The Obama administration is proposing regulations to protect military service members and their families from being abused by lenders. While the intentions are fine, the new rules would make it harder for every American – military or civilian – to access simple, highly beneficial credit options, such as traditional installment loans. 

Take the following scenario:  a young couple goes to the office of an installment lender to apply for a loan to cover an emergency expense, to repair a furnace or pay a medical bill.  Ordinarily, it would only take less than an hour for the couple to fill out an application and get approval.  In many cases, the couple would get the money the same day. 


But under one particularly egregious provision of the proposal (part of the Military Lending Act, or MLA), this transaction could take several days and impair the couple’s ability to get the funds it needs for the emergency. 

Here’s why.  Under current law, lending institutions ask whether an applicant is a member or dependent of the U.S. military.  For such military members, there are special disclosures and protections such as a ban on prepayment penalties. 

But under the proposed changes to the MLA, rather than asking borrowers merely to identify themselves as service members, the new regulations require lenders to determine the service status of credit applicants.  Every credit applicant—from young adults to seniors, whether or not they have ever been associated with the military—would have to wait for the lender to check a Department of Defense (DoD) database to verify whether the potential borrower is a member of one of the military services.   

Thus, a regulation that now applies only to approximately 3 to 3.5 million households will be extended to affect more than 100 million American households and 300 million transactions per year.   

Compounding the problem:  each company would be limited to 250,000 inquiries of the DoD database per day, far short of the number of transactions conducted daily by many lenders. And the Pentagon’s website may not be reliable enough to handle even this small volume of inquiries; the website was down twice in the month of September alone. 

As a result, if implemented, the new regulations will lead to substantial delays in obtaining credit for all consumers, service members and civilians alike.  

The Defense Department has provided scant evidence that there is a problem that would require such a burdensome requirement.  It seems that a few applicants are failing to identify themselves as service members on loan applications, either on purpose, or because they do not understand the question.  But surely it is unfair to penalize all potential borrowers for what is essentially an in-house problem for the DoD among a very small group of people.   

The service-status check is clearly a vast overreach of the proposed new MLA rule.  While the DoD has a legitimate interest in curtailing unsavory lending practices —such as payday loans and vehicle title loans— among service members, the new rule also unfairly targets legitimate community-based lenders that make traditional installment loans.  In contrast to payday loans and similar products, these loans represent an affordable, safe form of small-dollar lending.  

Legitimate lenders and the DoD have a shared interest in ensuring that service members and their families have access to affordable consumer credit.  The Administration should go back to the drawing board and consider the unintended consequences this regulation has on every American’s access to credit. 

Himpler is the executive vice president of the American Financial Services Association, the national trade association for the consumer credit industry. ASFA’s mission is to promote responsible, ethical lending to responsible, informed borrowers and to improve and protect consumer’s access to credit.