The Military Lending Act (MLA) provides special protections for active duty servicemembers, including limiting the interest rates that may be charged on many types of consumer loans, as well as other protections. The MLA was passed by Congress due to ongoing predatory lending practices against servicemembers. It is important for servicemembers to understand exactly what protections are provided and what to do if a lender refuses to comply.
Due to these predatory lending practices against servicemembers of all branches of the military, as well as their dependents, in 2006 Congress recognized the need to pass legislation providing protections to servicemembers specifically with regard to limitations on the cost and terms of extensions of credit. Initially passed in 2006, the MLA was amended in 2015 to include additional types of loans and extensions of credit.
Servicemember Protections Under the MLA
Under the MLA, servicemembers, their spouses, and dependents cannot be charged more than a 36% annual interest rate with qualifying loans. The interest rate calculation includes finance charges, credit insurance premiums, add-on credit protection products, and additional fees. A creditor cannot require the servicemember or dependent to submit to mandatory arbitration and cannot require waiver of certain rights under state or federal law, such as Servicemembers Civil Relief Act protections. Under the MLA, a creditor cannot require creation of a voluntary allotment for payment as a condition of making the loan and cannot impose a prepayment penalty if part or all the loan is paid back early.
The MLA is intended to provide broad protections for Servicemembers. Types of consumer loans or extensions of credit that qualify for MLA protection include, but are not limited to, payday loans, deposit advance loans, tax refund anticipation loans, vehicle title loans, bank overdraft lines of credit, installment loans, certain student loans, and credit cards.
When Does the MLA Not Apply?
The MLA does not apply to all types of loans, and the following types of loans are excluded: residential mortgages (any credit transaction secured by an interest in a dwelling), including financing to buy or build a home that is secured by the property, mortgage refinances, home equity loans or lines of credit, or reverse mortgages; loans to purchase a motor vehicle when the loan is secured by the motor vehicle being purchased; loans to purchase other personal property when the loan is secured by the property being purchased (may include store credit to purchase appliances or furniture).
MLA Remedies for Violations
The MLA also sets forth specific remedies regarding loans that violate the law. In particular, these can include a criminal misdemeanor for a lender committing knowing violations, a court finding that the loan contract was void from the start, a court finding that a prohibited arbitration clause is not enforceable or declaratory relief (giving a court broad discretionary authority), actual civil damages, punitive damages, attorney fees, court costs, and any other relief provided by law (such as under state laws).
The MLA gives affected Servicemembers their own cause of action to pursue in court, and can also be enforced by other federal agencies, such as the Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Deposit Insurance Corporation, and others. Over the past several years, government agencies have filed numerous lawsuits against lenders based upon violations of the MLA.
Fort Irwin Legal Assistance Attorneys Can Help!
If you have questions regarding the MLA or believe you may have entered into a loan or other credit transaction that violates the MLA, please call the Fort Irwin Legal Assistance Office to schedule an appointment. It is important that you maintain and provide detailed records of the loan. You may need to draft a letter to the lender, which our office will assist with.
Fort Irwin Legal Assistance Office, call 760-380-5321.