DOD proposes broad ban on high-cost loans to servicemembers

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http://www.rawstory.com/rs/2014/09/dod-proposes-broad-ban-on-high-cost-loans-to-servicemembers/



DOD proposes broad ban on high-cost loans to servicemembers
September 26, 2014
Paul Kiel
Posted with permission from ProPublica

The Department of Defense released proposed rules today targeting the practices of a broad range of high-cost lenders and prohibiting them from charging service members interest rates over 36 percent.

The new rules would overhaul the Military Lending Act, which, when enacted in 2007, narrowly defined potentially abusive loans. But as ProPublica and Marketplace reported last year, high-cost lenders easily circumvented the law by offering longer-term loans. As a result, those pitching payday, auto-title, and installment loans continued to peddle credit from stores lining the streets near military bases.

The new rules would have a substantial impact. A Defense Department survey earlier this year found that 11 percent of service members reported taking out a loan with interest above 36 percent in the past year. The survey also found service members were a prime target for such lending: generally young, not financially savvy and often stretched by trying to support a family on a tight budget.

In our story last year, we focused on the case of one Marine who, in order to borrow $1,600, agreed to pay back $17,228 to an auto-title lender over two and a half years— a loan at 400 percent interest. When he could not keep up the payments, his car was repossessed. Under the new rules, it would be illegal for payday and auto-title lenders to make such longer-term loans at steep rates.