New Federal Regulation Stops Predatory Lending to active duty Service Members

Starting October 1, 2007, a new federal regulation prohibits creditors making payday loans, vehicle title loans and tax refund anticipation loans to active duty Service members and their dependents with annual percentage rates over 36 percent.

The final rule regulates the terms of payday loans, vehicle title loans and tax refund anticipation loans when extended to active duty service members and their dependents , known as 'covered borrowers'. These three products have high interest rates, coupled with short payback terms.

The rule limits the annual percentage rate - the 'APR' - on these loans to 36 percent. All fees and charges, with few exceptions, are included in the calculation of the annual percentage rate. The rule also prohibits contracts requiring the use of a check or access to a bank account, mandatory arbitration, and unreasonable/onerous legal notice.

Any credit agreement subject to the regulation that fails to comply with this regulation is void from inception. To protect against these stiff penalties, creditors offering payday loans, vehicle title loans and tax refund anticipation loans may ask loan applicants to sign a declaration statement regardless of military affiliation.

The rule further provides that a creditor or assignee that knowingly violates the regulation shall be subject to certain criminal penalties. Making a false statement when filling out this declaration is a crime. Individuals in need of cash should seek assistance from a financial counselor, through the local Military Aid Society Office, or through the installation bank or credit union.

Free, confidential financial counseling and financial planners are available toll-free 24/7 at Military OneSource. Dial 1-800-342-9647. Avoid more debt and added financial hardship - ask for professional help and assistance.