credit default insurance and debt suspension plans.

“Payday loan centers are the target of these rules,” Kotilnek said. “One study has shown that payday lenders prey on service members at twice the rate compared to civilian counterparts. This is visible when driving out the gates of any one of our military installations.

“Payday lenders are scattered along the roadside eager to exploit Soldiers who find themselves in a financial dilemma,” Kotilnek added. “The announced rules propose to help reduce the unacceptable strain on military families through high-cost loans. The added rules will enhance overall military readiness by reducing the financial strain on troops and their families.”

The changes result in more institutions now falling under the regulation, and those currently under have additional limitations with the goal to make it harder for them to charge high interest rates.

The act applies the 36-percent rate to payday loans or deposit advance loans that can cost service members and their families thousands of dollars in interest. It also includes other kinds of creditors by changing the definition of “consumer credit” so that other products now fall under the scope of the regulation.

Exceptions apply to loans secured by real estate or a purchase-money loan, including a loan used to purchase a vehicle.

The rule allows financial firms an Oct. 1 deadline to comply, followed by a staggered implementation period. Banks and credit unions have generally been granted an extension until Oct. 3, 2016, to become compliant. Open-ended credit accounts, such as credit cards, are exempt from the rule until Oct. 3, 2017.

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