The Military Lending Act, or MLA, is a powerful legislation that protects the financial well-being of Servicemembers who are on active duty in the U.S. military.
While MLA does not cover residential mortgages like VA loans to which Servicemembers may be eligible, it does afford them and their eligible family members key protections when incurring several types of consumer credit.
If you are an active duty Servicemember, what are your consumer rights under MLA?
MLA: The Statute and Its Definitions
The relevant law covers certain consumer credit transactions of borrowers who are:
- Covered members: (i) members of the Armed Forces (Air Force, Army, Coast Guard, Marine Corps, Navy) serving on active duty and (ii) members on Active Guard and Reserve duty.
- Dependents: A covered member’s spouse and children below 21, 23, or of any age pursuant to Section 101(4) of Title 38 of the U.S. Code.
By consumer credit, it is debt offered to any of the covered borrowers above for “ personal, family or household purpose” that contains two characteristics:
- Subject to a finance charge, e.g. interest rate
- Payable in more than four installments as set forth in a written agreement
These are consumer credit transactions covered by MLA, as outlined by the CFPB:
- Credit cards (starting Oct. 3, 2017)
- Deposit advance products
- Motor vehicle title loans
- Overdraft lines of credit
- Payday loans
- Tax refund anticipation loans
- Certain installment loans
MLA, however, does not cover transactions that are secured by the property being purchased or financed by the credit. Examples are residential mortgages, car loans and other loans securing personal property being purchased.
How Does MLA Benefit Servicemembers?
The statute sets out a “bill of rights” governing a Servicemember’s consumer credit transaction, from providing access to important loan disclosures to safeguards from unfavorable lending practices.
- The MAPR of the loan must not exceed 36%. MLA outlines how MAPR, or Military Annual Percentage Rate, is calculated on closed-end and open-end loans that may include credit insurance premiums, finance charges, participation fees, and application fees, as applicable.
- The creditor is required to provide you with certain loan disclosures before or at the time of being obligated to the loan. These mandatory disclosures include a clear explanation of the MAPR and the actual payment obligation.
- In case of dispute, the creditor is prohibited by law to require you to waive your right to legal recourse pursuant to the Servicemembers Civil Relief Act (SCRA) or any other applicable laws.
- The creditor can’t prohibit you to prepay or pay off your loan early. It is not authorized to collect penalty fees for this prepayment.
- The creditor is barred from requiring you to repay your loan by setting up a military allotment. The finance company can’t also require you to deposit your salary as a form of qualification for the loan.
- The creditor can’t require you to set up a military allotment to repay your loan. It also can’t access your savings or deposit account for purpose of loan payment collection, without your permission pursuant to relevant laws.
To determine your eligibility for MLA protections, you can submit a request certifying your active duty status at https://mla.dmdc.osd.mil/