The Department of Defense, attempting to thwart the ever-changing tactics of high-cost lenders, plans to dramatically broaden a federal law that sought to protect service members by capping the interest rate on loans made to troops.
When the Military Lending Act was enacted in 2007, it narrowly focused on how much interest lenders could charge on two types of loans: payday and auto-title. But as ProPublica and Marketplace reported last year, high-cost lenders easily circumvented the law, peddling credit from stores that often line the streets near military bases.
In a newly released report to Congress, the Defense Department acknowledged that the law has proven inadequate and said it is working on new, “more comprehensive” rules.
The report, completed in April, said a survey of service members found the use of high-cost loans is widespread. Under current rules, the Military Lending Act (MLA) caps certain categories of loans at a 36 percent annual rate. But the Defense Department’s survey found that 11 percent of service members reported taking out a loan above that limit in the past year.
Service members are prime targets for high-cost lenders, the report says. They often aren’t financially savvy — “generally high school graduates who may have started college.” They’re young: 43 percent of service members are 25 or younger. And they tend to start families earlier, adding to their financial pressures.
From the results of the survey, the Defense Department 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.”
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