WASHINGTON — Democratic Sen. Jack Reed is pushing to tighten a five-year-old law that prohibits lenders from charging members of the military more than 36% interest on certain loans.

The Military Lending Act caps interest rates on certain payday, auto title and refund anticipation loans to service members and their families.

But according to Reed, a former Army Ranger who sits on the Senate Banking Committee, some lenders, including banks, have evaded the restrictions by putting new labels on what are essentially payday loans. He is seeking to attach an amendment to the annual defense authorization bill that would close the loopholes.

Specifically, Reed's amendment would extend the existing 36% cap on interest rates to payday and auto title loans that are structured as open-end revolving credit lines, rather than just those that are structured as closed-end loans.

Several banks with branches on military bases make these kinds of loans, which are often called direct deposit advances, according to a Reed spokesman. These loans typically cost $10 for every $100 borrowed, and the typical loan term is 10 days, which results in an annual percentage rate of 365%, the spokesman said in an email.

"Bank payday loans carry the same high-cost, short-term, debt-trap features as non-bank payday loans," the spokesman said.

The measure also targets expensive overdraft fees and the practice by some financial institutions of ordering customer transactions from the most expensive to the least expensive, which has the effect of maximizing revenue from overdraft fees.

"We need to stop unscrupulous lenders from targeting our soldiers, saddling them with enormous debt, and undermining our national security," Reed said Tuesday in a press release. "This amendment enhances the Military Lending Act by closing loopholes that allow lenders to charge exorbitant fees to our service members."

The Senate is considering the defense authorization bill this week. A key procedural vote scheduled for Wednesday will help determine whether the bill will pass this year. If the bill passes that hurdle, Reed's amendment could be considered later in the week.

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