New Dept. of Defense Rule Will Protect Service members from High-Cost, Predatory Loans


San Francisco, CA- July 30, 2015- Consumer advocates are applauding a new Department of Defense rule to update the Military Lending Act, a law originally enacted in 2006. The new rule addresses loopholes in the 2006law that unscrupulous lenders have used in order to make predatory, unaffordable loans to members of the military and their families. An inability to pay back these loans has impacted service members’ security clearances, and as a result, their careers.

“This update to the Military Lending Act means predatory lenders will no longer be able to make abusive loans to service members and their families,” explains Liana Molina, payday organizer with the California Reinvestment Coalition. “By cracking down on these shady lenders and the loans they peddle, the Dept. of Defense is standing up for military families.”

Molina adds: “The CFPB is also in the process of drafting new rules to better regulate these high-cost loans. The CFPB’s new rules can protect all consumers- not just the military- and there is broad support for the CFPB to create the strongest consumer protections possible. Meanwhile, state and federal governments should follow the DOD’s lead by creating an interest rate cap of 36% for all payday, car title, and installment loans so that all consumers are protected from usurious lenders.”

The DOD’s final rule:

• Applies market-wide to all high-cost credit products that target service members, including payday, auto title and installment loans designed to evade the 2007 protections;
• Caps interest and add-on fees at 36 percent for loans issued to service members and their dependents;
• Prevents lenders from adding on junk fees such as credit insurance, debt cancellation or debt suspension to circumvent the 36 percent interest and fee cap; and
• Preserves service members’ access to the courts by prohibiting forced arbitration agreements.

Research by the Department of Defense released last year found that as many as one out of every ten enlisted service member continued to be targeted by high-cost credit designed to evade the Military Lending Act. The DoD estimates the final rule will reduce involuntary separation caused by financial hardship, resulting in a savings of $14 million a year or more.

CRC thanks California Senators Boxer and Feinstein, Attorney General Kamala Harris, and the following representatives who supported this new rule:

Rep. Peter Aguilar
Rep. Xavier Becerra
Rep. Julia Brownley
Rep. Lois Capps
Rep. Susan A. Davis
Rep. Sam Farr
Rep. John Garamendi
Rep. Mike Honda
Rep. Zoe Lofgren
Rep. Alan Lowenthal
Rep. Scott H. Peters
Rep. Loretta Sanchez
Rep. Adam Schiff
Rep. Jackie Speier
Rep. Mark Takano
Rep. Juan Vargas
Rep. Maxine Waters