The Department of Defense is proposing changes to the Military Lending Act (MLA) to extend financial protections for military members and in turn, their families.
The MLA limits the amount of interest that a creditor may charge on “consumer credit” to a maximum annual Military Annual Percentage Rate (MAPR) of 36 percent. Not that it’s a fabulous rate.
It appears the DOD and others have been concerned how some payday lenders have circumvented the current MLA by carefully adjusting the terms of those loans so they are not covered by the MLA.
So the DOD is proposing to extend the regulation to incorporate a number of closed-end and open-end credit products not currently covered by the MLA.
Part of the proposed change will also make it easier for lenders to check and see if a service member is really a covered person under the MLA by querying a MLA database.
The proposal will sweep in a number of credit extensions but will exclude, “a creditor who offers consumer credit through a credit card account to exclude from the MAPR any “bona fide” fee charged to a credit card account.”
The DOD seems to be most concerned with certain payday loans, vehicle title loans, and tax refund anticipation loans and needs to expand the MLA to widen protection to service members.
Under the new proposed rules, credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is subject to a finance charge and payable in more than four installments, would generally be covered.
Things like mortgages and car loans would not be covered but then again you don’t see those over 36 percent most of the time.
Military members covered by the proposed MLA include a member of the armed forces who is on active duty or, active guard or reserve duty.
Additionally, new extensions of credit to military members will need to include the following statement, ““Federal law provides important protections to regular or reserve members of the Army, Navy, Marine Corps, Air Force, or Coast Guard, serving on active duty under a call or order that does not specify a period of 30 days or fewer, and their dependents. Members of the Armed Forces and their dependents may be able to obtain financial assistance from Army Emergency Relief, Navy and Marine Corps Relief Society, the Air Force Aid Society, or Coast Guard Mutual Aid. Members of the Armed Forces and their dependents may request free legal advice regarding an application for credit from a service legal assistance office or financial counseling from a consumer credit counselor.”
Lets hope these new rules pass into force without much trouble. There is no doubt military members and their families need protection from abusive credit. Nobody every accuses the majority members of the military from earning too much. Some protective consideration for the service and sacrifices they give us all would be a welcome.
If you would like to read the 150 pages of documentation associated with this new proposed change to help protect military members, click here.
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