The Military Lending Act, or MLA, is supposed to protect military service personnel from abusive financial products. Unfortunately, loopholes and lax enforcement have limited the law's effectiveness.
Now, Congress may step up to remedy the situation through amendments to the National Defense Authorization Act, according to the Consumer Federation of America, or CFA, a consumer advocacy organization in Washington, D.C.
A June 2012 consumer federation report found some lenders had exploited loopholes in the MLA's definitions so they could offer loans that were essentially the same as those the Defense Department attempted to prohibit. Earlier studies also found predatory loans had been offered to military service members.
Specifically, the new legislation would:
- Empower the Consumer Financial Protection Bureau, or CFPB, to enforce the Military Lending Act. The CFPB can supervise payday lenders, but can't cite MLA violations during its examinations.
- Empower the Federal Trade Commission to enforce the MLA. The FTC manages a repository for service members' complaints about financial products but cannot act when those complaints identify violations of the Military Lending Act.
- Ensure that lenders cannot evade state credit laws by claiming they originate loans only to nonresident service members stationed at military bases.
- Protect dependents of service members from abusive credit products and practices by standardizing the definition of covered military dependents to help creditors identify who is covered.
- Require the U.S. Department of Defense to review the effectiveness of existing MLA rules every two years in consultation with financial regulators, including the CFPB.
- Require the Defense Department to conduct a study of credit products and practices and identify new credit products that harm service members. The study would be developed in consultation with consumer protection advocacy groups and the financial services industry.
Jean Ann Fox, senior adviser for financial services at the CFA, said in a statement that the amendments would help to ensure financial protections for service members were adequately enforced.
The House bill is H.R. 4310. The Senate bill, which passed in early December, is S. 3254.
Do you think these proposals would protect service members if they were enacted into law?
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