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Military Lending Act Rules Stop 'Debt Trap' Payday, Car-Title, Installment Loans to Service Members

Tuesday, July 21, 2015
Michael Calhoun

In a speech today in Pittsburgh at the annual Veterans of Foreign Wars convention, President Obama announced new Department of Defense rules to further protect service members and their families from predatory lending practices. The rules strengthen the Military Lending Act (MLA), closing loopholes unscrupulous lenders use to target military families with predatory, high-cost loans, and applying the Act's rules to all existing lending practices in the marketplace. The new rules go into effect October 1.

Center for Responsible Lending President Mike Calhoun gave the following statement:

The intent of the Military Lending Act is clear: the people who fight for our country abroad should not have to fight off predatory lenders here at home. However, for too long, abusive payday, car-title and installment lenders have used loopholes in the rules to lure service members and their families into the debt trap. That ends today. While the Department of Defense's initial rules did successfully address some of the worst abuses in the marketplace, today's updated rules are urgently needed because unscrupulous lenders have brought new predatory loans to market. The rules announced today will close the loopholes for good and ensure the MLA's 36% interest rate cap applies across the marketplace.

A 36% interest rate cap is fair and responsible, and a powerful case can be made for applying it to all consumers, including veterans, who are not protected by the rules when they leave military service. If the Consumer Financial Protection Bureau also takes strong action later this year to curtail some of the most deceptive and exploitative practices used by payday, car-title and installment lenders, it will go a long way toward slamming shut the debt trap for all consumers.


Military Lending Act Background

The bipartisan Military Lending Act was passed by House and Senate legislators and signed into law by President George W. Bush as a part of the Fiscal Year 2007 National Defense Authorization Act. The law limited loans to 36 percent military APR – a comprehensive annual percentage rate that factors in the cost of interest, fees and other add-on products like credit insurance. In its original regulations enforcing the law, the Department of Defense applied this interest rate limit to a narrow set of loans. It is clear that a more comprehensive approach is needed to expand these effective reforms to cover the array of predatory lenders in the marketplace that take aim at military families.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at or 919-313-8533.