Proposal to Cap Interest Rates for Military Members
In an effort to better protect members of the military from high interest rates, the Department of Defense has proposed an update to the Military Lending Act from 2006. The update would put more credit products under the 36% interest cap and close the loopholes lenders use to get around that cap.
In 2007, when the Department of Defense drafted the regulations to implement the Military Lending Act, the loans that were covered were limited to payday loans, car title loans and refund anticipation loans. This proposal would expand this to include nearly all loans. The Consumer Financial Protection Bureau backed the proposal.
“We have seen firsthand how lenders use loopholes in the rule to prey on members of the military. They lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule,” CFPB Director Richard Cordray said in a statement.
The new update would “shut down the predatory lending to the military that has flourished through exploiting legal technicalities.”
The CFPB has noticed a huge surge in loophole-based lending to military families, where loans and other credit products are set up to be just out of reach of the current policy. These loans can carry interest rates as high as 500%.
Bill Himpler, vice president of the American Financial Services Association, said there is not enough evidence yet to support adding installment loans to the rules. He says doing so may limit the access military families have to affordable lending and credit options. Nevertheless, the CFPB promises to continue its work of closing all the loopholes.