No discussion of military loans and military lending is complete without a review of the “Military Lending Act” (or MLA) of 2007. In 2007, Congress added an amendment to the Defense Authorization Act to add very strong federal protection for American servicemembers against certain types of predatory lenders. The Military Lending Act became effective on October 1, 2007.
Here’s everything you need to know about the Military Lending Act.
Who is Protected?
The following individuals are protected by the Act:
- Regular or reserve members of the U.S. Army, Navy, Marine Corps, Air Force, or Coast Guard.
- Anyone serving on Active Duty under a call or order that specifies service for more than 30 days.
- Members serving on Active Guard or Reserve Duty.
- Any “card-carrying” dependent of an active duty military member.
What Types of Credit Are Covered By the Military Loan Act?
The Military Loan Act specified 3 types of loans as “consumer credit” that are covered by the Act:
- Payday loans (at brick and mortar storefronts, over the internet, or made by phone or fax).
- Vehicle title loans (where the loan is for 181 days or less and are secured by the borrower’s car).
- Tax Refund Anticipation Loans (or “RALs”), where the tax refund goes to the creditor (like H&R Block) to repay the loan.
What Types of Loans Are NOT Covered by the Military Lending Act?
The following types of credit were not covered or limited by the Act:
- Residential mortgages (this includes refinancing, home equity loans or reverse mortgages).
- Car loans (where the loan is to finance the purchase or lease of an auto, and is secured by the vehicle).
- Open-ended credit (such as credit cards, bank overdraft lines of credit or any other truly open-ended form of credit).
- Any credit not subject to Truth in Lending Act disclosures (such as overdraft loans, etc.).
- Installment loans that last for more than 91 days, including all military installment lenders (such as Pioneer Military Lending), and loans not secured by a check or an ACH authorization.
- Rent to own loans.
A few other miscellaneous types of loans were also not covered. In some ways, all of these exclusions make it easier for certain predatory lenders to come up with products that evade the rules (but that’s the topic for another day!).
What Are the Protections Provided by the Military Lending Act?
Here are the main features of the Military Lending Act (which, again, apply to payday lenders, Car Title Lenders, and RAL lenders):
- Fees are capped at 36% APR. (this includes most fees as well as interest).
- A complete ban on securing a loan with a personal check, electronic authorization to debit a bank account, or title to a car or Military allotment.
- A complete ban on prepayment penalties.
- A complete ban on roll-overs, renewals, refinancing or consolidation (unless the renewal is at a better term for the borrower).
- A complete ban on things like mandatory arbitration clauses, any waiver of legal rights, etc.
- A requirement that Military members receive both Oral and Written disclosures before the credit is issued. (although certain loans can meet the oral disclosure requirement by providing a 1-800 number).
You can read more about the Military Lending Act here.
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