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New protections concerning payday and title loan

  • Published
  • By Capt. Aaron Wilson
  • 92nd Air Refueling Wing Assistant Staff Judge Advocate
FAIRCHILD AIR FORCE BASE, Wash. --  Many of us have at some point in our lives been in a tight financial situation and were not sure if we were going to be able to pay all our bills. When faced with this situation many service members have chosen to get a payday loan, cash advance or title loan. These types of loans are known as consumer credit. While using consumer credit is never a good idea, some new protections exist for servicemembers and their dependents in dealing with consumer credit lenders.

The Military Lending Act was enacted in 2006 and covers loans issued after Oct. 1, 2007. This act covers three specific types of closed-end consumer credit:
- Payday loans of up to $2000 that have a term of 91 days or less
- Vehicle title loans secured by title to a registered motor vehicle with a loan term of 181 days or less
- Tax refund anticipation loans in which the tax refund goes to repay the loan

If the loan fits in one of the three categories above, the following protections apply:
- The Military Annual Percentage Rate (interest plus fees expressed as a percentage) may not exceed 36 percent. Though this is a high interest rate, it is substantially lower than the normal 350-400 percent.
- The lender must provide a conspicuous written statement that informs the borrower that federal law provides important protections to active-duty service members and their dependents.
- The lender must have you verify whether you are an active-duty servicemember or dependent.
- The lender must provide you a statement that informs you that you may be able to receive assistance from the Air Force Aid Society (and other services relief societies) and that you may request free legal advice or credit counseling on base.
- The lender may not secure the loan with a personal check, access to your bank account, title of a personal vehicle, or a military allotment.

If the lender does not follow this law, the contract is void from the start. What that means is that you do not owe any interest or fees beyond the initial loan amount. If you have paid more than that already, they must refund you the amount you paid over the initial loan amount.
In addition to the MLA, Washington law provides a one-day right to cancel any payday loan agreement.

The Pentagon estimates that 17 percent of servicemembers have used the consumer credit described above. Hopefully, none of you will ever use a payday or title loan, but if you have one right now or get one in the future, see the legal office. We would be glad to look over your documents to see if they comply with the law. The protections and requirements listed above are only a summary. Other provisions of the law may apply in your situation. The Fairchild Legal Office can be reached at (509) 247-2838 or DSN 657-2838.