Consumer Credit Guide for Members of the Armed Forces
Consumer Credit Overview WHAT IS CONSUMER CREDIT? Consumer credit is debt you incur for purchasing goods or services, like clothes and groceries, or bigger expenses, like car repairs or medical bills. These goods and services include items that are consumed and whose value quickly depreciates. Consumer credit does not include debt incurred to purchase real estate or student loans. For example, a mortgage to purchase your home is not consumer credit. However, a loan to buy furniture for your home is consumer credit. This type of credit is issued by lenders through credit cards, lines of credit, installment loans, title loans, refund-anticipation loans, pawn loans and other products.
Factors Affecting Your Credit and What It May Cost You YOUR LOAN Ì
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How much are you borrowing and for how long? You may need to borrow a large sum of money to buy a house or car. Paying off a long-term loan on time can establish a positive credit history. Paying every bill on time tells lenders you’re more likely to pay back loans and can keep your credit history in positive territory. However, don’t forget: the longer it takes to pay your loan back, the more you are likely to pay in total interest. Is your debt secured or unsecured? Debt is grouped into two categories —
secured and unsecured — and how much of each type you hold may affect your credit score. Secured debt is generally tied to an asset, such as a home for a mortgage. The loan is “secured” by the home, which the lender can take possession of if the debt is not repaid. Secured loans are less risky, and, therefore, tend to have lower interest rates. Unsecured debts are loans that are not connected to an asset that the lender can seize for repayment. These loans — which tend to be higher risk and higher cost — include credit card and medical debt. YOUR CREDIT WORTHINESS Ì Credit score. Credit scores are based on information in your credit report, so make sure details in your report are accurate. As service members and military spouses, you can request a no-cost FICO score and credit analysis tool from your local local personal financial manager or personal financial counselor at your Family Center. Ì
Risk measures. Factors that may affect your credit worthiness include
carrying high balances on your credit cards and making late payments. Applying for too much credit may also cause your score to take a tumble. Seek only the credit you need. YOUR CURRENT FINANCIAL SITUATION Debt ratios. Keeping your monthly debt-to-income ratio at no more than 43 percent
allows you to still make payments if something happens. Calculate this percentage by dividing your monthly debt payment by your gross monthly income. LEARN MORE For more information. Your credit history can impact many aspects of your life.
Building and keeping good credit may help you maintain your security clearance, make lenders more likely to offer you loans with better interest rates or make you more appealing to your next landlord. Talk to your personal financial manager or personal financial counselor about improving your credit score and debt-toincome ratio. Receive information on credit, including tools for building good credit, credit freezing and credit monitoring, by searching for “credit reports and scores” at https://www.consumerfinance.gov.
Special Consumer Credit Protections for Service Members and Their Families Military Lending Act What does the Military Lending Act do? Ì
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The law protects service members and their families by limiting the cost of credit offered to 36 percent military annual percentage rate. Your MAPR includes not only interest, but also application fees and costs of additional credit products, such as credit insurance.
What are lender obligations under the Military Lending Act? Ì
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Generally, lenders must disclose in writing and orally the MAPR that is applicable to the extension of credit, as well as a clear description of the payment obligation, among other disclosures. Generally, lenders may not require you, or other covered borrowers, to waive your rights as borrowers to legal recourse or to submit to arbitration. Lenders also cannot impose other severe legal notice provisions in cases of disputes, demand unreasonable notice or require payment by military allotment as a repayment condition.
Who does the Military Lending Act protect? Ì Ì
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Active-duty service members Military family members enrolled in the Defense Enrollment Eligibility Reporting System, known as DEERS Members of the National Guard and reserves on active duty for 30 days or longer
What is covered under the Military Lending Act? Military Lending Act protections extend to payday loans, vehicle-title loans, refund-anticipation loans, installment loans, unsecured open-end lines of credit and pawn loans. The law also covers credit cards. What is not covered? Exempt from the Military Lending Act are loans to purchase or refinance a home, loans to purchase a vehicle and purchases where the loans are secured by the property being purchased.
