Perhaps one of the groups most taken advantage of by predatory lenders of payday installment loans are the military. Although the Military Lending Act, has succeeded in decreasing abusive lending practices of military consumers and their families, there are still loopholes in the law. The law must be strengthened and strictly implemented.
The Military Lending Act of 2007 was in response to a study conducted by the Department of Defense in 2006 in compliance to a mandate by the National Defense Authorization Act for Fiscal Year 2006. The study was directed to find the impact of payday installment loan lending on military consumers. The study revealed that 17% of military personnel used these loans. It revealed that they have undermined military readiness, harmed the morale of military consumers and their families and added to the financial handicap of troops. Because of this law a 36% cap on the APR of these loans was imposed and all fees associated with payday installment loan lending to military consumers. Other provisions of the law include:
· Prohibits payday installment loan lenders from requiring from a military consumer a personal check, debit authorization, wage allotment, or even car titles in exchange of the approval of the loan.
· Requires written and oral disclosure of interest rates and other payment obligations before the loan contract is signed.
· Military consumers are given the following rights:
- State protection laws for military families stationed within their borders.
- Lenders are prohibited from mandatory arbitration or unreasonable notice provisions in settling payment defaults resulting in dispute.
- Lenders are prohibited from requiring military consumers from waiving their rights against legal recourse.
· Prohibits rollovers, renewals, or debt consolidations.
· Reprimanding violations incurred by a lender by sanctioning payment for damages or voiding the contract.
However, since the enactment of law, a new study released by Consumer Federation of America last May 2012 has found that the Military Lending Act may have reduced some forms of abusive lending practices but has paved the way by flourishing new equally harmful loans. According to Jean Ann Fox, CFA director of financial services, “Military service members are safer today from predatory small loans due to the Military Lending Act. But the law’s protections should be extended to more forms of credit and loopholes must be closed to achieve the full protections intended by Congress to protect service members and their families.”
The provisions of the law may be satisfactory but the enforcement is the problem. The Consumer Financial Protection Bureau and the Federal Trade Commission, two federal agencies looking after short-term loans, do not have the authority to enforce the Military Lending Act. In addition, some states lack legislative language that allows state regulators to enforce the law directly against lenders of payday installment loans.
Therefore, consumer advocates have called for Congress to amend the law and authorize all federal regulators to enforce it. If not, some lenders will use these loopholes and be free to do their abusive lending practices.