Quickie loans provide holiday despair Published Dec. 19, 2007 By Capt. James Bosnick 20th Fighter Wing Legal Office SHAW AIR FORCE BASE, S.C. -- With the holiday season in full swing, along with car payments, rent or mortgage payments, bills and day-to-day expenses, servicemembers face added financial stress dealing with holiday spending. Catering to this emotional and financial need, some lenders advertise short-term loans as a method to obtain quick cash. Advertisements show former customers who claim anybody can come in and walk out with a thousand dollars in less than thirty minutes without so much as their signature. The drawback, however, is this practice often contains terms and conditions far less favorable than conventional lending institutions. As a result, this form of financing has become a focus for lawmakers and military officials in the past few years. Specifically, annualized percentage rates and financing charges can soar up to 300 percent, and a lending practice of refinancing or letting the debt float have military officials concerned these practices are a detriment to servicemembers' readiness. In the 2006 National Defense Authorization Act, Congress mandated the Department of Defense prepare a report for Congress outlining its concerns regarding what was referred to as predatory lending practices. The DoD submitted the mandated report Aug. 9, 2006. Subsequently, Congress enacted statutory provisions in the John Warner National Defense Authorization Act for Fiscal Year 2007, which took effect Oct. 1, 2007 to protect servicemembers and their dependents from predatory practices. Specifically, Congress capped the annualized rate of interest that can be charged to servicemembers and their dependents on payday loans, vehicle title loans and tax refund loans at 36 percent. This cap includes all finance charges categorized as interest, financing fees, origination fees, administration fees, membership fees and charges within 36 percent. However, the cap does not include late fees, default fees, nonpayment fees, or delinquency fees. A lender must fully disclose the annualized percentage rate in writing and is prohibited from forcing arbitration and forcing waiver of the Servicemember's Civil Relief Act rights or other recourse under state and federal law. Although these protections will go a long way to curbing predatory practices among servicemembers and their families, pay-day and other short-term lenders will continue enticing servicemembers so long as credit problems continue. Short-term loans may morph into more complex financial contracts or may become bundled with other goods and services in an attempt to circumvent the 36 percent cap. The best protection from these lenders is still obtaining as much financial education as possible and creating a solid family budget. Additionally, there are programs available for servicemembers in emergency situations through the Air Force Aid Society by way of interest free loans and grants. The Air Force Aid Society can be contacted at 1-800-769-8951.