Payday/High-cost Loans

Critical Military Financial Protections Adopted by Obama Administration and Department of Defense Go into Effect

New Rules Expand 36 Percent Interest and Fee Cap to Payday, Auto Title and Other Loans that Put Servicemembers’ Security Clearance and Careers at Risk

Washington, D.C. — Today, new military financial protections adopted by the Obama Administration and the Department of Defense in 2015 go into effect, protecting service members and their families from payday, car title and other high-cost loans that threaten their financial stability and put their security clearance at risk.

The new protections cap interest and fees at 36 percent for loans issued to service members and their families, closing loopholes in previous rules that allowed payday and car title lenders to target active duty service members with triple digit interest rate loans.

“For nearly a decade, high-cost lenders have exploited loopholes in critical military financial protections so they can continue lending at abusive rates far above the 36 percent rate cap established by Congress,” said Tom Feltner, Director of Financial Services at the Consumer Federation of America.  “The final rule, which goes into effect today, will ensure that service members and their families get the financial protections they deserve.”

In 2006, Congress passed the Military Lending Act which established a 36 percent interest and fee cap on loans made to service members and their families.  The 2007 rule implementing the MLA applied this rate cap to a small number of loan types, such as payday loans of 91 days or less and auto title loans of 181 day or less.  The 2007 rule also exempted payday and auto title loans structured as open-end credit.  By extending the term or restructuring the loan as open-end credit, lenders have continued to target more than one out of every ten active-duty service members with high-cost credit.

The final rule will:

  • Apply market-wide to all high-cost credit products that target service members, including payday, auto title and installment loans that were excluded from the 2007 protections;
  • Cap interest and add-on fees at 36 percent for loans issued to service members and their dependents; and
  • Preserve service members’ access to the courts by prohibiting mandatory arbitration agreements.

Research by the Department of Defense released in 2014 found that as many as one out of every ten enlisted service members continued to be targeted by high-cost credit designed to evade the Military Lending Act.  DoD estimates that the final rule will reduce involuntary separation caused by financial hardship, resulting in a savings of $13 million a year or more.

“We applaud the Obama Administration and DoD for adopting these important protections and ensuring that service members and their families will no longer be put at risk by abusive lending practices,” said Feltner.

Credit card lenders have an additional year to comply with the new protections.  The new protections apply only to active duty service members and their dependents.  In June 2016, the Consumer Financial Protection Bureau issued a proposed rule to stop the debt trap caused by payday, car title and high cost installment loans.  While the CFPB cannot cap interest rate, its proposed rule requires lenders to fully consider a borrower’s ability to repay without financial hardship or reborrowing.  When finalized, these protections will apply to all borrowers, including veterans.

Contact: Tom Feltner, 202-618-0310


The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.