Where can I get help and learn more? If you suspect your loan or credit product violates the Military Lending Act, submit a complaint with the Bureau of Consumer Financial Protection at https://www. consumerfinance.gov/complaint or talk with your local military legal assistance office (locate one at https://legalassistance.law.af.mil). Learn more by going to the Bureau of Consumer Financial Protection website at https://www.consumerfinance.gov and searching for “Military Lending Act.”
Servicemembers Civil Relief Act The Servicemembers Civil Relief Act eases your financial burden when you’re called to active duty by postponing, suspending or lessening certain debt and lease obligations and actions, such as eviction, repossession and foreclosures incurred before active duty. A key provision requires creditors to limit your interest on debt — and debt held jointly with your spouse — to 6 percent after they receive written notice, a copy of your military orders and any other notice extending your military service. You have 180 days after your release from active service to alert creditors that you were on active duty. The interest rate reduction applies from the day you entered active-duty status until the day you’re no longer on active duty. Visit the Servicemembers Civil Relief Act website at https://scra.dmdc.osd.mil to obtain your Servicemembers Civil Relief Act Certificate, which verifies Title 10 active-duty status. The law offers other protections in areas such as lease terminations, evictions and default judgments. To learn more, go to https://www. justice.gov/servicemembers/servicemembers-civil-relief-act-scra.
Other protections Ì
Truth-in-Lending Act. This law requires lenders to disclose certain credit
terms before borrowing. Learn more at this Bureau of Consumer Financial Protection webpage: https://www.consumerfinance.gov/ask-cfpb/what-is-atruth-in-lending-disclosure-when-do-i-get-to-see-it-en-787. Ì
Fair Credit Reporting Act. This law promotes accuracy, fairness and
privacy in consumer reporting. Learn more by reading this Federal Trade Commission paper at https://www.consumer.ftc.gov/articles/pdf-0096fair-credit-reporting-act.pdf. Under the law, you can ask for a free copy of your credit report every 12 months from each nationwide credit bureau or specialty credit reporting agency. Do so at the annual credit report website at https://www.annualcreditreport.com. Ì
Fair Debt Collection Practices Act. This law protects consumers from abusive debt-collection practices. Learn more at this Bureau of Consumer Financial Protection webpage: https://www.consumerfinance.gov/ask-cfpb/arethere-laws-that-limit-what-debt-collectors-can-say-or-do-en-329.
Consumer Credit Resources DEPARTMENT OF DEFENSE FINANCIAL COUNSELING RESOURCES Contact your installation’s Family Center to make an appointment with an accredited personal financial manager or personal financial counselor at https:// installations.militaryonesource.mil or https://www.jointservicessupport.org/spn for no-cost, personal support. OTHER RESOURCES Federal Trade Commission
https://www.ftc.gov Bureau of Consumer Financial Protection
https://www.consumerfinance.gov Office of the Comptroller of the Currency
https://www.occ.treas.gov National Credit Union Administration
https://www.ncua.gov Free annual credit report
https://www.annualcreditreport.com FINANCIAL ASSISTANCE Your service military relief society may be able to serve as a source of support for emergency financial assistance or education. Speak with your personal financial manager or personal financial counselor for more information. Army Emergency Relief Navy-Marine Corps Relief Society Air Force Aid Society Coast Guard Mutual Assistance
About the Office of Financial Readiness The Office of Financial Readiness works with the military departments, other federal departments and agencies, and nonfederal entities to sustain and advance the financial readiness of service members and families in support of total mission readiness. The mention of any nonfederal entities in this publication is not an endorsement, nor is any endorsement implied. For more information, visit the Office of Financial Readiness website: https://finred.usalearning.gov Follow DoDFINRED on social media:
Visit Military OneSource’s website at https://www.militaryonesource.mil for tools, training and resources to help you and your family become financially secure and remain mission ready.