On July 21, 2015, the U.S. Department of Defense (DoD) issued a final rule that expanded the types of credit products covered by the 36% rate cap and other military-specific protections of the Military Lending Act (MLA). The rule served to close loopholes that resulted in lenders finding ways around the law with respect to financial products that fell outside the scope of the existing regulation.
The MLA provides service members and their dependents with specific protections for their consumer credit transactions. Among the protections provided, the MLA limits the annual rate on an extension of such 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. The MLA was enacted by the DoD in 2007, and initially applied to only three narrowly defined consumer credit products:
- Closed-end payday loans for no more than $2,000 and with a term of 91 days or less;
- Closed-end auto title loans with a term of 181 days or less; and
- Closed-end tax refund anticipation loans.
The final rule enacted by the DoD amends the definition of "consumer credit" to more closely align with the broad, traditional definition of credit under the Truth in Lending Act (TILA). The MLA is implemented by the DoD, and enforced by the CFPB and other federal regulators. In 2013, the CFPB took action against Cash America, a payday lender, for extending payday loans to servicemembers and their families, and illegally overcharging them, in violation of the MLA.
Upon the enactment of the final rule, the CFPB issued a statement congratulating Secretary Carter and the DoD, and reaffirming its position: "As one of the agencies responsible for enforcing the Military Lending Act, we stand ready to stop illegal lending to military families."