American Usury Law and the Military Lending Act

Abstract

In 2006 Congress adopted the Military Lending Act (“MLA”) to protect active duty military service members and their families from high-cost, predatory loans. The core provision of the statute is a usury limit capping interest rates at no more than 36 percent per annum. The United States Department of Defense finalized regulations implementing the MLA in 2007 and then later issued substantially revised regulations in 2015. The MLA is America’s first modern, national usury law that is applicable to all types of creditors and was adopted after the evolution of our national credit card market. After over a decade, the MLA’s consumer protections have proven exceptionally popular among military service members and their support organizations. The law has not generated significant litigation and has not dried up access to mainstream credit products for military families. In this Article we provide a contemporary historical record of the origin and evolution of the law and evaluate lessons learned from its implementation. In particular, we argue the MLA provides a proven template Congress or individual state legislatures could adopt to better protect military veterans and, indeed, all consumers from predatory, high-cost debt. We conclude with an appendix that includes a model statute Congress or state legislatures could consider adopting to expand the MLA’s protections to cover military veterans and all consumers.

Keywords: usury, usurious, predatory lending, interest rates, Military Lending Act, MLA, credit, debt, payday loans, payday lending, Department of Defense

JEL Classification: Z18