Last week, the Consumer Financial Protection Bureau (CFPB) issued a report on payday lending. The comprehensive study showed that payday loans and deposit advance products can lead consumers into a cycle of high-cost borrowing the Bureau calls a “debt trap.” While this study is alarming, the dangers of payday lending are fairly well-known. In fact, the Military Lending Act, which is enforced by the CFPB, specifically restricts and/or bans many of these types of products including: payday loans, vehicle title loans and tax refund anticipation loans. However, as pointed out in a 2012 Consumer Federation of America study, there were quite a few loopholes left in the Act, and servicemembers are still targets for predatory lending.
If they are protected, how are military members still falling victim to unscrupulous lenders?
The CFA study found that while the Act covered many predatory practices, there were still many others that fell through the cracks. For instance, the law dealt with very specific periods of lending, with terms of 91 days or less, but many loans have longer-term “installment” payment terms.
Another problem is that many retail credit products such as “rent to own” or installment loans are not covered by the Act.
The study also found that the Act specifically excluded some products that have the same “debt trap” characteristics as payday loans: overdraft loans and direct deposit advance loans offered by banks. Some of these loans come with double and triple digit-rates, and military consumers can be trapped in the same vicious cycle of borrowing and repaying that they faced before the legislation was enacted.
There are alternatives to payday lending
Oftentimes, it takes just one minor emergency to start down the path toward debt. The best plan is to have a $500-1000 emergency fund in place, but barring that, servicemembers should know that they do have somewhere to turn before taking out a high-interest rate loan:
· Military OneSource is a great place to get referrals for financial counseling and other resources. They have a call center that is manned 24/7 (1-800-342-9647).
· Family Readiness Centers have financial counselors on staff. They can also make referrals to relief organizations or other resources. To find the installation closest to you go to www.militaryinstallations.dod.mil
· Military relief organizations such as Army Emergency Relief, Air Force Aid Society and the Navy/Marine Corps Relief Society can sometimes provide loans, grants and other assistance.
· Charitable organizations such as the American Legion, the USO, and Operation Homefront can sometimes provide relief.
If you are a victim of predatory lending
Many servicemembers are reluctant to report their negative experiences, perhaps out of embarrassment. What they are not realizing is that in actuality they have been victimized. If you feel that you have been taken advantage of by a lender, you can:
· Visit your installation’s JAG office
· Submit a complaint to the CFPB or call them at 1-855-411-2372.
· File a complaint with the Federal Trade Commission’s Military Sentinel
· Submit a complaint to the Better Business Bureau
You can participate in the first ever Military Consumer Protection Day on 17 July 2013. Watch for more information as the date approaches. Read this fact sheet for more information.