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It’s time to correct the military loan law


The “Today Show” recently highlighted the very real daily economic struggles of servicemen and their families, who should never have to worry about their financial security when they focus on the security of our nation.

Yet the annual Blue Star Families survey indicates that worries about personal or family finances are the top military stressors. The 2019 Military Financial Readiness Survey conducted by the National Foundation for Credit Counseling and Wells Fargo found that military personnel are twice as likely not to be able to pay their bills on time as they were. is five years old. About 10 percent said they currently have debts in collection.

Just as disturbing as their struggle to pay their weekly food bills, their credit card debts, and juggle funds to cover their expenses, the Defense Department has policies in place that make the finances of the military and their families. potentially more precarious families.

Today, servicemen are paying off loans for new cars and trucks for vehicles that have been destroyed by accidents or natural disasters, such as hurricanes, in part because the military does not allow them to purchase a form common protection, this is called a Waiver of Guaranteed Automobile Protection or “GAP”. Some members of my association would otherwise be able to offer the military the option of purchasing such insurance.

When you buy or lease a new vehicle, it depreciates as soon as it leaves the car dealership. A standard insurance policy typically covers the depreciated – or current – value of a car at the time of an accident.

But some servicemen – as well as other younger consumers who buy their first car – tend to put down smaller deposits and take out longer-term loans. In the event that a serious accident totals a car, a GAP covers the difference between what the insurer pays, its fair market value, and the amount owed on the loan or lease.

In an effort to protect military personnel from predatory payday lenders and unscrupulous businesses, Congress passed the Military Lending Act (MLA), which puts in place protections for various credit extensions but excludes auto loans. The Department of Defense, however, drew up a rule of interpretation in 2017 that swept aside the GAP waiver in a broader effort to protect military personnel from what were perceived to be unnecessary products.

The Pentagon basically said it was okay for a military person to add the cost of snow tires or the leather interior to a car loan, but that voluntary protection products, such as purchasing insurance GAP, were not. As a result, the military has limited protection for a large purchase and financial shock. This situation highlights two areas that should be addressed.

First, one of the reasons policymakers embraced MLA was the lack of financial literacy among young military personnel. Many military personnel enlist at a young age, with little experience managing their finances or building credit, a perfect storm for predatory lenders. There are a number of good financial literacy resources out there to provide advice to those new to their careers who need advice on everything from savings accounts to building good credit and consuming smart. of financial services. With data revealing that a large majority of American households are living paycheck to paycheck, policymakers need to put a renewed emphasis on financial literacy.

Second, the Department of Defense needs to review some of the regulations it has put in place in the MLA implementation process to determine whether these policies actually hamper the financial security of military personnel. So far the department has shrunk. The Trump administration should order such a review immediately.

The men and women of our armed forces must focus on their mission, without worrying about how to pay unforeseen debts, how they will get to work without a vehicle, or bad actors taking advantage of their finances. The burden they carry to ensure the security of our nation is quite great. The least policymakers can do is put in place the right policies and correct those that prevent our military families from having a little more financial certainty and security.

Bill Himler is President and CEO of the American Financial Services Association, a trade association dedicated to preserving access to affordable credit for the American consumer.


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