Yesterday, President Obama announced that the Department of Defense is finalizing new rules under the Military Lending Act. The stated goal of these new regulations is to expand restrictions on certain types of consumer credit offered to US service members, including: all payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, and credit cards. The new rules prohibit a lender from charging an interest rate of more than 36% for these products.
The 36% rate cap is the same rate that the CFPB chose as the cut-off for its proposed payday regulations. Longer term consumer loans that exceed the cap will be subject to the upcoming rules.
The DoD’s new rules and the CFPB’s push to restrict certain higher cost consumer loans evidences an unprecedented trend among regulators to impose usury caps at the federal level. Even the National Bank Act, which makes national banks exempt from most state usury laws, generally relies on the usury laws of a bank’s home state to delimit the maximum rates a bank may charge.
What effect shifting usury laws from the state to federal level will have on the availability of credit remains to be seen.