More than half of U.S. military service personnel reside in states that allow forms of high-cost lending not subject to the federal Military Lending Act, which caps interest and fees on loans to active-duty military personnel and their dependents and provides other consumer protections such as a prohibition of mandatory arbitration.
That's according to the Consumer Federation of America, an association of nearly 300 nonprofit consumer organizations. The CFA recently issued a briefing paper about gaps in the MLA that the organization says leave service personnel vulnerable to abusive lending practices.
The U.S. Department of Defense determines what types of credit are subject to the MLA's interest and fee caps and other protections and is currently collecting information about how high-cost credit affects service personnel.
Currently, the caps and other protections apply only to certain payday loans, auto title loans and tax-refund anticipation loans.
The CFA evaluated the MLA and found that many financial products were beyond its current narrow definitions.
In a statement, Tom Feltner, the CFA's director of financial services, said the Defense Department has the opportunity to apply the protections mandated by Congress to all forms of high-cost credit.
"The high-cost credit market is changing, with many products falling outside the scope of the DOD rules, which were designed to keep credit made to service members safe and sustainable," Feltner said.
The CFA analysis found 20 states permit payday lending, vehicle-title lending or both in ways not covered by the current definition. If state law allows lenders to make loans outside of the scope of the definition, such as a payday loan for more than $2,000 or a car-title loan longer than 181 days, the important protections that Congress put in place for service personnel don't apply, the CFA said.
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