Service members are supposed to be protected from predatory lenders thanks to the Military Lending Act (MLA) in place for several years.
However, a joint investigation by Marketplace and ProPublica found that while the act did reduce the number of “payday loan” problems, the law does not regulate loans that extend beyond three months.
The MLA did little to regulate open-ended credit, or military installment loans longer than 91 days. Those are still available to service members, and in some cases aggressively sold to them. Some payday and title lenders have found ways to exploit gaps in the MLA, offering longer-term high-interest installment loans, sometimes backed by a car-title, that are not illegal but can send service members into a deepening spiral of debt.
Financial troubles are considered a serious threat to force readiness according to the Department of Defense.
At issue now, according to the report, are short-term high-interest cash loans. These “installment lenders” and pawn shops can be found outside the entrances of most military bases.
She points out that the Department of Defense has tried hard to offer alternatives, providing low-cost emergency loans to low-income, cash-strapped military families. But there’s some paperwork involved, and permission from someone up the chain of command may be required, and follow-up financial counseling is strongly encouraged.
“People don’t want to come in and say they’ve messed up their finances,” she says. “And yet, with products where they’re just repeatedly paying large fees to borrow the same small amounts every month—you’re going to end up in a terrible financial mess, and with the real potential of losing your security clearance.”
You can read the full Marketplace and ProPublica report and check out the entire series HERE.