Financial Protections and the Military Lending Act
In 2006 the Military Lending Act (MLA) was passed for the primary purpose of regulating personal consumer loans for active duty military, such as payday loans. The Department of Defense had become increasingly concerned about the predatory lending practices of some companies that charged very high interest rates, sometimes as high as 800%. Initially, the MLA only addressed direct personal loans, but it has been expanded over time to include certain lending practices at car dealerships and, in 2017, to credit cards.
What Loans are Covered by the MLA?
The Military Lending Act is limited in scope to consumer personal finance loans offered to active duty service members. It isn't available to the general public, just active duty military and their families. The type of loans covered are those unsecured by personal property and include:
- Payday loans;
- Deposit advance products;
- Vehicle title loans;
- Guaranteed Auto Protection (GAP) Insurance;
- Tax refund loans;
- Overdraft lines of credit; and
- Personal installment loans.
What Loans Aren't Covered by the MLA?
The MLA doesn't apply to loans for the purchase of tangible property when the loan itself is secured by that property (i.e. property that the lender can recover if payments are in default). The best example of these types of loans are home mortgages, but they would also include car loans, boat loans, or loans for home appliances when the appliance is the security for the loan.
Key Provisions of the MLA
Interest Rate Cap
The MLA caps interest rates at 36%, which is calculated at an annualized rate known as the Military Annual Percentage Rate. The MAPR rate is similar to an annual percentage rate (APR), but includes additional items such as fees, and charges for credit insurance. This 36% cap is applicable to:
- Finance charges;
- Credit insurance;
- Add-on products sold relating to credit; and
- Any other fees such as application or participation fees (with some exceptions).
Oral and Written Disclosures
The MLA requires lenders to disclose both orally and in writing the annual interest rate and a clear description of the payment obligations. In addition, all disclosures required by the Truth in Lending Act (TILA) must be given.
No Mandatory Arbitration
The Act prohibits lenders from requiring service members to submit to mandatory arbitration.
No Waiver of Rights
Service members cannot be compelled to waive their rights under the Servicemembers Civil Relief Act.
No Prepayment Penalties
A lender is prohibited from charging a penalty or fee for prepaying all or part of a loan.
Penalties for Violating the MLA
There severe consequences for lenders who violate the MLA. These penalties include, among other things:
- Fines, prison, or both (knowing violations of the MLA are misdemeanors);
- The voiding of any contract in violation of the MLA;
- Civil liability of actual and punitive damages; and
- Attorney's fees and costs.
The statute of limitations for filing a claim is two years from the date of discovery up to a maximum of five years.
Other Protections for Service Members
The Truth in Lending Act requires creditors who deal with consumers to make certain written disclosures concerning finance charges and related details of credit transactions. TILA applies to mortgages, vehicle loans, credit cards and other consumer loans.
The Servicemembers Civil Relief Act provides financial protections for service members and their families as they enter active duty. It covers:
- Rental agreements;
- Security deposits;
- Prepaid rent;
- Installment contracts;
- Credit card interest rates;
- Mortgage foreclosures;
- Civil judicial proceedings;
- Automobile leases;
- Life and health insurance; and
- Income tax payments.
Dealing with a Military Lending Act Violation? An Attorney Can Help
If you think that you've been taken advantage of by an unscrupulous creditor, there are any number of legal protections that could apply. You may have a cause of action under the MLA, the TILA or the Servicemembers Civil Relief Act. Your best bet is to speak with an experienced military law attorney will be able to help you determine your next steps.
Contact a qualified military law attorney to help you with military-related issues.