Covered borrower

Definition

A servicemember or dependent whose pawn loan federal law caps at a 36 percent military annual percentage rate.

Why It Matters

The pawn service charge is the state's ceiling, and a servicemember brings a second one. Under the Military Lending Act rule, a pawn loan is consumer credit, because it carries a finance charge and is not among the listed exceptions. A creditor may not impose a military annual percentage rate above 36 percent on a covered borrower. That means a member on active duty under orders that do not specify thirty days or fewer, or a dependent, when the loan is made. Florida's ceiling of twenty-five percent for each thirty days sits far above it. A loan that breaks the rule is void from its inception, carries at least five hundred dollars of liability for each violation, and its arbitration clause cannot be enforced against the borrower. A shop may check status in the department's database when it lends, and the rule bars any creditor or assignee from checking a past loan there later, so a buyer cannot test the book that way. Ask how the seller screened, and how near the shop sits to a base.