Military gets thicker armor against predatory loans
Congress approves revision to Military Lending Act
See later story: Military Lending Act protections for credit cards take effect
Financial protections for military service members are getting tougher with changes in the Military Lending Act, which protects active duty soldiers from high-rate loans.
The new protections are part of the defense authorization bill that passed Congress in mid-December and was sent to the White House on Dec. 30, 2012. It sets out new enforcement powers and calls for a study that could lead to expanding the law's protections. President Obama signed the act on Jan. 2, 2013.
"There was a huge, gaping enforcement hole," said Rebecca Borne, senior policy counsel with the Center for Responsible Lending. Previously, "there's been no enforcement at the federal level."
The amendment passed by Congress makes the Consumer Financial Protection Bureau and the Federal Trade Commission responsible for federal enforcement. It also sets a minimum civil penalty of $500 per violation when cases are brought to court, plus court costs, attorney fees and potential punitive damages.
First passed in 2006, the Military Lending Act protects active-duty service members from high rates on payday loans, car title loans and refund anticipation loans. It caps loan rates at 36 percent, including fees for insurance and other charges. It also prohibits "rollovers," or refinances by the same creditor.
Not covered are rates on open-ended loans such as credit card debt and overdraft loans. Existing credit card debt is capped for active service members under a different measure, the Servicemembers Civil Relief Act. That measure puts a 6 percent cap on debt that was taken on before going on active duty.
Currently, several banks make loans that are similar to payday loans, but are exempt from the Military Lending Act's interest rate ceiling, Borne said. A study called for in the measure, to be completed within a year by the Pentagon, should examine whether the bank loans are a loophole that should be closed, she said.
See related: Military takes on predatory loans
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