The Military Lending Act

In an alternate universe, every American would be protected from predatory lenders. In this universe, the MLA protects those who work hard for Americans and face unique challenges that can complicate their financial situation: the military.

The Military Lending Act isn’t perfect, but it does offer assistance and support for those in the military.

Military Lending Act Benefits

The primary benefit of the Military Lending Act is that it limits annual interest to 36% and prohibits predatory lenders from charging much higher rates, especially for short-term loans, such as payday loans.

The 36% Military Annual Percentage Rate, or MAPR, is calculated by including finance charges, credit insurance premiums, application fees, participation fees, or fees for debt cancellation contracts.

Some lenders actually charge you a penalty if you pay off your loan early. The MLA prohibits that, which is helpful to a young person, especially one dealing with military finances. Without the MLA, lenders can prey on someone who needs short-term assistance but wants to get out of debt as soon as possible.

The MLA does not allow certain methods of bypassing the limits, such as waiving your legal rights. Lenders may try to trap borrowers into agreeing not to go to court by using arbitration to resolve disputes. The MLA prevents that, assuring you the right to go to court or join a class-action lawsuit.

The law prevents lenders from forcing allotments, which are payments that come out of your military pay. In turn, lenders do not have to lend money if they don’t wish to adhere to MLA limits.

Military Lending Act Eligibility

The MLA was enacted to provide financial protection for people preoccupied with serving their country.

That includes active-duty members of the Army, Marine Corps, Navy, Air Force, Coast Guard and, most recently, the Space Force. The MLA is designed to protect service members whose service made them vulnerable to predatory lenders.

The MLA also covers members of the Reserves who are on active duty, as well as National Guard members mobilized for more than 30 days.

Spouses of these service members, who often manage finances, are covered as well. Dependents are covered, provided they are enrolled in DEERS – the Defense Enrollment Eligibility Reporting System. Members would be well served by enrolling their dependents in DEERS before they find they need it.

Military Lending Act Requirements for Creditors

In order to offer credit or loans to active military service members, creditors must comply with the limits set by the MLA. These include interest rates that don’t exceed 36%, as well as disclosures regarding the Military Annual Percentage Rate, a clear description of the payment obligations, and no attempts to violate rules governing prepayment penalties or use of military allotment.

It is the creditor’s responsibility to check with the Department of Defense/War database to be certain the MLA covers an applicant.

If a creditor violates rules or limits set by the MLA, the loan could be rendered invalid. Service members can file complaints with the Consumer Financial Protection Bureau or with the Department of Justice’s Office of Civil Rights.

Additional Financial Assistance for Military Members

If a loan is not the right solution for the moment, there are additional financial resources available for service members and veterans.

There is a difference between civilian options and options for military debt relief. Some strategies are available to civilians but not to active-duty military.

One source that serves military and civilians is nonprofit credit counseling. That is a good option for anyone managing their debt. But military credit counseling offers advice and assistance specifically for those handling the unique challenges – and resources – created by and for military service members.

FAQs

What loans are not covered by the Military Lending Act?

Residential mortgages that are secured by the home. That includes loans to buy or build a home. Mortgage refinances, home equity loans, home equity lines of credit, and reverse mortgages are not covered. Auto loans when the lender can repossess the vehicle you are buying.

The law does not apply for personal property loans when the lender can repossess the item, such as a home appliance.

What is the difference between the SCRA and MLA?

The Servicemembers Civil Relief Act prevents active military from civil actions while they are serving. This could mean foreclosures, garnishments, evictions, and judgments. The SCRA is meant to protect active service members from civilian legal concerns while they are active. It also caps interest rates on pre-military debts at 6% and safeguards service members from identity theft. The MLA protects active military from predatory lending during their period of service.

What is the maximum interest rate for the MLA?

The 36% Military Annual Percentage Rate is the maximum interest rate allowed under the MLA. The MAPR includes finance charges, credit insurance, and fees such as application, participation, and debt cancellation fees.