More Protection for the Military

How Expansion of the Military Lending Act Can Help You

More Protection for the Military
May 27, 2016

If you are one of the brave men and women serving our country in uniform, you face enough dangers. You do not need anyone attempting to take financial advantage of you by capitalizing on the unique challenges of military life.

Unfortunately, you can find many payday loan lenders and other purveyors of short-term, high-interest loans near any military base. Bases are full of young service members with a regular and reliable paycheck — fertile ground for lending groups. According to The Wall Street Journal, payday loan organizations target families with service members at twice the rate at which they target civilian families.

The Military Lending Act of 2006 was designed to prevent lenders from taking advantage of military families by capping the effective interest rate at 36%. However, only three credit products were covered: closed-end payday loans for $2,000 or less and with terms of no more than 91 days, closed-end auto title loans with terms of no more than 181 days, and closed-end tax advance loans against a refund.

Lenders quickly found ways around the law by offering products just beyond the coverage terms, or offering open-ended loans (lines of credit) that were not addressed at all in the original legislation. Their efforts paid off, literally. During the 2012 fiscal year, defense officials reported 1.8 million financial counseling sessions with service members and around 162,000 extended counseling sessions.

Enforcement of the Lending Legislation

The law was amended in 2013 to give the Consumer Financial Protection Bureau (CFPB) the authority to enforce the Military Lending Act. In December 2014, the CFPB produced a report outlining some of the egregious credit terms that military families were facing along with an empirical analysis of these loans (Deposit Advance Products, or DAP in CFPB parlance). Based on the report data, CFPB estimated that over the twelve-month evaluation period, service members took out over $50 million in DAP, totaling an approximate $5 million in fees. Millions of dollars in DAP were procured at annual percentage rates (APRs) greater than 300%.

Expansion of the Act

President Obama announced in 2014 that the Military Lending Act is being expanded to cover a wider range of products and close the omissions that allow lenders to prey on service members. The previous limitations have been abolished and open-ended loans/lines of credit are now included. (The remaining exclusions are loans secured by real estate and certain purchase-money loans such as auto financing.) Creditors are also banned from requiring service members to submit to an arbitration proceeding to settle disputes.

High-Interest Loans Should Still Be Avoided

High-interest payday and advance loans should be the very last resort — there is almost always a better option available. For each branch of the armed forces, including the Coast Guard, there is a non-profit charitable organization, such as the Navy-Marine Corps Relief Society, that can help with urgent financial needs and free financial counseling. In addition, small, interest-free loans (generally $500 or less) may be available without strings attached. Before looking outside for assistance, look within the service family for advice and potential loans.

Even if the new Military Lending Act limits close all the loopholes, lenders will still be offering loans at 36% interest, which is very steep for anyone – especially low-paid junior service members. There is also no guarantee that a clever lender will not find some new loophole.

It is good to see the protections of the Military Lending Act expanded, but ultimately, the best form of protection is self-protection. Learn to live within your means and get into the habit of saving for larger purchases. Establish a rainy-day fund for emergencies. With good saving and spending habits, it will not matter what payday loan vendors are offering — you won't be interested.


