Final rule puts more teeth into Military Lending Act

  • Published
  • By 66th Air Base Group Legal Office
HANSCOM AIR FORCE BASE, MASS. --  The Military Lending Act (MLA) protects military members from predatory credit practices by expanding financial protections provided to service members, and helping ensure military families receive the consumer protections they deserve.

The heightened level of financial and consumer-rights protection against unscrupulous practices, called the final rule of the Military Lending Act, covers all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit and credit cards, officials explained.

"With this action, the department takes an important stand against companies that can prey on our men and women in uniform. This new rule addresses a range of credit products that previously escaped the scope of the regulation, compromising the financial readiness of our troops. Today, with our regulatory and enforcement partners, we stand united in support of our service members and their families," said Bob Work, deputy secretary of defense.

The implementing regulation provides several significant protections extended to active duty service members and their families, including:

· A 36 percent Annual Percentage Rate limit. This cap, which is referred to as the Military Annual Percentage Rate, or MAPR, covers all interest and fees associated with the loan. This limit now includes charges for most ancillary "add-on" products such as credit default insurance and debt suspension plans.

·The MLA prohibits creditors from requiring service members to: submit to mandatory arbitration and onerous legal notice requirements; waive their rights under the service members' Civil Relief Act; provide a payroll allotment as a condition of obtaining credit (other than from relief societies); be able to refinance a payday loan; or be able to secure credit using a post-dated check, access to a bank account (other than at an interest rate of less than 36 percent MAPR); or a car title (other than with a bank, savings association or credit union).

· The changes to definitions of credit in the final rule bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.

This rule helps protect all active duty service members and their families from committing to loans with excessive fees and charges. Additionally, service members will still have access to no-interest loans, grants, and scholarships from the four military relief societies, and not all credit products will be affected by the regulation; notably residential mortgages and purchase-money loans (to buy items like cars) are excluded from the MLA's definition of "consumer credit."

Congress passed the Military Lending Act in 2006 with bipartisan support to provide specific protections for active duty and their dependents in consumer credit transactions. The MLA caps the interest rate on covered loans to military members at 36 percent; requires disclosures to alert military members to their rights; and, it prohibits creditors from requiring a member to submit to arbitration in the event of a dispute, among many other protections. Congress took these steps to protect military personnel and their families from predatory lending which negatively impacts military readiness and can make transitioning from the military service significantly more challenging.

The department asked the public for their perspective on changing the existing rule in June 2013, and published the proposed rule in the Federal Register for public comment Sept. 29, 2014.

The revision began with a three-year study by the Defense and Treasury departments, Federal Trade Commission, and financial regulators such as the Federal Deposit Insurance Corp., Federal Reserve Board, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and the National Credit Union Administration, DOD officials said.