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Money Matters

Understanding the Military Lending Act

Jan 24, 2022

The Military Lending Act: What you Need to Know!

Service members and military families receive specific lending and financial protections under a federal law known as the Military Lending Act (MLA). This sets the limit on the amount a creditor may charge on interest and fees and other costs, as well as other reasonable safeguards for military consumer loans. The MLA was expanded in recent years. If you’re in the military and need a loan to make ends meet, make sure you’re up to speed on the protections you’re afforded under these laws – and always check to ensure a lender or financial product is MLA compliant.

First enacted in 2006, Congress intended the MLA to provide active-duty (including active Guard or active Reserve duty) members of the military, their spouses, and dependents protections from certain lending practices. It provided specific new lending protections for military consumers, including:

  • A new Military Annual Percentage Rate (MAPR), requires lenders to include products like credit insurance into the rate when calculating the MAPR
  • A 36% MAPR interest rate cap on what lenders can charge
  • No prepayment penalties
  • No mandatory arbitration clauses waiving legal rights
  • No mandatory allotments
  • Expanded written and oral disclosures
  • Restrictions on loan roll-overs, renewals, and refinancing by some creditors

At that time, the MLA was narrowly applied to only three specific types of credit and loan products, including:

  • Payday Loans – loans of $2,000 or less, with a payback of fewer than 91 days
  • Vehicle Title Loans – terms of 181 days or less, and secured using the title of the borrower’s vehicle
  • Refund Anticipation Loans (RALs) – credit paid through the borrower’s income tax refund check, which was signed over to the lender

The MLA was significantly expanded in 2015 by the Department of Defense (DoD), covering additional types of everyday loans and credit products. These include:

  • All Payday Loans – including those that last longer than 91 days
  • Installment Loans – traditional personal loans paid with scheduled payments, terms, end date, etc. (excluded auto loans, mortgages, and personal property financing)
  • Credit Cards
  • Deposit Advance Loans
  • Overdraft Lines of Credit, etc.

For additional details on the MLA, check out the Consumer Financial Protection Bureau’s website.

In addition to MLA protections, there are several other practices lenders can and should adopt when working with military customers. For example, Pioneer Military Credit offers access to only structured, closed-ended traditional installment loans, fixed rates and terms and equal installment payments, a 15-day No-Cost Return Guarantee, free Financial Education resources, and has adopted its own industry-leading Responsible Lending Commitment for Military Customers. These practices reflect Pioneer’s ongoing commitment to military families, protections for its customers, and the high standards to which the company adheres.

This article is meant for informational purposes only and is not meant to be a substitute for legal advice from a civilian attorney or local JAG office.

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