Photo ©iStock.com/DanielBendjy

  Conversation   |   33 Comments

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Angie | 08.12.15 @ 04:21
It's a shame that these institutions would prey upon our military personnel in this way, made even more shameless because of knowing how many are young and inexperienced in the area of handling finances. I'm glad the Military Lending Act has been put into place, but maybe the military could also stress the advice in the last paragraph to their new recruits as part of their program as well...
Meredith | 08.12.15 @ 04:28
Having grown up in a military family I can tell you that when it comes to financials, many of the young service men and women don't have a clue. So many join as a way of becoming independent but remember they are, for the most part, only 18 or 19 years old. They're not looking at the big picture and how 36% interest takes a lifetime to pay down if they're only paying the minimum. They need to be educated and those interest rates are legal robbery. Something more must be done to protect all consumers.
Sarah | 08.12.15 @ 12:19
Honestly, I think if schools taught more on life lessons instead of worrying about test scores, these kinds of things wouldn't be such an issue anymore. The men and women who join the military may be prey for the financial institutions but it was their parents and teachers who led them to the woods and left them there to be hunted without the means to fight for themselves financially. It's good to see that there are things in place to protect them but very sad that it is even needed.
Martin | 08.12.15 @ 17:47
I was in the military and this is certainly a problem. Young people without a lot of financial knowledge (often from lower-class backgrounds) but with a steady paycheck, even if it's small, are great targets for shifty lenders. These folks should be protected to some degree but at some point we all need to be responsible for our own financial situations.
Crystal | 08.12.15 @ 19:54
There should be swift and harsh punishment for those who have preyed on our service men and women. This is an important act and I'm glad to see it in place. I know that finances and budgeting should be taught in school, but even then some need more hands on teaching - including many young men and women who enlist and immediately begin serving their country.
Apryl | 08.13.15 @ 00:03
Anyone that would prey on the men and women serving in our armed forces just to make a quick buck should go to prison...it should be criminal.
Sara | 08.13.15 @ 20:42
Honestly with us being a military family I know how hard loans are. To be honest I am glad this act has been put into place since so many military personnel are not the brightest when it comes to finances.
Kamie | 08.13.15 @ 21:04
I have a lot of friends who are military families, and sadly most of them joined as soon as they turned 18, and one thing that schools do lack on is extending the teaching of finances. The military reps promise the kids everything, but how to teach them about managing money, or about the consequences of what pay day loans are. When these lenders come out of the wood work they make that loan for a new house for the new family you now have look like a dream come true. Then before they know it they are losing everything, I am glad this Act is now there.
Daniel Dohlstrom | 08.13.15 @ 21:51
There really is no reason our service men and women should need to worry about things like this. We need to ensure institutions take pride in helping not abusing what they can do for them.
Steffanie | 08.13.15 @ 23:41
I have the utmost respect for those who have chosen to serve our country and it turns my stomach to think of someone or some institution preying on them. I am thankful the government has tried to protect them, but I also think they, like all of us, need to learn to live within their means.
Heather | 08.14.15 @ 02:57
It's so sad that people take advantage of the men and women who serve and protect our country. They should given more respect.
Kaila | 08.14.15 @ 03:00
As a military brat, and the sister to an amazing guy in the Air Force, it makes me so sad to see military families struggle so much. So many people just don't understand that our Military does not make much money, when we were young my dad had to work his Air Force job in the morning, and at Pizza Hut at night just to support us. If you ask me financial institutions should be helping military not making them struggle more!
Casey | 08.14.15 @ 12:21
I believe that lessons needed in real life should be taught in schools, right along with the things we never use but are taught.
Ron | 08.14.15 @ 15:19
The economic standing of military service members is a bizarre one. Many military families are on food stamps and have trouble getting by. The young military members (boots) live hard and fast on leave like most of the peers. Why should this be a thing? Then at another line of reason, balancing a checkbook and everyday budgeting should be part of a cirriculum at all grade levels starting sixth grade. Make it so in boot camp as well.
Nancy | 08.14.15 @ 15:41
It is great that they are tightening the laws. But, let's try to prevent the problem by educating our young people before they get ripped off. We need to start in schools and the military needs to continue that education. Show the service men and women what 36% will cost them. And teach them how to protect themselves.
Beverly | 08.14.15 @ 16:11
Unfortunately we will always have predatory lenders as people are always looking for the easiest way to make a buck. I was married to a Marine and know first hand how easy it is to let your debt get out of hand. The best key to fight these types of lenders is education. Most young people join the military young with little to no experience in handling money and predatory lenders take advantage of this. The military is the one group of people we should be looking out for and there should be programs set up to help educate and help them.
Britt | 08.14.15 @ 16:17
As someone who has quite a few military friends and is currently dating someone who is a veteran, I am appalled at the way that many of our soldiers and ex-soldiers are treated. They need more support for the sacrifices they have made for us.
Elaine | 08.14.15 @ 16:19
I agree with the beginning of the last paragraph, "it is good to see the protection of the Military Lending Act...but the best form of protection is self-protection." It is sad but you have to look out for yourself nowadays. Many are just waiting to prey on individuals, even our military who serve our country so well.
Carla Truett | 08.14.15 @ 17:17
How sad is it that there are people that prey on our military folks and our elderly.We need stricter laws for this!
Irene | 08.14.15 @ 17:35
It is shameful the way some lenders try to take advantage with crazy high interest rates where they purposely set you up for failure and due dates that come right before your pay date.
Zanna | 08.14.15 @ 17:44
Considering the impact that deployment, frequent moves, and low pay already have on our service men & women, it's terrible to allow these types of abuses to continue. We need to do a better job of supporting the military families and providing sound financial advice and services.
Elaine | 08.14.15 @ 18:44
I think it is great that there is an organization that will help our military with all their financial needs and concerns. Hopefully with this organization and better education during their school years will make them less of a prey.
Erin | 08.14.15 @ 19:26
It's unbelievable that there are some lenders that would take advantage of service members by finding any kind of loophole they can. Learning to live within your means is great advice for anyone, not just those in the military. The last paragraph is full of useful, common sense information.
Carla Truett | 05.27.16 @ 21:04
I am appalled that anyone would dare take advantage of our service members. I'm glad there is someone out there at least trying to help.
Steffanie | 05.27.16 @ 21:07
I cannot even fathom doing this to our military. Shameful.
Nancy | 05.27.16 @ 21:09
This is good to hear. Too often in the past our service members have been forced to go to non reputable Financial businesses in order to provide for their families.
trish | 05.27.16 @ 21:11
This makes me so angry that there are companies out there that do this to those that are fighting for their freedom to be here. I am happy to hear that they have found a way to protect those that protect our country.
Erin | 05.27.16 @ 21:13
I'm glad they are continuing to put protections in place for our military members. They shouldn't be taken advantage of just because they are away serving our country.
Selena Walls | 05.27.16 @ 21:17
It's terrible to think that anyone would take advantage of these young people.
Heather | 05.27.16 @ 21:22
It's good that there is this act to help our military families but I don't think it's enough. Individuals need to be aware of what they are signing up for. Always read the fine print.
Alec | 05.27.16 @ 21:25
My husband was in the Marines and he told me horror stories about the younger men taking out loans for sports cars and things. Thankfully he avoided them while he was in. I'm glad that these places aren't able to take as much advantage of the young men anymore. They get into debt quick enough without taking out loans with his interest rates!
Stokes | 05.27.16 @ 21:27
I've always found it disgusting that there are so many businesses that prey on active service members and veterans. I'm glad they're getting more protection.
Jonathan | 05.27.16 @ 21:29
It's awesome they would do this. I have family all over the military, I'll have to share this with them.
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