Saying that it has been inadequate, the Department of Defense intends to expand the 2007 Military Lending Act (MLA). The federal law caps annual interest on certain loans made to members of the Armed Forces at 36 percent; yet a Defense Department survey found that 11 percent of service members took out a loan above that limit in the past year.
Enlisted persons often lack financial knowledge, as they tend to be high-school graduates who may or may not have started college already. Forty-three percent of them are 25 years old or younger. Members of the military also tend to start families earlier, which increases their financial pressures. Defense estimated that up to 25 percent of service members "may face emergency financial short-falls and indicate difficulties managing their finances and avoiding problems with credit."
While the MLA was enacted to protect them from predatory situations, high-cost have taken advantage of gaps in the legislation -- which addresses only payday and car title loans -- and continue to offer credit from stores often found near military bases. Instead of the traditional two-week payday loan, more lenders have been offering installment products that can extend for several months. While they can carry exorbitant APRs, installment loans and open-ended credit are not regulated under the MLA. The act also does not cover add-on products, so many installment lenders load their loans with nearly useless insurance products that raise the costs.