Americans for Financial Reform welcomes the new and stronger Military Lending Act rules proposed today by the Department of Defense. With this new proposal, the Department is taking much-needed action to close dangerous loopholes in the original regulations implementing the bipartisan Military Lending Act (MLA) of 2007.

Those rules applied the protections of the MLA solely to loans secured by checks or vehicle titles for up to 91 and 181 days respectively. By focusing narrowly on high-cost payday and car-title loans in their conventional form, the rules created an opening for lenders to develop similarly abusive products of longer duration. As a result, servicemembers have continued to be targeted for loans with fees and interest far in excess of the 36-percent annual rate cap set by the law.

In 2011, for example, an 18-year veteran of the Marine Corps based in South Carolina took out a car-title loan of $1,615. Over the next three years, he found himself facing finance charges of more than $15,600 – nearly ten times the amount he had borrowed. To compound matters, he was barred from complaining in court by a forced-arbitration clause – another loan feature that would have been illegal if the loan had been covered by the MLA. (For more cases illustrating the weaknesses of the law, see The Military Lending Act Five Years Later, a report put out by the Consumer Federation of America.)

We urge the Department of Defense to proceed expeditiously to finalize and implement this new proposal, which would carry out the MLA’s clear intent by providing broad protection for servicemembers against loans designed to lead them into a cycle of debt. We hope to see the Consumer Financial Protection Bureau move forward soon to address abusive small dollar loan practices in the broader market.