Defending Service Members: The Military Lending Act Explained

military members in green and brown camouflage uniform

Being part of the military has plenty of privileges. Unfortunately, financial obligations can hinder service members from focusing on the job. That is why military members are given special protections like the Military Lending Act (MLA).

The MLA limits the maximum interest rates military members and their dependents must pay on active duty. This legislation is vital in protecting military personnel from predatory lending practices, which may affect their performance at work.

This article will discuss the prohibited practices under the MLA, the covered financial products and services, and compliance requirements for creditors or lenders.

Overview Of The Military Lending Act

The Military Lending Act or MLA is a federal legislation that offers special protections to active duty service members, their spouses, and their dependents. The MLA stipulates that the interest rates for multiple types of loans, like vehicle title loans, will be capped at 36% annually.

The Department of Defense (DoD) first enacted and implemented this legislation in 2006. The law was updated in 2013 to identify the authorized parties to fulfill the MLA’s requirements. These entities include the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

The MLA was updated again in 2015 to expand the military benefits granted under this law. Because of this update, the MLA protections now include the following:

  • Extending MLA protections to a wider range of credit products
  • Modify the military annual percentage rate (MAPR) to take into account particular fees
  • Change the optional safe harbor provisions available to creditors to identify a covered borrower
  • Modify the disclosures required to provide to a covered borrower
  • Alter the restriction on extending, renewing, or financing consumer credit

Protections Offered By The MLA

The MLA offers people with covered borrower status various protections, which include the following:

  • A 36% interest limit. Due to the provisions of the MLA, you shouldn’t be subjected to a military annual percentage rate (MAPR) exceeding 36%, including costs associated with your interest rate.
  • Credit insurance premium
  • Finance charge
  • Extra credit-related products sold along with the credit
  • Fees, such as application fees, participation fees, or fees for canceling contracts
  • No mandatory waivers of certain legal rights. A creditor is prohibited from requiring you to submit compulsory arbitration clauses or give up certain rights you’re entitled to because of state or federal laws.
  • No mandatory allotments. A creditor cannot create a voluntary military allocation for you to obtain a loan.
  • No prepayment penalty. A creditor shouldn’t penalize you if you pay a portion or the entirety of the loan early.

Prohibited Practices Under The Military Lending Act

High-Interest Rates And Fees

The Military Lending Act bans lenders from charging over the 36% military annual percentage rate (MAPR). This rate includes the costs of calculating the interest rate. However, there may be exceptions to this rule. The MLA covers different types of loans, precisely the following:

  • Loans related to payday, tax refund anticipation, and vehicle title as well as deposit advance products
  • Overdraft credit lines but not traditional overdraft services
  • Installment loans but not installment loans for exclusive financing of personal property when the credit transaction was secured through that property being purchased
  • Certain student loans
  • Credit cards, but creditors don’t have to comply until October 3, 2017.

Mandatory Arbitration Clauses

The Military Lending Act stipulates that a creditor or credit union is prohibited from forcing a covered borrower from signing mandatory arbitration or giving up certain rights granted by the law. This means you shouldn’t relinquish your financial protections to obtain consumer loans.

Rolling Over Or Refinancing Loans

The MLA deems it unlawful when a creditor engages in actions of rolling over, renewing, refinancing, or consolidating consumer credit provided to the covered borrower by the same creditor.

Prepayment Penalties And Balloon Payments

The Military Lending Act exempts covered borrowers from the obligation to a prepayment penalty if they pay for their consumer loan in advance. In short, a creditor can’t charge a covered borrower extra if they repay all the loans early.

Other Unfair Or Deceptive Practices

The Military Lending Act requires disclosures as to the details of loan products for personal property. This means a credit union cannot have hidden charges or fees once the credit transaction is approved.

Covered Financial Products And Services

Payday loans

This is usually a short-term, high-interest loan, generally costing $500 or less. Payday loans must be paid on your next payday.

