The Military Lending Act was enacted nearly seven years ago, but some say it has gaps that leave hundreds of thousands of U.S. service members open to potentially predatory loans. Congress passed the law to shield service members from loans with double-digit interest rates that can get borrowers deep into debt. Critics, however, say the law has not kept up with high-interest lenders that operate either online or near bases.
Navy Petty Officer First Class Vernaye Kelly, for example, took out her first payday loan more than 10 years ago to bankroll moving expenses; but this summer, she had to take out a couple more to cover existing payments.
The Military Lending Act has an interest rate cap of 36 percent for military members; but the restriction does not cover short-term loans for more than $2,000, loans that last for more than 91 days, or auto title loans with terms longer than 181 days. Such loans can force service members into foreclosure and put their jobs at risk, since the military considers high personal indebtedness a threat to national security. “The law did wonders for the products that it covered, but there are simply many products that it doesn’t cover,” according to Holly K. Petraeus, assistant director for service member affairs at the Consumer Financial Protection Bureau. Many are encouraging Washington to act. The Senate Commerce Committee recently held a hearing on abusive military lending, and the Defense Department is soliciting public feedback on whether the protections of the act should embrace other types of loans.