The Military Lending Act of 2007 established protections for active duty members and their dependents. It instituted lending restrictions for “consumer credit” transactions such as closed-end auto title loans, closed-end payday loans, and income tax refund anticipation loans.
In July of 2015, President Obama and the Department of Defense issued a Final Rule on the Military Lending Act, which further included regulations on traditional installment loans. Therefore, lenders can no longer make traditional installment loans to “covered borrowers.”
A “covered borrower” is a person with one of the following statuses at the time they enter into a loan agreement:
- A reserve or regular member serving on active duty in the Army, Marine Corps, Air
Force, Coast Guard, or Navy
- The military member’s child or spouse as defined in 38 USC 101(4)
- Any individual in which the military member has provided more than half of their support within 180 days before the extension of consumer credit
By way of example, Kevin is an active member of the army. During his time off duty in his Michigan home, he wants to take out a traditional installment loan to help buy Christmas gifts for his family. He finds out, however, that he cannot receive a loan because he is considered a “covered borrower.”
Kevin then contacts the Member of Congress that represents Michigan in order to make his concerns about the Military Lending Act known.