What is covered under the Military Lending Act?
Payday loans, overdraft lines of credit, and most installment loans are covered by the Military Lending Act.
As of October 3, 2016, most types of consumer loans offered to active-duty servicemembers and their dependents have to comply with the Military Lending Act (MLA). These credit products generally include:
- Payday loans, deposit advance products, and vehicle title loans;
- Overdraft lines of credit, but not traditional overdraft services; and
- Installment loans, with the exceptions noted below.
NOTE: Credit card companies didn’t have to comply with the MLA until October 3, 2017.
There are some loans the MLA doesn’t cover – namely, credit that is secured by the property being purchased. These loans include:
- Residential mortgages (financing to buy or build a home that is secured by the home), mortgage refinances, home equity loans or lines of credit, or reverse mortgages;
- A loan to buy a motor vehicle when the credit is secured by the motor vehicle you are buying; and
- A loan to buy personal property when the credit is secured by the property you’re buying, like jewelry or a home appliance.
The MLA applies to active-duty servicemembers (including those on active Guard or active Reserve duty) and covered dependents.
Your rights under the MLA include:
- A 36% interest cap. You can’t be charged more than a 36% Military Annual Percentage Rate (MAPR), which generally includes the following costs in calculating your interest rate:
- Finance charges,
- Credit insurance premiums or fees,
- Add-on products sold in connection with the credit, and
- Other fees, like application or participation fees, with some exceptions.
- No mandatory waivers of consumer protection laws. A creditor can’t require you to submit to mandatory arbitration or give up certain rights you have under State or Federal laws, like the Servicemembers Civil Relief Act.
- No mandatory allotments. A creditor can’t require you to create a military allotment to get the loan. An allotment is an automatic amount of money taken from your paycheck to pay back your loan.
- No prepayment penalty. A creditor can’t charge a penalty if you pay back part – or all – of the loan early.
More information about the MLA can be found here. If you have an issue with a consumer loan, you should contact your closest legal assistance (JAG) office. You can also submit a complaint to the CFPB.