CHARLESTON AIR FORCE BASE, S.C. –
The Predatory Lending Regulation, 32 Code of Federal Regulations Part 232, was officially implemented Sunday to place a cap on interest rates for military members at an annual percentage rate of 36.
The regulation's purpose is to protect servicemembers and their families from predatory loans and will impact payday, rent-to-own and refund-anticipation-loan lenders tremendously. Those services that are not willing to comply will no longer be allowed to service military members.
It appears that some lending institutions are requesting servicemembers to pay loan balances in full when the debt cycles through as a direct result of the new regulation. Due to this, Airmen may request Air Force Aid Society assistance in resolving this debt through their Airman and Family Readiness Flight. Although Headquarters AFAS does not typically bail out chronic borrowers who use payday lenders, it is possible that some Airmen may have assets at risk or may be unable to meet essential life expenses. HQ AFAS does not have a blanket policy but will address every situation on a case-by-case basis depending on the level of financial distress.
"The refund anticipation loan, or payday loan as we knew it, will not be offered to the military any longer," said Barbara Lang, 437th Mission Support Squadron Airman and Family Readiness Flight chief of programs.
The law, passed as part of the 2006 Defense Authorization Act, caps the annual percentage rate at 36 percent, to include fees and other charges, on loans made to troops and their families. The rules create a new term, "Military Annual Percentage Rate," to describe the total cost of a loan, expressed as an annualized percentage rate. The law is designed to protect servicemembers from predatory loans, which have been cited as contributing to a "cycle of debt" that causes financial problems for some Airmen.
Regardless of whether a company continues to lend money to the military, it will still have to take steps to determine whether the customer is, in fact, in the military, or it will risk violating the law. Advance America officials, for example, are considering having all customers sign covered borrower statements, which would require them to declare whether they are a servicemember or military family member.
In the final rules, defense officials suggested a format for this statement with a warning to customers that making a false statement on a credit application is a crime. The rules note that a Defense Department Web site will be available for creditors to check on military or dependent status.
Don Gayhardt, president of Dollar Financial Corp., said once the law takes effect, his company will no longer lend to people in the military. Employees at Dollar Financial's 360 stores will ask whether a customer is a member of the military or a family member. They also will check other sources, he said.
For more information, contact the A&FRF at 963-5448.