DOD announces proposed changes to Military Lending Act Published Sept. 26, 2014 DoD News, Defense Media Activity WASHINGTON -- Defense Department officials today announced a proposed overhaul of the Military Lending Act, which is designed to protect service members and their dependents during consumer credit transactions. The proposed changes to the regulation would reduce predatory lending practices, expand protections provided to service members, close loopholes in current rules and help to ensure military families receive important consumer protections, officials said. On Sept. 29, the proposed regulation will be published in the Federal Register for public comment, officials added, and the proposal includes several questions that will help the department gather additional information on the proposed changes. Cordray issues statement Consumer Financial Protection Bureau Director Richard Cordray issued a statement regarding the proposed overhaul of the Military Lending Act. "I applaud Secretary Hagel and the Department of Defense for their hard work in crafting this important proposal," Cordray said in his statement. "The CFPB strongly supports the Department's efforts to provide broad and long-lasting consumer protections for our nation's military families. "As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military," he continued. "They lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule. "This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities," Cordray continued in his statement. "By broadening the types of credit covered under the law, this proposal would carry out the will of Congress by enabling the CFPB to stop lenders from harming service members in ways the law was intended to stop." Cordray added, "Our ongoing enforcement of the Military Lending Act and our support for the Department's efforts reflect the Bureau's dedication to providing critical consumer protections to our men and women in uniform." Holly Petraeus issues statement Holly Petraeus, the Consumer Financial Protection Bureau's assistant director in its Office of Servicemember Affairs, also issued a statement. "I commend Secretary Hagel for taking this important step to make the Military Lending Act more effective," Petraeus said in her statement. "High-interest loans to the military have been a problem for many years. This problem reached a crisis as payday and other lenders began thronging outside the gates of military installations in ever-increasing numbers. In 2006, Congress acted against this threat to military financial and operational readiness by passing the Military Lending Act. This law was designed to protect active-duty service members and their families from high-cost loans by capping rates at 36 percent. "Unfortunately, less than a decade after that law was passed, those who would profit by charging exorbitant rates to the military have found it all too easy to evade the original intention of the Military Lending Act," Petraeus continued. "Taking advantage of loopholes, lenders have continued to charge military families annual percentage rates as high as 500 percent." She added, "Secretary Hagel and the Department's actions today make it clear that they have serious concerns about these high rates charged to service members, no matter what the loan is called or how it is defined. I hope that all who care about the financial well-being of our military families will come together to support this common-sense proposal." Lending Act beefed up consumer protections The Military Lending Act was first passed in 2006. Congress amended the act in the fiscal year 2013 National Defense Authorization Act. The amendments beefed up consumer protections and expanded the definition of borrowers covered by the act. At the same time, Congress requested that the secretary of defense survey troops, financial counselors and legal assistance attorneys to determine the impact and prevalence of high-cost loans. In April, the department reported to Congress that the survey indicated that troops generally have sufficient access to safe, low-cost credit, few problems managing their finances, and that high-cost credit products are not widely used by service members. The department worked with federal regulators to implement the changes made by Congress in the 2013 NDAA and to develop responsible protections for service members and their families that preserve their access to credit and protect their financial futures. Proposed changes to Lending Act The proposal provides several significant protections to active duty service members and their families. -- A cap of 36 percent on the annual percentage rate of interest charged for credit products covered by the regulation -- including credit cards -- referred to as the Military Annual Percentage Rate; -- Additionally, creditors are responsible for providing military borrowers with additional disclosures, including a statement that they should seek other options than high-cost credit -- to include financial counseling and assistance from the Military Aid Societies; -- Creditors are prohibited from requiring service members to submit to arbitration, waive their rights under the Servicemembers' Civil Relief Act, or imposing onerous legal notice requirements as a result of taking one of these loans; and -- The proposed changes would expand the definition of "consumer credit" covered by the regulation and bring any closed- or open-end loan within the scope of the regulation, other than a loan secured by real estate or a purchase-money loan (including a loan to finance the purchase of a vehicle).