The Consumer Financial Protection Bureau is urging the Department of Defense to finalize its proposal to extend the Military Lending Act to cover more types of credit than the current rule, which primarily covers shorter term payday loans, auto loans and tax refunds within a certain timeframe and amount.
"The current rules under the Military Lending Act are akin to sending a soldier into battle with a flak jacket but no helmet. To give our troops full-cover protection, the rules need to be expanded," said CFPB Director Richard Cordray. "The Department of Defenses proposed revisions will go a long way toward better shielding our military from high-cost credit products."
The MLA, which Congress passed in 2006, originally capped annual percentage rates at 36% and applied other protections to payday loans with terms of 91 days or fewer and for an amount of $2,000 or less, vehicle title loans with terms of 181 days or less for any amount and tax refund anticipation loans.
But soon after implementation in 2007, lenders found holes in the rules and began offering longer-term payday loans, auto title loans and lines of credit with triple-digit interest rates.
So the Defense Department proposed revised protections in September to close loopholes, including subjecting credit products to a 36% interest and fee cap and adding protections regardless of the amount or length of the loan. The plan amends the definition of "consumer credit" covered by the regulation to more closely align with the broad, traditional definition of that term in the Truth in Lending Act. ??
Residential mortgages and credit extended to finance the purchase of, and secured by, personal property, such as vehicle purchase loans, would still be excluded. The proposal further would ban mandatory arbitration clauses in credit card agreements with service members.
Nearly 200 interest groups, in a letter sent Monday to Defense Department Secretary Chuck Hagel, backed the push to broaden the scope of the MLA. The groups include a collection of consumer, military and civil rights organizations.
According to attorneys general from 20 states, the strengthened proposal is still too weak and doesn't make it difficult enough to keep high-cost lenders from dodging the 36% rate cap.
?The MLA is enforced by the CFPB and other federal regulators. In September 2013, the CFPB released guidelines on how its examiners will identify consumer harm and risks related to violations when supervising payday lenders. In November 2013, the CFPB took action against a payday lender, Cash America, for extending payday loans to service members and their families in violation of the MLA.