News Release: Bipartisan Legislation Would Expand Military Lending Act Protections on Payday Loans to Veterans and Civilians Alike


Nov. 17, 2021

Carter Dougherty
(202) 251-6700

Bipartisan legislation would expand Military Lending Act protections on payday loans to veterans and civilians alike

Washington, DC – Americans for Financial Reform supports the introduction of the Veterans and Consumers Fair Credit Act of 2021.This legislation would extend the 36 percent APR cap on payday and car-title loans in the Military Lending Act (MLA) to cover all borrowers. The MLA caps interest rates on loans to active service members and their families, but veterans and civilians are not protected under current law.

The bipartisan House bill was introduced by Rep. Jesús “Chuy” Garcia (D-IL) and Rep. Glenn Grothman (R-WI) and is a companion to the Senate bill (S. 2508) that was introduced in August by Sens. Jack Reed (D-RI), Jeff Merkley (D-OR), Banking Committee Chairman Sherrod Brown (D-OH) and Sen. Chris Van Hollen (D-MD).

“For too long, payday and car-title lenders have been allowed to exploit the most economically vulnerable members of our communities,” said Candace Archer, payday and consumer campaigns manager for Americans for Financial Reform. “Congress is right to take the initiative to address this problem, especially as many families are struggling to recover from the economic devastation caused by the pandemic. This bill will establish nationwide safeguards to protect consumers from dangerous debt traps.”

Payday and car-title lenders often target veterans, people living paycheck to paycheck or on fixed incomes, and communities of color, promising quick access to money in a pinch. These loans typically come with triple-digit interest rates that make it extremely difficult to pay them back.

In fact, about 80 percent of borrowers have to take out another payday loan to repay the original loan, initiating a spiraling cycle often referred to as the “debt trap.” Every time a person takes out another loan, the overall amount of debt increases as interest and fees pile on. Collectively, the debt trap is draining $8 billion every year from borrowers. By prohibiting loans with an APR above 36 percent, this bill would fight the debt trap. Among its provisions:

  • Establishing a simple, common sense limit to stop predatory lending. Extending  the MLA’s 36 percent interest rate cap would return to the kinds of state usury laws that were in force in virtually every state for most of  the twentieth century.
  • Preventing hidden fees and loopholes. The 36 percent rate cap is based on the Pentagon’s successful rules for the MLA that include all additional fees or add-ons in the interest calculation.
  • A time tested approach. The MLA has worked to protect service members from payday abuses, and state rate caps have stopped the payday and car title debt trap for millions of people. A federal standard will help millions of additional people, and prevent evasions of existing state laws.
  • Making compliance easy. Compliance costs for industry will be low because creditors already understand how to comply and have systems in place for active duty military and their families.
  • Upholding stronger state protections. States like Arkansas, Illinois, South Dakota, North Carolina, New Hampshire, New York and Montana already have strong interest rate caps. The bill leaves in place any provisions of state laws that provide greater protections to consumers.

Opinion research shows voters, across party lines, are very critical of payday lending and support measures to stop its abuses. They also support state laws that cap interest rates on payday and car-title loans, similar to the Veterans and Consumers Fair Credit Act.