The Consumer Financial Protection Bureau (CFPB) has issued a report highlighting how loopholes in the Military Lending Act are racking up costs for service members.
These gaps, according to the report, have allowed companies to offer high-cost loans to military families by skirting the 36% rate cap and other military-specific credit protections.
The CFPB included these findings in a comment filed in support of the Department of Defense’s proposal to broaden the scope of the Military Lending Act rules to cover deposit advance products, and more types of payday, auto title and installment loans.
“The current rules under the Military Lending Act are akin to sending a soldier into battle with a flak jacket but no helmet. To give our troops full-cover protection, the rules need to be expanded,” said CFPB Director Richard Cordray. “The Department of Defense’s proposed revisions will go a long way toward better shielding our military from high-cost credit products.”
In 2006, Congress passed the Military Lending Act to protect active-duty military personnel, active National Guard or Reserve personnel, and their dependents from predatory lending practices. In 2013, Congress amended the law by, among other things, giving the CFPB specific authority to enforce it.
The current Military Lending Act rules only apply to three narrowly defined consumer credit products: closed-end payday loans for no more than $2,000 and with terms of 91 days or fewer; closed-end auto title loans with terms of 181 days or fewer; and closed-end tax refund anticipation loans.
The Department of Defense recently proposed broadening the scope to generally include credit offered or extended to active-duty military members that has a finance charge or is payable under a written agreement in more than four installments. This would expand the rules to cover many more types of credit, including deposit advance products, and more types of payday, auto title and installment loans.
To read the CFPB’s full report, click here.
Written by Emily Study