It's too early to tell whether rules protecting troops and families from outlandish lending rates have strengthened service members' finances, advocates said, but the new guidelines have drawn increased interest from lenders and borrowers alike.

Chief among the rules, which took effect in October: A maximum of 36 percent annual percentage rate on most consumer loans to active-duty service members and their dependents, to include military installment loans, overdraft lines of credit, deposit advance loans and others. That doesn't include credit cards, but it will as of Oct. 3 this year.  

Previous lending rules, part of the Military Lending Act of 2006, applied only to payday loans, vehicle title loans and refund anticipation loans. But some of those lenders changed the terms of their products so that they would fall outside the Defense Department's definition of "payday loans," which would allow them to boost their rates.  

So in July 2015, defense officials announced that they were expanding existing credit protections for troops and families against predatory lenders. The new rules covered all the types of credit covered under the federal Truth in Lending Act. 


While many would say that a 36 percent interest rate is still expensive, they acknowledge it's better than interest rates of 300 percent or more that some service members have paid in the past. 

"I would say very emphatically we thought the Defense Department was very prudent in expanding the scope of the products covered by the Military Lending Act," said Paul Kantwill, assistant director for servicemember affairs at the Consumer Financial Protection Bureau. "The old rule was effective in what it did, but we saw substantial evasions very, very quickly because it was not comprehensive enough."

The new regulation "is a much tighter rule and more comprehensive rule, and consequently I think military consumers will be much better protected," Kantwill said.

The CFPB hasn't yet seen much empirical data or even anecdotal evidence of the effects on service members, he said. 

"That's normal, because it is so early. But one thing I can say is that we have seen an incredible rise in interest in the [materials] we produce that deal with the Military Lending Act, payday loans, those sorts of materials," said Kantwill, a retired Army colonel who was previously director of legal policy for the undersecretary of defense for personnel and readiness. 

"That indicates to us that people are paying attention, that people are asking questions. Well-informed consumers are better consumers, as far as we're concerned." 

The new rules also are frequent topics in Kantwill's visits to installations, he said.  

Generally, most loans' annual percentage rate would be lower than the Military Annual Percentage Rate of 36 percent — which has to include application fees and certain other fees in the calculation.

But high-interest loans are still available to everyone else in the civilian community — to include military retirees and those who have separated from the military. So lenders are required to check a borrower's military status with the Defense Department's Defense Manpower Data Center database or one of the nationwide credit reporting agencies, all of which have access to the DoD database. In the initial implementation, some borrowers were not being truthful about their military status in order to get access to these quick, but often expensive, loans. 

Lenders must provide written and oral disclosures to the borrower about the military APR and the payment obligations. Lenders also can't require service members to submit to mandatory arbitration or give up their rights under state or federal laws such as the Servicemembers Civil Relief Act. 

DoD doesn't enforce the rules; that's up to federal regulators of financial institutions, such as the CFPB and regulators of banks and credit unions.

When DoD was going through the rule-making process, concerns were raised by various lenders that if some credit products were no longer available because of the lower interest rates allowed, there wouldn't be enough other available financial products that could meet service members' needs. However, Kantwill noted, the military relief societies can help fill the gap with their grants or no-interest loans in financial emergencies.

"The aid societies were very willing, very interested in filling those gaps," said Kantwill. "They assured [DoD] at the time that they would be able to. And they continue to monitor things very closely."

There's been no indication that the relief societies have been overwhelmed by additional requests, Kantwill said. Army Emergency Relief officials have seen no changes in requests for assistance since the new rules went into effect, said retired Army Col. C. Eldon Mullis, AER's deputy director and chief operating officer.

Officials at Navy-Marine Corps Relief Society aren't able to isolate any changes that have been triggered by the new rules either, at this point, said Cheri Nylen, director of NMCRS's casework division.

"Of course we're very pleased with the changes and the protections that were extended, but we really don't have any clear indicators that we have seen a change as yet," Nylen said.

One of the most important changes wasn't a rate limit or other regulation, Nylen said, but a congressional mandate for further financial education for service members, targeted at various life and career points.

"That will have the most resounding impact on our current active-duty population," she said. "It's a topic we can never stop talking about because we'll always have new and junior personnel who weren't even out of school yet when laws were passed and put into place for their protection."  

Senior reporter Karen Jowers writes about military families, quality of life and consumer issues. She can be reached at kjowers@militarytimes.com.