Vehicle Title Loans

This is a short-term loan wherein the borrower pledges their vehicle as collateral. It is also called auto title loans.

Tax Refund Anticipation Loans

This loan is granted by the lender depending on and repaid through an anticipated federal income tax refund. These types of loans are available from December to April.

Credit Cards

This card offers a covered borrower a line of credit used to make purchases, balance transfers, and cash advances. The loan amount on a credit card should be paid in the future.

Installment Loans

This agreement or contract involves a loan paid over time with a set of scheduled payments.

Other Consumer Credit

Other consumer credit may involve student loans, home equity loans, secured loans, and mortgage refinances.

Compliance Requirements For Lenders

Identifying Covered Borrowers

Only select members of the military community are granted covered borrower status. These include active duty service members, their spouses, and select dependents.

Required Disclosures And Notifications

The creditor must supply the covered borrower with written and oral disclosures so they understand the terms of the consumer credit.

Annual Percentage Rate (APR) Limitations

Lenders are allowed to charge an annual percentage rate interest rate of 36%.

Limitations On Certain Contract Terms

The MLA stipulates that a covered borrower isn’t allowed to waive their financial protections given by the law.

Consequences and Non-Compliance

Lenders who violate the MLA may be required to pay fines and can be imprisoned for up to one year.

Benefits And Protections For Service Members

Lower Interest Rates And Fees

The MLA grants covered borrowers an interest cap of 36% percent annually. This rate covers the fees for calculating the interest rate.

Enhanced Consumer Rights

The MLA stipulates that there should be no discrimination against military borrowers because of the financial protections granted by the law.

Financial Education Resources And Support

The MLA encourages military members to take advantage of the protections granted to them to help improve their standard of living. Aside from MLA, the Servicemembers Civil Relief Act also grants military members financial protections.

Safeguards Against Abusive Lending Practices

The MLA highly discourages lenders from using abusive lending practices to service members.

The consequences for the Military Lending Act violation vary on a case-to-case basis. Violators may have to pay fines and imprisoned for up to one year.

Other Military-Specific Financial Readiness Programs

Knowledge is power, and it is highly encouraged for military personnel to seek financial counseling. Resources such as the First Command Education Foundation and Servicemembers Civil Relief Act Centralized Verification Service enable service members to maximize their financial protections. The SCRACVS may be contacted at 1 202-462-0600.


military personnel walking on grass field

Military members and their dependents should take advantage of the protections granted to them, including the stipulations of the Military Lending Act. They can spare themselves from predatory lending practices through constant vigilance and education.


What is the Military Lending Act?

The Military Lending Act is legislation that provides financial protection to military members. This law applies to personnel on active duty, their spouses, and dependents.

What types of loans are covered under the Military Lending Act?

The MLA encompasses a range of loan types, including the following:

  • Deposit advance products and loans related to payday, tax refund anticipation, and vehicle title
  • Overdraft credit lines but not the standard overdraft services
  • Installment loans but excluding installment loans for financing the acquisition of a personal property or a vehicle when the credit transaction is secured by the property being purchased
  • Certain student loans
  • Credit cards, but creditors don’t have to comply until October 3, 2017

Who are covered borrowers under the Military Lending Act?

The Military Lending Act offers covered borrower status to military personnel on active duty. This also includes active Guard and Reserves, their spouses, and selected dependents.

What is the penalty for MLA?

Violators of the MLA may be required to pay fees and be imprisoned for up to one year. This varies on a case-to-case basis.

Attorney Roy Kaufmann serves as the Director of the Servicemembers Civil Relief Act Centralized Verification Service, located in Washington, D.C. As a recognized authority on the Servicemembers Civil Relief Act, Mr. Kaufmann has published hundreds of articles and hosted many webinars. His teachings help law firms and businesses to remain compliant with the SCRA rules and regulations so as to avoid costly fines.