Home > 2013 > Personal Finance

Why Military Members Get More Protection From High-Cost Credit

Advertiser Disclosure Comments 0 Comments

This is the second article in a series devoted to consumer issues for National Consumer Protection Week, March 3-8.

Military Members Get Better Protection From High-Cost CreditIn a perfect world, unscrupulous creditors couldn’t take advantage of anyone, especially those who serve our country. There would also be a fool-proof law that protects military members and their families from the abuses of high-risk credit products like payday and auto title loans.

Unfortunately, our world is one where service members are among the most common targets for predatory lenders, some of whom have found and exploited major loopholes in the now six-year-old Military Lending Act (MLA).

The good news is recent amendments should make it easier to crack down on companies that exploit veterans with exorbitant interest rates and onerous security requirements.

In January, President Obama signed the latest version of the National Defense Authorization Act, which in part expands the government’s power to enforce provisions of the MLA. The original legislation instituted a rate cap of 36 percent for certain loan types; prohibited loans from being secured with checks, debits and car titles; and provided other important consumer credit protections.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

But it also relegated watchdog agencies to an oversight role. Now, both the Consumer Financial Protection Bureau and the Federal Trade Commission have the power to penalize lenders and take action against MLA violations. The new amendments ensure that military members are protected by the same federal regulators that enforce the expansive Truth in Lending Act.

Free Tool: Credit Report CardOther important updates:

  • The CFPB was added to the list of agencies that the Defense Department must consult every two years regarding the effectiveness of MLA rules.
  • The Defense Department will conduct a study to identify new forms of high-risk credit products that are hurting military borrowers.
  • A provision that requires lenders to follow the credit laws of the state where the military member receives the loan. Some lenders skirted state laws by contending they only gave loans to non-residents at military installations nationwide.
  • A standard definition of “covered military dependents” to ensure that MLA protections extend to service members and their children.

“These amendments are a positive step forward and will ensure that financial protections for service members, including the 36 percent rate cap, are adequately enforced,” said Jean Ann Fox, senior advisor for financial services at the Consumer Federation of America, an association of nonprofit consumer groups. “We look forward to working with the Department of Defense as it reviews and regulates credit options available to service members to ensure that the financial protections envisioned by Congress are fairly and evenly applied.”

[Related Article: When Debt Collectors Go After American War Heroes]

The Consumer Federation of America was instrumental in helping to spur regulatory updates. The organization released a report last summer that highlighted the MLA’s lingering loopholes and their serious consequences for service members.

“Lenders have exploited loopholes in the definitions of covered credit, such as styling a payday or car title loan as open-end credit or setting a loan term slightly longer than the definitions cover, to make high-cost loans to service members,” the report reads. “Exploiting definitional loopholes has been most problematic with an online payday lender and in states where high cost loans are not prohibited under state law.”

Military members can be more susceptible to risky short-term lending than civilians. A 2010 survey found that nearly a third of enlisted personnel or junior non-commissioned officers had turned to car title loans, payday loans and other risky forms of borrowing in the last five years. More than a third had difficulties covering monthly expenses and bills.

Personal finances are routinely among the top three sources of stress for service members, ahead of even deployments and war.

“We must all recognize financial readiness is mission readiness,” Army Maj. Gen. Michael Garrett wrote this month. “Many soldiers, especially first-termers, have never been taught how to create or manage a budget, what a variable percentage rate is or the true cost of credit. We have a responsibility to be as prepared as possible to defend this nation.”

[Free Resource: Check your credit score and report card for free with Credit.com]

Image: Thinkstock Images

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team