How the Military Lending Act Protects Service Members from Predatory Lending

The Military Lending Act

Predatory lending practices have the potential to affect everyone, but national security is at stake when financial challenges threaten military members.

The Military Lending Act (MLA) protects active military personnel, spouses, and dependents from lending practices that could damage their finances and jeopardize military readiness and retention.

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History of the Military Lending Act

Military life is not easy. Service members and their families aspire to live healthy home lives while managing frequent relocations and deployments on salaries that are typically modest at best.

While the pay may be modest, at least the paychecks are steady. But that may make service members prime targets for payday lenders.

The situation was particularly acute in the early 2000s when payday lending practices were not as carefully regulated as they are today.

History of the Military Lending Act

During a time of increased attention on national security after 9/11, more military families were entering debt spirals due to ultra-high-interest loans, which had the potential to impact morale and readiness.

As states began to scrutinize, regulate, and even outlaw payday lending, the U.S. Congress stepped in. Senators Jim Talent (R-MO) and Bill Nelson (D-FL) introduced an amendment to establish the MLA in the FY 2007 National Defense Authorization Act, which President George W. Bush signed into law in October 2006.

The law limited the financial damage high-cost payday loans could cause and protected service members’ options for legal recourse against lenders.

Who the MLA Covers

The MLA provides blanket protection to ensure military members and families remain financially healthy and dedicated to the mission.

The law covers active-duty service members of the Army, Navy, Marine Corps, Air Force, Coast Guard.

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The MLA covers active-duty service members from the five military branches, among others.

It covers members of the National Guard and Reserves who have been on active duty (federalized) for more than 30 days.

It also protects the spouses of covered service members, dependents under 21, full-time students under 23, and dependents incapable of supporting themselves due to mental or physical incapacity.

Key Provisions of the MLA

The MLA contains provisions to protect military borrowers from high loan costs and exploitative financial practices. The law’s provisions have expanded to cover most, but not all, loan types.

Interest Rate Caps

The biggest threats of payday lending are high interest rates and other costs.

Many Americans, including military families, may lack higher credit scores, social networks, and funds to tide them over in an emergency.

High-interest loans can seem the only recourse when a financial crisis threatens stability, but bad situations grow worse when people cannot repay loans.

Many payday lenders charge exorbitant interest and fees and are not transparent about costs. To combat that problem, the MLA established the Military Annual Percentage Rate (MAPR), which caps annualized credit costs at 36% of principal.

Costs go beyond standard annual percentage rate computations in traditional consumer loans to encompass interest, fees, and the cost of ancillary products such as insurance premiums. No matter what, the total annualized cost of an MLA-regulated loan may not exceed the MAPR.

The MAPR protects service members from payday exploitation due to excessive interest and fees. Under the MLA, more military families can access emergency credit with peace of mind.

Prohibited Financial Practices

The MAPR is not a panacea. Unfortunately, payday lenders have other means to extract cash from vulnerable military families. That’s why the MLA includes other protections and avenues for recourse.

Mandatory arbitration: Payday lenders seek to cover their tracks by including legal limitations in the fine print of loan agreements to stipulate an arbiter to resolve loan disputes instead of the court system. Arbitration may be less favorable to loan recipients than a traditional legal process.

The MLA guarantees that loan recipients always have the option to pursue legal damages in court, ensuring they receive a fair shot at justice. As long as the MLA protects the loan, court recourse is an option.

The law does not allow MLA-regulated loan recipients to waive the court option, ensuring protection is always available.

Prepayment penalties: It’s common sense to pay loans off early to save interest. Penalizing loan recipients for prepaying is another profit-making strategy payday lenders deploy.

The MLA prohibits lenders from assessing penalties for early payment for covered loans. Service members can repay covered loans early on terms they decide, saving them money on interest and helping them stay in good financial shape.

Rollovers and refinancing: The MLA protects loan recipients from counterproductive credit habits. For example, the law prohibits lenders from refinancing high-cost loans to loans of the same type with the same borrower.

That prevents military families from committing the error of continuously refinancing loans, which may help them temporarily escape late fees but hurts them in the long run.

Financial struggles may tempt loan recipients to extend or roll over a loan by agreeing to pay interest and fees until better times come.

The MLA prohibits loan rollovers to protect military families from incurring additional debt burdens and prevent payday lenders from exploiting their financial situation.

Covered Loans and Exemptions

Since Congress passed the MLA in 2006, the financial landscape has evolved.

The Department of Defense and the military service branches continually monitor compliance to maintain the MLA’s effectiveness. The Consumer Financial Protection Bureau oversees and enforces provisions regarding payday and auto title lenders.

Government agencies cooperate to ensure the MLA continues to protect service members and their families from ongoing threats.

