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It's not uncommon for military service members to occasionally find themselves in a financial crunch, especially early in their careers when salaries may be at the lower end of the payscale. Financial challenges such as out-of-pocket costs for each permanent change of station can reach into the thousands and compound financial strains.
Sensing opportunity, some lenders in decades past took advantage. They targeted the military population with predatory loans that had punishing interest rates, fees and terms.
To tackle the problem, the federal government enacted the Military Lending Act to regulate what lenders can and can't do when working with service members and their dependents. Over time, the act has been revised to add even more protections, reducing how much interest lenders can charge and restricting practices that put service members and their families at risk.
What Is the Military Lending Act?
First enacted in 2006, the Military Lending Act (MLA) was implemented to help protect service members and their spouses, children and other eligible dependents from predatory consumer lending. Over time, it's been amended and expanded to include additional protections, most recently by including credit cards under its umbrella.
One of the law's key protections is capping interest rates on consumer loans at 36%, including costs and fees. The MLA also prohibits lenders from incorporating certain terms into loans for the military, such as prepayment penalties, some loan rollovers or renewals, mandatory allotments and mandatory arbitration clauses, as well as waiving certain rights that are part of the Servicemembers Civil Relief Act.
Some lenders still found ways to skirt the rules, so in 2015, the Department of Defense revised the MLA to expand and add protections on a variety of different loan and credit products, including some predatory loans. The revisions also required creditors to provide additional disclosures to borrowers, and, starting in 2017, the MLA began covering credit cards.
What Loans Are Covered Under the Military Lending Act?
The MLA only offers the military community protections for certain types of loans and forms of credit. These currently include:
- Unsecured installment loans
- Credit cards
- Payday loans, vehicle title loans, deposit advance products, pawn loans and tax refund anticipation loans
- Overdraft lines of credit (not traditional overdraft services)
- Some student loans
The MLA does not cover secured loans, such as a mortgage where the home serves as collateral. Loans not covered under the MLA include:
- Residential mortgages, in addition to other secured housing-related financing such as home equity loans or lines of credit, mortgage refinances or reverse mortgages
- Car loans that are secured by the car
- A loan to buy personal property that's secured by the item (such as a home appliance)
Be aware that the MLA only applies to financial products for personal use; loans for business or commercial purposes do not fall under MLA protections.
Who Qualifies for the Military Lending Act?
The MLA extends protection to all active-duty service members, as well as members of the Reserve when they're activated 30 days or longer.
The act also protects eligible spouses and certain dependents, such as children. For dependents to qualify, they must be enrolled in the Defense Enrollment Eligibility Reporting System (DEERS).
It's up to the creditor or lender to identify if the borrower is protected under the MLA. Under the latest MLA revisions, creditors have access to a database that can inform them if a consumer is active duty or the family member of an active-duty service member, according to Military OneSource. If you believe you're incorrectly being denied MLA protection, ask the lender how to challenge the decision or submit a complaint to the Consumer Financial Protection Bureau.
Protecting Your Financial Health
Financial health can be hard to maintain for anyone, but especially for those in military service. Moves are expensive, and when they're frequent, it can be hard for spouses to maintain steady work. It can be easy to fall into a trap where you rely on credit and loans, but the MLA helps ensure you aren't subject to predatory terms that make things worse.
Even with the protections, however, you can still get stuck with expensive debt—36% is a steep interest rate. There are plenty of resources available for service members, such as free on-base financial counselors, plus on-base banks and credit unions. Your base's family support or readiness center can provide financial resources, in addition to information about available low- or no-interest loans from your branch's aid or relief society that you can turn to in a crisis. If you're not sure where to start, you can talk to a financial counselor available 24/7 through Military OneSource at 800-342-9647. If you're calling internationally, Military OneSource provides international calling options.
Active-duty military members can receive a free Experian credit report and credit monitoring with Experian IDnotify™. This tool checks your credit report regularly to help you make good financial decisions, detect early signs of identity theft and see how you might look to a lender.