The Department of Defense moves to further protect members of the military from predatory lending practices

Military Lending Act

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Here at Auto Credit Express we have an intense dislike for the payday lending industry as a whole. Here is just one example of why we feel this way:

The Military Lending Act, passed by Congress in 2006 and implemented in 2007, was designed to protect members of the military by placing an interest rate ceiling of 36 percent on loans of $2,000 or less or on loans with terms of 90 days or less.

The payday lending industry almost immediately responded by offering loans to military personnel in the amount of $2,001 or more and/or with 91 day loan terms, thereby circumventing the intent of the law.

According to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, "As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military. They lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule."

Department of Defense response

Although it took the Department of Defense eight years to study the ramifications of the law, on September 29th of this year, the U.S. DoD issued a proposal that would, according to the CFPB, "amend the definition of 'consumer credit' covered by the regulation" and, as a result, expand the types of loans currently covered by the 36- percent rate cap as well as other protections under the Military Lending Act.

According to the DoD, the proposed changes would have the effect of "closing loopholes that have led to lenders skirting the law with products that fall outside the scope of existing regulations."

Specifically, consumer credit covered under the MLA would be defined consistently with credit that for decades has been subject to the protections under TILA, namely: credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments.

"This proposal would shut down the predatory lending to the military that has flourished through exploiting legal Technicalities" said Cordray. "By broadening the types of credit covered under the law, this proposal would carry out the will of Congress by enabling the CFPB to stop lenders from harming service members in ways the law was intended to stop."

Not all loans will be affected by the new rules, in particular residential mortgages and "purchase-money" loans to buy items like cars.

The Bottom Line

The new definition of consumer credit, as it relates to the Military Lending Act, recently proposed by the Department of Defense could go a long way toward protecting members of the U.S. military from predatory lending practices.

One more thing members of the military should be aware of: Auto Credit Express places borrowers with those car dealers that can offer them their best chances for auto loan approvals. This includes military auto financing for active duty and armed forces reserve so they don't have to seek out payday lenders to afford a vehicle.

So if you're ready to reestablish your car credit, you can start it now by filling out our online auto loan application.