Passed by Congress in 2007, the MLA was designed to ensure that military service members and their families have access to safe and affordable small dollar loans and credit. It set a 36 percent annual percentage rate cap on certain loans and credit products offered to people who serve in the armed forces. While the law curtailed many of the worst industry practices, it was not expansive enough to cover the wide range of high-cost, predatory products that exist today. The DoD’s proposed changes aim to expand existing protections for military service members by changing the definition of “consumer credit” to include all credit under the Truth in Lending Act. The current definition covers only payday loans for $2,000 or less with terms of 91 days or less, auto title loans with terms of 181 days or less, and tax refund anticipation loans. Lenders will no longer be able to skirt the law by offering loans with longer terms or higher principal amounts.


These new rules will go a long way toward extending protections to Illinois service members, specifically. In Illinois, the Payday Loan Reform Act (PLRA) and Consumer Installment Loan Act (CILA) were modified in 2010 and now include a number of loans that are not protected by the current MLA rules. Payday installment loans have terms longer than 91 days and interest rates up to 400 percent APR. Small consumer installment loans also have terms longer than 91 days and interest rates up to 99 percent APR. There is no rate cap or maximum term for auto title loans in Illinois. A recent report released by the Illinois Department of Financial and Professional Regulation stated that just under 90 percent of the auto title loans made in 2013 had loan terms longer than 360 days. The average APR for auto title loans in Illinois is 201 percent. Because all of these products fall outside of the current definition of “consumer credit” in the MLA, they are not subject to the 36 percent APR cap under the MLA.


In one example from our state, the spouse of a wounded warrior in the Illinois National Guard took out an auto title loan for $2,575. The loan had a term of longer than 181 days, so it was not covered by the MLA. With an APR of 300 percent, the finance charges on the loan were $5,720.24, amounting to a total cost of $8,295.24.


When the MLA was passed by Congress in 2007, it was a step in the right direction to protect military servicemembers and their families. These proposed DoD rules are another strong step in the right direction. Woodstock Institute would like to see the DoD expand the rules further to address products such as overdraft and rent-to-own transactions, both of which can lead to the same cycle of debt produced by payday and auto title loans.


Woodstock Institute strongly supports the proposed changes to the MLA in order to secure safe and affordable financial products for military service members. Members of the armed forces should not have to worry that taking out a loan is going to lead them into a cycle of debt that is difficult to escape. We commend the Department for taking action.


Comments on the proposed rule are due by December 26, and a final rule is expected to be issued sometime in 2015.