Covered loans: The original legislation covered loan types commonly associated with predatory lending practices at the time, including payday loans, auto title loans, and tax refund anticipation loans.

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Short-term payday loans are usually due on the borrower’s next payday. Before the MLA’s passage, missing a payday loan payback could put military borrowers in a world of hurt.

Auto title loans use auto titles as collateral and carry a risk of repossession. Tax refund anticipation loans are advances against anticipated refunds. Auto title and tax refund anticipation loans carry undue risk and the same high interest and fees as payday loans.

In 2015, the Department of Defense expanded the credit products the MLA covered to include certain restrictive credit cards with high fees, installment loans repayable over a fixed period, and more types of payday and auto title loans, including deposit advance loans payable from the borrower’s next direct-deposit paycheck.

Exemptions: The MLA gives producers of longer-term lending products leeway to work creatively with military borrowers.

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For example, the law does not cover most mortgages or mortgage refinancing loans, although certain home equity lines fall under its provisions.

The MAPR cost ceiling does not apply to loans over $2,000 or with terms longer than 91 days — the government regulates those through other legislation.

Although the Department of Defense’s 2015 revision of the MLA covered many types of credit cards, most business credit cards do not fall under its purview.

How the MLA Helps Service Members

No legislation is perfect, but the MLA has evolved to provide comprehensive financial protection for military families while granting them flexibility to achieve the American Dream.

Promotes Responsible Borrowing Habits

The MLA encourages safe borrowing by capping costs, prohibiting abusive and unfair practices, and limiting rollovers and extensions.

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These essential protections help ensure military members can serve their country, potentially putting themselves in harm’s way, without undue concern for the financial well-being of the people who depend on them back home.

That peace of mind helps service members remain dedicated to their mission. In a world where threats materialize quickly, and political rivalries stress alliances, the MLA helps the U.S. maintain a stronger fighting force.

The MLA prevents financial exploitation by severely limiting predatory lending practices. The law requires lenders to be transparent regarding loan terms.

It also protects borrowers’ legal recourse when grievances emerge and includes clear enforcement penalties to incent lenders toward compliance.

Ensures Fair Access to Credit

The MLA ensures fairer access to credit by improving loan terms for service members.

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Few military personnel enter the service expecting a walk in the park, but their unique life circumstances can make them vulnerable to predatory financial practices.

It’s in America’s interest to go above and beyond to protect members from unscrupulous lenders and financial habits that threaten personal well-being.

Those financial protections may even translate to a better defense force at home and abroad and a more secure world.

Avenues for Legal and Financial Assistance

Although the MLA does not directly provide financial counseling or legal support, service members have numerous legal and financial resources.

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The Department of Defense offers financial readiness programs and resources to promote informed financial decision-making. These include workshops, seminars, and online resources covering typical topics such as managing debt, budgeting, and saving.

Many military installations house personal financial managers (PFMs) who can provide private one-on-one counseling and assistance, similar to financial counselors in banks. PFMs can assist service members in budgeting, goal-setting, addressing financial challenges, and understanding their rights under the MLA.

Military OneSource is a comprehensive support resource for military members that offers personal finance, tax, and legal assistance. On-base financial institutions, including banks, credit unions, and many community nonprofit organizations, provide similar services to customers, members, and consumers.

Dispute resolution: The MLA prohibits mandatory arbitration and legal rights waivers and includes precise disclosure requirements and enforcement mechanisms.

Service members who feel a financial provider has violated their rights may file complaints with the Consumer Financial Protection Bureau, the Federal Trade Commission, and other agencies with the authority to resolve disputes.

Reporting violations: Public agencies have clear procedures in place for reporting violations.

Report complaints about potential MLA violations to the Consumer Financial Protection Bureau at or by calling (855) 411-2372.

The bureau reviews each complaint and communicates with the business in question. Service members can monitor their complaint status on the bureau’s website.

Report unfair or deceptive financial practices to the Federal Trade Commission at or by calling (877) 382-4357. The FTC takes action when a pattern of violations emerges.

Military legal assistance offices, state attorney generals’ offices, and consumer advocacy groups may also help. Circumstances may require financial counselors to recommend recourse through those entities.

The Military Lending Act Enforces Fair Borrowing Practices

Military service is a duty and a calling but can also be a sacrifice, especially when managing service obligations and family.

In the heated environment after 9/11, U.S. states and Congress realized predatory financial practices impacted readiness and retention.

So they did something about it. President George W. Bush signed the MLA into law as bipartisan legislation designed to make life better for all military members.

Protecting service members against the unsavory aspects of the financial system makes the system work better for everyone and ensures the common defense remains strong.

The MLA puts predatory payday lenders on notice that the federal government looks out for those who may make the ultimate sacrifice.