News & Resources

Examining the fate of installment loans to the military

Nov 19, 2014 Sean Albert

Every Veteran's Day, Americans are reminded of just how much the various members of the armed forces do to make sure citizens are safe and protected. This day can also serve to show individuals how those who have dedicated their lives to serving the nation are treated when they're back home.

Many in the financial industry might not quite understand why government leaders won't let these men, women and their family members enjoy a lot of the benefits that come along with seeking out alternative credit options. For instance, thanks to legislation passed in the last decade, armed forces members and their kin cannot take out short term loans - or at least those that are accompanied by interest rates of more than 36 percent.

However, despite the lack of viable options, people in this segment of the population have always been able to take out installment loans, from which people across the nation can benefit. That being said, thanks to a new piece of proposed legislation, that might not be the case for long. What financial options are federal lawmakers going to take from members of the military and their families next?

New rules could apply
According to a release from law firm Sirote & Permutt, if a new proposal is passed into law, the Military Lending Act will soon apply to more lenders and credit corporations, including installment loan vendors. This means that the 36 percent cap would apply to more organizations, and these entities would also have to provide members of the military with "additional disclosures" and even a statement that the potential borrower should consider seeking out other credit options, the source explained.

There are a number of experts who oppose this legislation, believing that it places very strong restrictions on the financial potentialities of service members.

"It's equally important that they not cause all service members, their spouses and their dependents to lose access to valuable mainstream lending products," noted Nessa Feddis, senior vice president of consumer protections and payments at the American Bankers Association, acknowledging the overall benefit of the law, according to The Fiscal Times.

The fact is, if rules were applied to more traditional fiscal sources, like credit cards and installment lenders, there are likely to be a number of providers and companies that simply cannot afford to lend to armed forces members, as they wouldn't make a profit.

What are the possible effects?
So, should this law pass, what can installment lenders expect to see? According to Sirote & Permutt, the regulation would apply to approximately 3 million people, meaning that lenders may see a significant drop in their clientele, as well as the population to which they can advertise.

Lenders will need to change a number of their tactics and may even have to start thinking outside the box so as not to lose a large amount of their current revenue. Those in the financial industry, as well as armed forces members, may want to keep a close eye on the status of this proposal, as it can have far-reaching effects.