By Don Bolding
Killeen Daily Herald
A new Defense Department regulation intended to shield military personnel from excessive interest and fees and other predatory lending practices by payday loan operations went into effect Monday.
Soldiers and military families who make use of short-term loans, such as payday loans, vehicle title loans and tax refund anticipation loans, should see a change in the way those loans are handled.
The changes are intended to give borrowers more protection, said Holly Petraeus, director of the Better Business Bureau Military Line in Washington, D.C.
“I applaud this development,” Petraeus said Saturday from her home.
The National Defense Authorization Act of 2007 establishes broad lines of protection for military personnel to safeguard morale, family life and combat readiness.
Petraeus explained in a summary of the act that the Defense Department’s interpretation of the law for servicemembers attempts to weed out excessive fees and interest rates and practices that trap borrowers in cycles of debt that are difficult to escape.
To help further explain the new regulation and its impact on servicemembers, Petraeus will be among the presenters at the Financial Readiness Seminar scheduled from 9:30 a.m. to 4 p.m. Friday at the Killeen Civic and Conference Center. Petraeus is married to Gen. David H. Petraeus, the top U.S. military commander in Iraq.
Geraldine Walsh of SaveAndInvest.org and Sarah Shirley of Military Saves are also scheduled to appear at the seminar and business showcase. The event is sponsored by the Fort Hood Herald, Central Texas Workforce Centers, Central Texas Better Business Bureau, Fort Hood Family Housing, Fort Hood National Bank and Pioneer Services.
As part of the measure to improve lending practices, the military regulation sets a maximum 36 percent military annual percentage rate on loans, which includes “interest, fees, credit service charges, credit renewal charges, credit insurance premiums and fees for credit-related products sold in connection with a transaction,” Petraeus said.
Lenders also will have to provide a “covered borrower identification statement” to be signed by each borrower they know to be on active military duty for 30 days or more or a dependent of such a person.
“There’s a profusion of payday lenders around every military installation,” Petraeus said. “The Center for Responsible Lending says 65 percent of borrowers come back for repeat financing on the same loan. They return to the lender over and over on the same principal because they can’t get it paid off.”
In a summary of the new law, Petraeus identified three types of loans that the new practice will address:
Payday loans: closed-end credit with a term of 90 days or fewer in which the amount financed does not exceed $2,000 and the borrower provides a post-dated check or debit authorization to secure the loan.
Vehicle title loans: closed-end credit with a term of 181 days or fewer that is secured by the title to a motor vehicle.
Tax refund anticipation loans (RALs): closed-end credit in which the borrower gives the creditor the right to receive all or part of the borrower’s income tax refund or agrees to repay the loan with the proceeds of the refund.