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