Military Lending Act Requirements: A Compliance Guide

A young service member takes out a small loan to cover immediate expenses. The quick cash seems helpful, but the fine print hides an interest rate that can climb well over one hundred percent. Without safeguards, that decision could turn into months of financial strain.

The Military Lending Act was created to prevent scenarios like this, shielding active duty servicemembers and their families from predatory lending practices. Since its passage, the law has continued to evolve, adapting to new credit products and changing financial environments. Recent years have seen regulators put fresh focus on disclosure rules, MAPR compliance, and strict borrower verification.

In the sections ahead, you will see how the act sets limits, defines protections, and outlines what lenders must do to remain fully compliant.

What Is the Military Lending Act (MLA)?

The Military Lending Act is a federal law created in 2006 to protect active duty service members and their families from predatory lending practices. It was expanded between 2015 and 2017 to cover more types of consumer credit products, including payday loans, vehicle title loans, and certain installment loans.

Enforcement of the MLA falls under the Department of Defense, with oversight from the Consumer Financial Protection Bureau. Both agencies monitor lenders closely to ensure that credit products offered to covered borrowers comply with federal laws.

A major feature of the law is the cap on the Military Annual Percentage Rate. Lenders cannot charge more than 36 percent MAPR on a credit transaction. This limit covers interest, credit insurance premiums, finance charges, and participation fees. For example, a tax refund anticipation loan that might carry extremely high costs for a civilian borrower must be limited under MLA rules for an active duty servicemember.

The act also imposes important contract rules. Lenders cannot use mandatory arbitration clauses in consumer credit contracts with military borrowers. Prepayment penalties are banned, meaning loans can be repaid early without extra costs. Clear disclosures are also required, ensuring borrowers understand their payment obligation before entering into consumer credit transactions.

In 2025, regulators increased enforcement. Examiners are focusing on errors in MAPR compliance, missing disclosures, and improper consumer credit terms. Even small oversights in extending consumer credit can trigger penalties. The MLA often gets compared to the Servicemembers Civil Relief Act. While both protect military families, they serve different purposes.

The SCRA deals with broader issues such as mortgage loans, lease terminations, and civil court protections. The MLA is specifically designed to regulate credit transactions and stop predatory lending practices. For law firms and lenders, using SCRA affidavit and verification services ensures compliance with both laws while reducing the risk of costly mistakes.

Who Is Protected Under the MLA?

A young service member walks into a lender’s office, ready to apply for a small consumer loan. Whether the Military Lending Act applies depends entirely on his status at the moment of application. For lenders, confirming that status is not just recommended; it is required.

Covered borrowers under the MLA include:

1. Active duty members of the Army, Navy, Air Force, Marine Corps, and Coast Guard
2. Members of the National Guard and Reserve serving under Title 10 active duty orders
3. Dependents such as spouses, children under 21, full-time students under 23, and individuals who receive more than half of their financial support from the servicemember.

Protection begins the day active duty service starts and ends once that service is complete. If a borrower qualifies during the loan origination process, all MLA rules must be applied. If they do not qualify, the obligations do not attach to that credit transaction.

It is also important to understand that the MLA defines dependents differently from the Servicemembers Civil Relief Act. The SCRA protects servicemembers in broader situations such as lease terminations or civil court proceedings, while the MLA focuses specifically on credit products and lending practices.

What Types of Loans Are Covered Under the MLA?

The Military Lending Act was written to cover the types of loans most likely to place service members in long-term financial distress. The focus is on unsecured, short-term, and high-cost products that can trap borrowers in repeated cycles of debt.

Credit products generally covered include:

1. Payday loans, where small amounts are advanced and repayment is usually due on the next paycheck. These loans often carry extremely high fees when rolled over.
2. Vehicle title loans, but only when an existing vehicle is pledged as collateral. If the loan is specifically used to purchase the car itself, the transaction falls outside MLA rules.
3. Tax refund anticipation loans, which advance funds based on an expected refund but may involve steep charges if the refund is delayed or smaller than anticipated.
4. Installment loans with set payments and finance charges, including certain consumer loans expressly intended for household use.
5. Overdraft lines of credit, provided the line carries finance charges. Ordinary bank overdraft services that occasionally cover small shortfalls are not covered.
6. Deposit advance loans from banks or credit unions, where borrowers draw early against expected income.
7. Credit card accounts, which were brought under MLA oversight in 2017. For these, the Military Annual Percentage Rate must factor in participation fees, credit insurance, and certain other charges.

The aim of these rules is not to restrict access to all forms of credit, but to eliminate the lending practices that disproportionately harm military borrowers.

