Warner Act 2007 Military Payday Loan Protection

A recent study indicates that American servicemen are three times as likely to use a payday loan service then the average citizen.  The mobile nature of their work and lower then average pay often means servicemen do not have emergency funds readily available to them, forcing them to take out payday loans.  Partly in order to protect servicemen from usurious interest rates and unfair practices and partly as a token of gratitude for their service, the government enacted The John Warner National Defense Authorization Act for Fiscal Year 2007

Military Personnel Targeted by Predatory Payday Loans

As previously stated, military personnel are especially likely to be in need of

emergency funds.  Studies show that many payday loan companies are aware of this fact and attempt to exploit it.  Soldiers are especially vulnerable to these tactics for several reasons.  First, their lower-then-average pay.  On average, a new recruit in the armed services makes approximately $1200.00/month.  This makes it difficult to save money for emergencies.  Second, servicemen are easily approved for payday loans.  Servicemen have great job stability and guaranteed pay, the two greatest things payday loan companies look for in an application.  Finally, many new servicemen are young, mostly under the age of 25, and lack the financial know-how to avoid the pitfalls of payday loans.  They are not sure what to look for or what their rights are.  Many soldiers fall victim to predatory payday loans.

Section 670 of the Warner Act

The John Warner National Defense Authorization Act for Fiscal Year 2007, or The Warner Act, offers protection to servicemen and their dependents.  It does not cover residential or vehicle loans, only payday loans.  Prior to the enactment of the Warner Act, military personnel often fell victim to the traps of payday loans. High interest rates, rolling over of debt and invisible surcharges often tripled the amount a soldier ended up repaying.  Section 670 of the Warner Act offers servicemen protection against these unfair practices.

Section 670 specifically deals with unfair lending practices aimed at military personnel.  Its provisions include a cap of the APR at 36%, makes roll over transactions as well as renewed, refinanced or consolidated transaction illegal unless the new transaction will benefit the borrower, and makes it illegal to force the borrower to waive their right to legal recourse.  Additionally, section 670 clarifies the meaning of loan-related verbiage, including interest, APR and Consumer Credit.  Finally, some of the fees and conditions generally associated with civilian APR do not apply to military personnel, thus the Military APR, or MAPR, formula was created.

Section 670 also establishes a list of documents that must be supplied to the borrower (servicemen) at closing.  This includes: full disclosure of MAPR including the total value of all charges, Truth in Lending Act disclosures, a concise explanation of the repayment plan and a "covered borrower identification statement,” or proof of military service.

Payday loans are an excellent source of emergency funds if they are properly used and repaid according to the loan schedule.  The federal government, in an effort to protect our soldiers from defaulting on these loans, has passed laws guaranteeing our servicemen certain rights in regards to payday loans.  Before applying for an emergency payday loan, make sure you review your rights as stated under the Warner Act.  Have a plan to repay the loan and don’t borrow more then you can repay.  Most importantly, do not be afraid to report violator of the 2007 federal law to the appropriate state or federal agency.  Finally, consider using a payday loan company that specializes in military loans, such as USMilitaryloan.com, for you payday loan needs.