One of the provisions of the FY 2007 Military Authorization Act, makes it illegal for creditors to grant payday loans and car title loans to military members.

The change also prohibits charging more than 36 percent interest to military borrowers. Fees, service charges, renewal charges, credit insurance premiums or any other product “sold” with the loan must be included when calculating the interest rate.

Among other things, this law prohibits “using a check or any other access to a member’s financial account as security for a loan.”

So… what if a member of the military has a checking account with one of the banks or credit unions making loans to customers based on their direct deposit paychecks? These “payday loans” are then repaid in full – both principal and fees – once the direct deposit clears. It’s VERY common for this bank customer to take out another loan. If you analyze the numbers, you soon calculate these bank customers pay $900 in interest to borrow $500 from the bank for less than 6 months – an APR of 365% !

Doesn’t this violate the Act? I’ve looked at these transactions and the banks and credit unions offer virtually zero disclosure. I’m not a lawyer but, if I was, “I’d be licking my chops!” The media is beginning to sniff this out. Both Bloomberg and The Wall Street Journal are on this. Bank of America and the other banks are getting nailed over this new $5 ATM fee. They’re about to get MORE HEAT! Man, what a shame.

What do you think? Jer@PaydayLoanIndustryBlog.com

We all know the payday loan – tribe partnership model is highly controversial. It’s a strategy being evaluated by tribes having considerable wealth, “poor” tribes lacking gaming success, and sophisticated payday loan Lenders with superior management skills. State Attorneys General, the Fed’s, legal counsel and our industry is watching this develop.

Ultimately, when constructed in a fashion that achieves the spirit intended, the sovereign nation model appears sound. If you’re interested in the tribe payday loan model, there is an interesting article here: EquityNews.info. We have not vetted all the data here so perform your due-diligence! Obviously, Equity News is not a fan of Scott Tucker, the payday loan industry, or “creative approaches” to satisfying the desire by consumers for access to our small, non-collateralized, short-term loans. (Of course, that doesn’t preclude Equity News from earning revenue by displaying ads for payday loans on their web site.)

And this won’t  be the first time I’ve been chided by my “brothers and sisters”  in the payday loan industry for continuing to shed light on offshore, choice-of-law, tribal and other controversial methods for offering payday loan products.

I continue to believe that open discussion about micro-lending will help regulators, legislators, the media and our industry find methods to serve the millions of consumers, around the world, who want and need access to our products and services.

What do YOU think? Leave a comment.
Jer@PaydayLoanIndustryBlog.com