Avoiding predatory lending

19 Aug 2013 | Cpl. Rubin J. Tan

Congress is now reexamining and altering the Military Lending Act put into effect in 2007 to protect service members from predatory lenders. The revision will further protect service members by applying the interest-rate cap to open-end loans.

While the MLA already keeps companies from exorbitant interest rates on predatory loans, companies have found ways to avoid the act with open-ended loans such as credit cards.

Changes to the Military Lending Act will empower the Consumer Financial Protection Bureau and the Federal Trade Commission to enforce the act through the supervision of lenders. Businesses will have to abide by a 36 percent rate cap for loans made to service member. Dependents will also be protected by abusive credit products and practices.

According to the Department of Defense, service members are four times more likely to be victims of predatory lenders who can be found outside nearly all military installations. Service members are targeted by these lenders due to personnel being mostly under the age of 25 and with little experience in personal financial management.

Within a five-mile radius of Fightertown, more than five lending companies can be found who use high-interest loans with rates carried through an extended period of time.

The Federal Trade Commission protects consumers from these businesses who use unfair and deceptive practices in the form of title loans, payday loans and cash advances.

Marines are often tricked into title loans with opportunities for quick financial assists.

Title loans are typically short-term loans issued in trade of a car title. According to the Center for Responsible Lending, while credit cards are around 10 to 20 percent, title loans are 20 to 30 times more, resulting in rates capable of exceeding 500 percent. If payments are late or nonexistent, lenders are legally allowed to seize the property, which can be a Marine’s only transportation for themselves or family. The average car title borrower renews the loan on average of eight times to lower payments or extend time allowed to pay back loans.

Payday loans or cash advances offer an advance on the borrower’s next paycheck. The CRL states the average payday loan charges between 391 percent and 521 percent in interest. Borrowers also pay numerous fees that correspond with the loans. As an end result, consumers take out additional loans to pay previous loans.

"The stresses of military life and deployment often make service members and their families vulnerable to scammers," said Gideon Sinasohn, Federal Trade Commission attorney. "It’s a difficult economy and deceptive businesses see the military as a potential market."

Personal financial management programs for service members were implemented by the Department of Defense on Nov. 17, 2004, to protect members by teaching an understanding of pay and entitlements, banking, budgeting, personal financial readiness and policies, and practices designed to protect military service members.

The Marine Corps utilizes program managers who work with active duty service members and their families, to provide personal financial education, training, counseling and information.

Service members also have access to the Navy-Marine Corps Relief Society who provides financial assistance, interest-free loans and more.

The FTC also provides consumer information including scam alerts, credit and loan tips, dealing with debt and more at www.consumer.ftc. gov/topics/money-credit.

Signs of a loan scam include a company or person asking for a fee in advance to work with lenders to modify existing loans, stop a foreclosure or to even stop paying a mortgage company and pay them instead.

For more information contact Personal Financial Management Program managers Dale Wilkes on Fightertown at 228-7055 or Chuck Mathieu aboard Parris Island at 228-2218.