In 2006, Congress passed the Military Lending Act, which was designed to prevent predatory lenders from targeting men and women in uniform. But a new report from ProPublica and Marketplace entitled Beyond Payday Loans suggests aggressive lenders have merely shifted tactics and are still very actively going after military personnel.
Rather than a loophole, installment loan companies and so-called payday lenders have found huge gaps in the Military Lending Act, says Paul Kiel, a ProPublica reporter and co-author of the series. “We found in states that allow these types of products the [legislation] defined what it targeted pretty narrowly.”
As Marketplace reports: The Military Lending Act set a national interest rate cap of 36 percent APR (annual percentage rate) for loans to military members and their families (excluding mortgages and auto finance loans).
The Act covered three specific types of loans: payday loans (short-term, due in one lump sum after a borrower’s payroll check clears); car-title loans; and tax refund anticipation loans. Further, the loan-terms covered were restricted: 91 days or less for a payday loan, 181 days or less for a car-title loan.
As a result, lenders are offerings payday loans, which typically have annual percentage rates over 400%, with a duration of five months instead of three. Same is true of auto-title loans, which are secured by the vehicle’s tile and typically have rates above 100%.
In their reporting, ProPublica and Marketplace cited examples such as a soldier based in South Carolina who borrowed $1600 and ended up paying $15,000 in interest over 32 months, and another in Texas who paid 600% in annual interest for a $400 loan.
As Kiel explains in the accompanying video, military personnel are particularly vulnerable to these legal loan sharks because “desperate people are willing to accept any terms to get the money.”
That desperation is fed, in part, because there are “repercussions for soldiers who fall into debt,” including the loss of security clearance, he says. Fear of such reprisals inhibits soldiers from taking advantage of government-sponsored aid agencies that are on the base and offer loans at far better terms, including 0%.
Soldiers "have a motivation to take care of [money needs] quickly, quietly and discretely; obviously, that’s not what ends up happening,” Kiel continues.
Indeed, as Marketplace quotes Army Captain Brandon Archuleta: “On a good day I would be notified by the soldier that a payday lender was looking for them because they are in default. On a bad day, it would be almost like an ambush. A phone call looking for such-and-such soldier. They were relentless.”
Looking forward, Kiel notes Congress has tasked the Defense Department to study the issue and a report is due by year-end. The likelihood is “there might be rules issues to case a wider net” and better prevent predatory lenders from targeting those who provide them the blanket of freedom under which they operate.
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