Just as important as knowing what the MLA covers is knowing what it does not. Many lenders still ask which consumer type loans is exempt from MLA, and the list is clear:

Exempt credit products include:

1. Residential mortgages, including mortgage loans, refinances, home equity loans, and reverse mortgages
2. Vehicle purchase loans, where the credit is secured by the car being bought
3. Loans secured by personal property that finance the purchase of that property, such as credit extended by a retailer for large appliances or electronics

This distinction matters in practice.

A servicemember who takes out a car loan to buy a new truck with the vehicle as collateral is outside MLA coverage. If that same truck later secures a title loan for quick cash, the loan falls under MLA rules, and the 36 percent Military Annual Percentage Rate cap applies.

What Is the Difference Between the SCRA and the Military Lending Act?

While both the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA) are federal laws created to protect active duty servicemembers, they serve different purposes and apply to different financial obligations.

1. Purpose of Each Law

The SCRA is broader in scope. It provides protections that cover civil and financial matters, including the reduction of interest rates on debts incurred before military service. For example, a pre-service mortgage or credit card balance can be capped at 6% interest once the servicemember is on active duty.

The SCRA also prevents foreclosure, eviction, or repossession of a vehicle without a court order, giving families stability while a member is deployed or serving away from home.

The MLA, by contrast, is narrower and targets high-cost consumer credit. It was created to stop predatory lending practices that commonly affected service members, such as payday loans, motor vehicle title loans, and certain installment loans.

Under the MLA, the Military Annual Percentage Rate cannot exceed 36%, and this calculation includes not only interest but also credit insurance premiums, finance charges, and participation fees. The act also prohibits mandatory arbitration clauses and requires lenders to provide clear disclosures about payment obligations.

Coverage Scope

The Servicemembers Civil Relief Act applies to financial obligations that were taken on before military service began. This includes contracts, consumer credit transactions, and loans that a servicemember signed prior to entering active duty.

For example, if a person had a mortgage or car loan before joining the military, the SCRA ensures that interest rates and enforcement actions are adjusted once they are on active duty.

The Military Lending Act operates differently. It applies only to new consumer credit extended during a period of active service.

Covered borrowers who apply for payday loans, vehicle title loans, credit card accounts, or other installment loans while serving are protected by the MLA’s rules, such as the thirty-six percent Military Annual Percentage Rate cap and restrictions on mandatory arbitration clauses.

Loan Types Covered

When a servicemember joins active duty, obligations signed beforehand are not forgotten. The Servicemembers Civil Relief Act steps in to cover those existing commitments, including mortgage loans, auto financing, and residential leases.

Its role is to ease the strain of debts that were taken on before service by adjusting interest rates and requiring court oversight before actions such as eviction or foreclosure can move forward.

By contrast, the Military Lending Act addresses credit activity that begins during military service. It applies to products like payday loans, vehicle title loans, credit card accounts, and other high-cost consumer credit. These loans often carry steep charges, which is why the MLA sets a clear thirty-six percent Military Annual Percentage Rate cap.

Not all loans fall within its scope. Mortgages and auto loans tied to the purchase of the property itself remain outside MLA coverage. A car loan secured by the new vehicle is exempt, but a short-term title loan using that car as collateral is not. This clear boundary helps lenders know when MLA rules apply and when they do not.

Enforcement & Verification

Courtrooms are often the setting where the Servicemembers Civil Relief Act comes into play.

A landlord seeking eviction or a lender pursuing foreclosure must show that the servicemember is not on active duty, or else the court can delay or block the action. This makes proof of active-duty status essential, and military verification is the only reliable way to establish it. Without documentation, a case can be dismissed or penalties imposed.

Oversight under the Military Lending Act works differently. Instead of courts, enforcement is led by agencies such as the Department of Defense and the Consumer Financial Protection Bureau. Here, the focus is on compliance before a loan is issued. Lenders are required to verify whether an applicant is a covered borrower at the time of application.

If that step is skipped and a loan is later found to violate MLA rules, the creditor may face fines, contract voidance, or regulatory action.

Because both laws hinge on accurate military status checks, lenders and law firms increasingly turn to services like SCRA military verification. SCRACVS provides confirmation that a borrower is on active duty for SCRA-related proceedings and also confirms covered borrower status for MLA compliance. Having dependable verification reduces the risk of errors, keeps records in order, and shows regulators and courts that due diligence was done.

