What Military Families Need to Know About High-Cost Lenders

Hanqing Chen

Last month, the Department of Defense proposed an amendment to the Military Lending Act that would ban lenders from charging service members interest rates of more than 36 percent. The proposal followed a ProPublica investigation into high-cost military lenders that circumvent the limited scope of the current law to generate longer-term loans at sky-high rates.

The amendment will be open for public comment through Nov. 28. In the meantime, here’s some of what we have learned so far about the military-lending industry.

41 percent of enlisted service members say they’ve taken out short-term loans like payday and auto title loans

That’s according to a survey of service members in an April report from the Department of Defense. The report estimated that up to a quarter of service members “may face emergency financial short-falls and indicate difficulties managing their finances and avoiding problems with credit.”  Twenty-six percent also said they “occasionally have some difficulty making ends meet.”

In some states, storefront lenders can charge annual percentage rates of up to 400 percent

In our 2013 investigation, we talked to Levon Tyler, a Marine staff sergeant who handed over the title to his car and a copy of his keys for a $1,600 loan at Smart Choice Loans. What he didn’t realize was that he had agreed to pay more than $17,000 over two and a half years in return, since the loan’s annual interest rate was 400 percent.

Although these interest rates are precisely the types of loans that the Military Lending Act was written to protect against, they fall outside its current jurisdiction because of the duration of the loan.

All payday and auto-title lenders have to do to circumvent the Military Lending Act is extend the duration of your loan

The MLA, as it was enacted in 2007, caps interest rates for military borrowers at 36 percent for very specific types of loans: mainly, short-term payday loans and auto title loans. The current proposed changes would ban interest rates above 36 percent even on longer-term payday and auto-title loans like Tyler’s. The amendment would also restrict interest rates on another type of high-cost loan – installment loans.

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