In spite of the Military Lending Act, a law intended to prevent predatory lenders from gouging military personnel with exorbitant interest rates and mountains of fees, some of these lenders have figured out ways to work around the very specific limits of the law, targeting active-duty service members with loans that are almost indistinguishable from the ones forbidden by the Act.

ProPublica has a detailed story on the many ways in which lenders of high-interest, short-term loans are circumventing the Military Lending Act, which effectively forbids the offering of payday and auto-title loans to active-duty service members by capping interest rates on all affected loans at 36%, significantly less than the triple-digit APRs typically seen with these types of loans.

In spite of the law, which went into effect in 2006, the Consumer Federation of America says that payday lenders haven’t vanished from around military bases. The group says that in 2012 there were the same number of payday stores in the area of Fort Hood in Texas that there were when the Act kicked in six years earlier.

Rather than be scared off by the law, these lenders have just adapted.

For example, there’s the Marine staff sergeant in South Carolina who, in desperate need of cash, signed up for a $1,600 auto-title loan — in which the borrower hands over the title to their car and a copy of their keys as collateral — that required him to pay back more than $17,000 over the course of 32 months, an APR of around 400%.

So why didn’t the Military Lending Act stop him from taking out the loan? Because it only affects title loans with terms of up to six months. Curiously, while the official term of the loan was 32 months, the contract included an “Summer Fun Program Payoff” option that would have allowed the sergeant to pay it back within one month with an APR of only 110%.

Service members who go to TitleMax for a loan are referred to its sister company InstaLoan for an installment loan, which would typically not be covered by the Military Lending Act because the terms are longer than a standard payday loan and they don’t require handing over the title to one’s vehicle. However, installment loans are often bogged down with unnecessary insurance add-ons that can effectively double the APR on a loan.

Similar to the longer-than-usual auto-title loan, payday lending companies are getting around the Military Lending Act by stretching out their terms so they don’t fall within the standards set out by the law.

Payday loan terms are typically only a few weeks — though the typical payday borrower repeatedly takes out new loans to cover the previous ones — and the Military Lending Act regulates interest rates on loans with terms under three months. So what do payday lenders do? Extend their terms.

ProPublica gives the example of one lender — one of many with locations near military bases — that offers a five-month, $400 loan with an APR of 585%.

A lawsuit filed in 2011 alleges that one of the nation’s largest title lenders has been completely disregarding the law, citing three active-duty soldiers who took out 30-day loans with 150% APRs. All claim to have identified themselves as military personnel and shown their military ID when applying for the loans.

The lender tried, and failed, to argue that the loans weren’t covered by the Act, claiming the plaintiffs had actually sold their cars to the lender while retaining the option to buy the vehicles back at a higher price.

These work-arounds and alleged flouting of the Military Lending Act have finally begun to get the attention of lawmakers and regulators.

“We have to revisit this,” said Sen. Dick Durbin, who chairs the defense appropriations subcommittee. “If we’re serious about protecting military families from exploitation, this law has to be a lot tighter.”

A rep for the Department of Defense, which defines which loans the Military Lending Act covers, tells ProPublica it has begun reviewing the law.

Why are military personnel falling for these predatory practices, especially when the military offers financial aid to soldiers in need, sometimes in the form of zero-interest loans? Some say it’s because a soldier can lose his or her security clearance if they are found to be in debt. So some choose to risk a loan with extremely high-interest rather than reveal to their superiors that they are facing a financial crisis.

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