SCRA vs. MLA: Key Differences

Aspect	Servicemembers Civil Relief Act (SCRA)	Military Lending Act (MLA)
Purpose	Broad legal and financial protections on pre-service debts and civil obligations. Includes reduced interest rates, protection from foreclosure, eviction, and repossession without a court order.	Prevents predatory lending by capping the Military Annual Percentage Rate at 36%, banning mandatory arbitration clauses, and requiring clear disclosures on new loans.
Coverage Scope	Applies to contracts, loans, and obligations taken on before active duty military service.	Applies to consumer credit transactions entered into during active duty service by covered borrowers.
Loan Types Covered	Mortgages, auto loans, leases, and civil legal actions are linked to agreements made before service.	High-cost unsecured consumer credit such as payday loans, vehicle title loans (not tied to purchase), credit card accounts, deposit advance products, tax refund anticipation loans, and certain installment loans.
Enforcement & Verification	Enforced primarily through courts. Active-duty status must be proven with military verification in legal proceedings.	Enforced by regulators such as the Department of Defense and the Consumer Financial Protection Bureau. Lenders must verify borrower status at the time of loan application.

Key MLA Military Lending Act Requirements (2025 Update)

1. MAPR Interest Rate Cap (≤ 36%)

Lenders who extend consumer credit to active duty servicemembers must calculate costs under the Military Annual Percentage Rate, not the standard APR. The MAPR cannot exceed thirty-six percent, and it measures more than just the interest charged on the loan.

The MAPR calculation includes:

• Interest and finance charges
• Application or participation fees
• Credit insurance premiums
• Debt cancellation contracts and similar products
• Add-on services tied to the loan

This scope makes MAPR stricter than the APR defined in Regulation Z. The APR focuses on the stated interest rate and certain fees, while MAPR sweeps in nearly every cost connected to the credit transaction.

Key differences lenders must note:

• A loan that looks compliant under APR rules may still violate the MLA once insurance or add-on products are counted.
• Credit cards are included under MLA rules, meaning participation fees and service charges must also be factored into MAPR.
• Payday loans, vehicle title loans, and installment loans are especially high risk for errors in MAPR calculations.

A real-world example highlights the risk. In March 2025, the Consumer Financial Protection Bureau filed suit against lenders who bundled hidden credit insurance with installment loans. The stated APR was far lower than the true MAPR, which in some cases reached nearly two hundred percent.

For compliance officers, the lesson is clear: every component of the loan, from service fees to optional insurance, must be examined before extending consumer credit to covered borrowers. Even a small oversight in MAPR calculations can lead to contract violations and costly enforcement action.

2. Disclosure Requirements: Oral and Written

Every loan covered under the Military Lending Act must be paired with disclosures that go beyond standard consumer credit requirements. These disclosures must be provided before or at the time the credit transaction is executed, and they are expected to be both clear and accessible to the borrower.

For MLA-covered loans, lenders must provide:

• A statement confirming that the Military Annual Percentage Rate does not exceed thirty-six percent
• A detailed outline of the borrower’s payment obligations
• All Truth in Lending Act disclosures required under Regulation Z
• Oral disclosure of the above information, either in person or through a toll-free number
• Written or electronic copies of the disclosures, depending on the borrower’s preference and consent

To help lenders see how MLA rules compare with standard loans, here is a simple side-by-side view:

Requirement	MLA-Covered Loans	Non-MLA Consumer Loans (Reg Z only)
MAPR Statement	Mandatory confirmation that MAPR ≤ 36%	Not required
Payment Obligations	Must provide a detailed explanation	Covered under Reg Z, but with less emphasis on specific MAPR obligations
Truth in Lending Disclosures	Required (integrated with MLA rules)	Required under Regulation Z
Oral Disclosures	Required, either in person or via toll-free number	Not required
Written/Electronic Copies	Required, delivered in chosen format	Required under Reg Z, but no special rules on format consent

3. Borrower Status Verification Requirement

Every MLA-covered loan begins with one critical step: confirming whether the applicant is a covered borrower at the time of application. Without this, lenders cannot know whether the protections of the act apply, and any loan issued without verification risks being void.

Verification can be done through the Department of Defense’s official database or using trusted alternatives such as Verify active duty military status. Services like SCRACVS not only confirm eligibility but also provide documented proof, which lenders can keep in their files as part of their compliance record.

The law includes what is known as the Safe Harbor clause. If a lender performs verification properly and in good faith, liability does not apply even if the borrower’s status changes later. This safeguard protects lenders who follow procedure but cannot control future shifts in military service.

Record-keeping is just as important as the verification itself. Proof of the borrower’s status must remain in the loan file, ready for review by regulators.

