Military families are particularly vulnerable to bad loans.

That’s why Congress passed the Military Lending Act (MLA) in 2006 – to protect military personnel and their dependents from high cost credit products. But the rules that resulted from the law are tightly written and the Consumer Financial Protection Bureau (CFPB) says this creates “loopholes” that allow abusive practices to continue.

CFPB director Richard Cordray likens the current situation to “sending a soldier into combat with a bulletproof vest but no helmet”.

In a new report, the CFPB supports a proposal by the Department of Defense (DOD) to extend these rules to cover more consumer credit transactions marketed to military families.

However, the American Bankers Association (ABA) says any additional requirements for military loans would have “negative consequences” for members of the military and military families. For example, the DOD’s proposal would make them ineligible for traditional financial products, including popular credit cards, ABA Senior Vice President Nessa Feddis told NBC News.

It is like “sending a soldier into combat with a bulletproof vest but no helmet”.

Financial institutions and hire-purchase retailers believe the current regulations are working well and don’t need to be revised – and they told DOD they oppose any rule changes. The American Bankers Association said any additional requirements for military loans “would have negative consequences for members of the military and military families.”

What flaws are we talking about?

Current rules cap the Military Annual Percentage Rate (MAPR) at 36%. The MAPR includes certain credit costs, such as: interest, application and participation fees, as well as the cost of credit insurance or other complementary products.

But this limit only applies to three specific financial products: certain payday loans, certain auto title loans, and certain tax refund anticipation loans.

Holly Petraeus, deputy director of military affairs at CFPB, told NBC News that there are “a whole range of ways to escape current restrictions” and lend the military to well over 36%.

For example, the interest limit on auto title loans only applies to those that last six months or less. All the lender has to do to get around the limit is to extend the term of the loan. The current rules only cover payday loans up to $ 2,000. Any loan larger than that and there is no rate cap.

The rule changes proposed by the DOD would also place limits on other types of credit that are currently not covered at all, including deposit advance products offered by some financial institutions. They would also cover payday loans of any length and amount, as well as more auto title and installment loans.

Military debt can create serious problems

Deanna O’Neal, Director of Navy-Marine Corps Relief Society The Iwakuni, Japan office says online payday loans have become a real problem, and the economic fallout from these high-interest cash advances can be devastating for troops.

“It’s difficult because these kids are young and they don’t have any real financial education anymore,” she said.

O’Neal’s office worked with Lance Corporal Jacob Eakle, a 19-year-old Marine from Tennessee who racked up a whopping $ 18,000 in debt for an emergency trip when his mother needed heart surgery. .

After maximizing his personal loans, he turned to payday lenders because they were easy to get. He had no idea the RPA on some of those loans was as high as 500 percent, until he went to the Navy-Marine Corps Relief Society for help.

“These interest rates are way too high and it puts a lot of financial pressure on anyone they benefit from,” he told NBC News from Japan.

Eakle said the mountain of debt he’s trying to pay off is making everything in his life a lot harder right now.

“A bad financial situation can also affect their military preparation,” says Petraeus. “If they’re burdened with debt and all the challenges that come with it, they’re really not 100% focused on their military work. And in the worst case, it can result in the revocation of their security clearances. “

Herb Weisbaum is the ConsumerMan. Follow him on Facebook and Twitter or visit The Consumer Man website.