Paycheck Chronicles

Military Lending Act of 2006

When finances are tight, many military families turn to short-term, high cost loans such as payday loans, vehicle title loans, or refund anticipation loans.  As we've discussed previously, these are terrible products that can suck consumers into a spiral of ever-growing debt.  As a result of years of shocking abuse by many lenders, Congress enacted the Military Lending Act of 2006.  This Act protects military families by limiting some of the products that these lenders can offer.  It is good to understand this Act and how it applies to loans that you, your family, or your friends might consider.

Who Is Covered?

The Military Lending Act of 2006 applies to all loans made to active-duty servicemembers, active National Guard and reservists, and their dependents.

What Kinds of Loans Are Limited?

The Act covers traditional payday loans, refund anticipation loans, and car title loans.  From the Consumer Federation of America, specific details include the following: Payday Loans (at stores or made via the Internet or telephone/fax)
  • Loans up to $2,000 (one or more loans)
  • Closed-end (single advance of credit over fixed term)
  • Term of 91 days or less
  • Based on check held for future deposit or electronic access to account for future payment
Vehicle Title Loans
  • Term of 181 days or less
  • Closed-end
  • Secured by title to a registered motor vehicle owned by a covered borrower (except to buy the car)
Tax Refund Anticipation Loans
  • Closed-end credit
  • Tax refund goes to creditor to repay loan
It does not cover credit cards, overdraft loans, regular installment loans, vehicle purchase financing, rent-to-own transactions, or mortgages.

Key Features

Key features of the Military Lending Act of 2006 include:
  • Annual interest rates, including most fees and required costs, may not exceed 36%.  Late fees or default fees may push the total over 36% as they are not covered by this Act.
  • Loans may not be secured with a personal check, debit authorization, allotment order, or vehicle title.
  • All interest rates, fees and other costs must be disclosed verbally and in writing before the loan is issued.
  • Lenders may not roll-over, renew or refinance any loan, or consolidate loans.
  • Loans may not contain prepayment penalties.
As you can see, this Act contains many protections for military families.  It is good to be aware of them.  Even if you don't need this information yourself, this information may help a friend.  Sometimes the line between these loans can be fuzzy, and lenders have been very creative in making new types of loans that have outrageous costs but are not covered by this Act.

If you believe a lender has violated the terms of this Act, check with your installation's legal office for advice on how to pursue a remedy.

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