About 500 federal credit unions offer payday alternative loans, the NCUA said. They hold about $23 million in outstanding loans, with an average loan balance of $382. The NCUA added that some of these payday alternatives include a savings component and access to financial literacy programs.

The proposed rule would also add credit cards and overdraft lines of credit. As with payday alternative loans, the combined interest rates and fees for these products could exceed the 36% military APR cap, even if the interest rate is below the general 18% interest rate cap for federal credit unions, the NCUA said.

The proposed rule did, however, exempt residential mortgage loans and most auto loans.

The proposal would update regulations the DOD put into place in 2007 to implement the MLA. The MLA capped the annual interest rate lenders can charge members of the military to no more than 36%. However, in its regulations, DOD defined those products very specifically, to include only closed-end payday loans for no more than $2,000 and with a term of no more than 91 days, closed-end auto title loans with a term of 181 days or fewer, and closed-end tax refund anticipation loans.

In response, some lenders changed their products so that they fell outside of these narrow definitions, the DOD said. Additionally, the DOD said other products that had not been previously covered had come to its attention.

“NAFCU strongly supports consumer protections and notes that credit unions are already subject to a cap on finance charges,” Hunt said. “We want to ensure that there are no unintended consequences from this rulemaking that would prevent credit unions, particularly those operating on military installations, from providing the safe consumer friendly products the men and women of the Armed Services have come to depend on.”

Read more: CFPB's Cordray, Sen. Udall praise proposal …

CFPB Director Richard Cordray praised the proposal in a release.

“As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military. They lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule,” he said.

“This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities. By broadening the types of credit covered under the law, this proposal would carry out the will of Congress by enabling the CFPB to stop lenders from harming service members in ways the law was intended to stop.

Sen. Mark Udall (D-Colo.), who serves on the U.S. Senate Armed Services Committee and has sponsored bills that would raise the member business lending cap, also lauded the proposal in a release.

Udall said he and several of his colleagues urged U.S. Secretary of Defense Chuck Hagel to take these aggressive steps to safeguard service members.

“Many of our men and women in uniform have been victimized by predatory lenders who charge outrageous interest rates, putting troops at risk. That's why I have led the fight to get the Pentagon to overhaul regulations implementing the Military Lending Act and ensure service members and their families are not victimized by scammers and unscrupulous lenders,” Udall said. “I am proud the U.S. Department of Defense responded to my call and took these common-sense steps. I will keep fighting, though, to ensure the Pentagon and Consumer Financial Protection Bureau continue to work to protect our service members from predatory lending schemes.”

Udall's office has not yet returned a call seeking comment on the proposal's effect on credit union lending.