The U.S. Department of Defense has issued a proposal that would expand the types of credit products that are covered by the 36% rate cap and other military-specific protections under the Military Lending Act. The proposal would close loopholes that have led to lenders skirting the law with products that fall outside the scope of existing regulations.

The Military Lending Act provides service members and their dependents with specific protections for their consumer credit transactions. Among other protections, the law limits the annual rate on an extension of credit to 36%, provides for military-specific disclosures, and prohibits creditors from requiring a service member to submit to arbitration in the event of a dispute.

As initially implemented by the Department of Defense in 2007, the Military Lending Act protections apply to three narrowly-defined consumer credit products:

    •    closed-end payday loans for no more than $2,000 and with a term of 91 days or fewer;
    •    closed-end auto title loans with a term of 181 days or fewer; and
    •    closed-end tax refund anticipation loans.

The Department of Defense’s proposal announced Friday would amend 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.

More types of credit would be covered under this proposal. In accordance with the law, the proposed regulation would continue to exclude residential mortgages and credit extended to finance the purchase of, and secured by, personal property, such as vehicle purchase loans.

The Military Lending Act is implemented by the Department of Defense, and is enforced by the Consumer Financial Protection Bureau and other federal regulators.

In September 2013, the CFPB released guidelines on how its examiners will identify consumer harm and risks related to MLA violations when supervising payday lenders.

In November 2013, the CFPB took action against a payday lender, Cash America, for extending payday loans to servicemembers and their families in violation of the Military Lending Act.

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