Enacted in 2006, Military Lending Act helps service members avoid the cycle of debt that can be caused by payday loans and other high-interest credit products. The law caps the interest rate for these loans at 36% and requires special disclosures. The law also prohibits creditors from requiring service members to sign waivers of their rights or submit to arbitration in case of a dispute.
The Military Lending Act covers many types of credit, including payday loans, unsecured personal loans, vehicle title loans, deposit advance loans, certain installment loans, and tax refund anticipation loans. It also applies to mortgages and credit card accounts. The Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Federal Trade Commission are responsible for enforcing this act.
Benefits
The Military Lending Act (MLA) offers special financial protections for active duty service members, spouses, and dependent children. These include capping interest rates on many consumer loans ensuring that military families have access to affordable credit. The MLA also prohibits certain unfair practices that can aggravate debt problems and lead to financial hardship. In addition, it prevents lenders from requiring that covered military personnel waive their rights to legal recourse under the Servicemembers Civil Relief Act.
The MLA entitles military personnel to the following benefits:
A 36% interest rate cap on payday, vehicle title, and tax refund anticipation loans. These loans are typically offered with a short-term and high-interest rate, leading to a cycle of debt that can be difficult to break free from. In addition, the MLA caps the amount of money that a lender can charge in fees like application and participation fees, debt cancellation contracts, insurance, and other ancillary charges. It also prohibits the transfer, renewal, or refinance of these types of loans by the same creditor.
In addition, the MLA prohibits a creditor from requiring a covered military borrower to agree to mandatory arbitration or to give up their rights under the Servicemembers Civil Relief Act or the Military Lending Act. It also prohibits the use of wage allotments or military personal checks for loan repayment purposes and requires full disclosure of interest rates and payment obligations before a loan is issued.
It is important for military borrowers to understand these requirements so they can avoid predatory lending and make responsible financial decisions. If you have questions about the MLA or other consumer finance laws, contact your local Judge Advocate General’s (JAG) office or installation financial readiness office. The JAG office can help you locate a financial counselor and provide additional resources to address your financial situation.