4. Prohibited Loan Practices Under MLA

The Military Lending Act does more than cap interest rates. It also prohibits lenders from using contract terms that strip rights from servicemembers or make repayment more costly than it should be. Any loan issued to a covered borrower must avoid these practices to remain valid under the law.

Among the most significant restrictions are:

• Mandatory arbitration clauses that prevent borrowers from taking disputes to court
• Waivers of legal rights granted under state or federal law
• Prepayment penalties that punish borrowers for paying off a loan early
• Mandatory allotments requiring repayment directly from military paychecks
• Rollovers or renewals of existing MLA loans if the new terms result in a higher Military Annual Percentage Rate

These prohibitions exist because lenders historically used such tactics to limit servicemembers’ options and increase costs. For instance, hidden arbitration clauses in contracts forced disputes into private forums rather than courts, leaving borrowers with little recourse.

Recent Enforcement Trends (2024–2025)

Aggressive Regulatory Enforcement

Regulators have taken a much tougher stance on MLA compliance. In 2025, the Consumer Financial Protection Bureau filed lawsuits against lenders who exceeded the thirty-six percent MAPR cap, used contracts with hidden arbitration waivers, and failed to provide verified disclosures.

One of the most notable cases was the FirstCash settlement, where the lender issued unlawful vehicle title loans to active duty servicemembers. These actions show that regulators are not just focused on rates but also on contract terms and disclosure accuracy.

Compliance Examinations on the Rise

Regulatory agencies are also increasing their scrutiny through regular examinations.

Examiners now review whether lenders conduct internal compliance audits, train employees on MLA rules, maintain complete verification logs, and handle borrower complaints effectively. These elements are seen as key indicators of whether an institution is meeting its MLA obligations.

What Happens If You Violate the MLA?

Violating the Military Lending Act is not a minor compliance issue. The law is structured so that even a single oversight can carry significant legal and financial consequences for lenders.

Penalties for non-compliance include:

• The loan may be declared void from inception, leaving the lender with no enforceable rights under the contract
• Restitution must be provided to the borrower for any fees, interest, or costs that violated MLA requirements
• Civil liability and statutory damages, which can add up quickly if multiple borrowers are affected
• Loss of licensure and severe reputational harm within the lending industry
• Private rights of action, giving borrowers the ability to sue lenders directly for violations

Because of the severity of these penalties, regulators expect institutions to treat MLA compliance as a central part of their lending process, not an afterthought.

Lenders who fail to verify borrower status, calculate MAPR correctly, or remove prohibited contract terms risk not only financial loss but also lasting damage to their credibility in the marketplace.

How to Stay MLA Compliant in 2025 (Best Practices)

Staying compliant with the Military Lending Act requires more than meeting the interest rate cap. Regulators expect lenders to show that compliance is built into daily operations, from loan origination to ongoing monitoring.

The following best practices can help institutions avoid violations in 2025:

• Verify borrower status using a safe harbor method. Tools like SCRACVS provide documented proof of active duty status, protecting lenders if questions arise later.
• Maintain accurate MAPR calculators. Systems should be updated regularly to reflect the latest rules so that finance charges, credit insurance premiums, and participation fees are always factored in correctly.
• Invest in regular training. Lending officers should receive quarterly updates on MLA requirements to ensure frontline staff apply the rules consistently.
• Audit disclosures and contract terms. Monthly reviews can catch missing MAPR statements, incomplete oral disclosures, or prohibited clauses before regulators do.
• Involve legal teams in document review. Contract templates should be examined carefully to ensure no mandatory arbitration clauses, prepayment penalties, or other prohibited terms are included.
• Handle complaints with urgency. Any issue raised by a servicemember should be flagged immediately for compliance review, since regulators often treat consumer complaints as a starting point for investigations.

Stay Compliant and Confident with SCRACVS

The Military Lending Act leaves no room for shortcuts. Every disclosure, every MAPR calculation, and every verification step carries weight, and overlooking even one detail can unravel an entire loan agreement. For lenders, the challenge is balancing efficiency with accuracy while proving to regulators that compliance is part of the process, not an afterthought.

That is where SCRACVS comes in. Our platform delivers fast and reliable military status verification, giving you documented proof that a borrower’s status was checked before credit was extended. Whether the need is tied to the MLA’s strict borrower protections or the broader requirements of the Servicemembers Civil Relief Act, SCRACVS ensures the records you keep can stand up to audits, examinations, or even courtroom scrutiny.

Compliance does not need to be complicated. With the right verification partner, you can reduce risk, protect servicemembers, and issue loans with confidence. Verify Covered Borrower Status Now and keep your institution aligned with the law at every step.