Military Lending Act

Military Lending Act summary:

• The Military Lending Act applies to active-duty service members and covered dependents (including spouses).

• It includes protections such as limiting APRs (annual percentage rates) to 36% on consumer loans.

• Military members are also shielded from mandatory arbitration and prepayment penalties. 

Military Lending Act Definition and Meaning

The Military Lending Act is a federal law that extends special protections for active-duty military members, their spouses, and certain other dependents. It was enacted in 2006 and revised to include more protections and cover more loan types in 2015. 

Key Features of the Military Lending Act

The MLA is important because active-duty military members and their families face special challenges, and may need to borrow money to cover expenses for moving, deployments, and other life events. This could leave them vulnerable to predatory lenders (such as those offering payday loans) that charge punishingly high interest rates. The Military Lending Act seeks to protect military families’ finances. 

Under the Military Lending Act, if you’re a military service member (or otherwise covered by the law), you can’t be charged an annual percentage rate higher than 36% on a consumer loan. A loan's APR includes the interest rate plus finance charges, credit insurance premiums, application fees, and other costs. 

You also can't be forced to waive your right to sue a lender and can’t be required to create a military allotment for the loan (this means a creditor isn’t allowed to demand that you set up direct payments on the loan from your paycheck). And you can’t be charged a prepayment penalty for paying off your loan early. 

These MLA provisions may save you money. Interest rate caps can help you manage your finances and avoid getting into long-term high-interest debt. And if you can pay a loan off before its term is up, avoiding a prepayment penalty means keeping more money in your pocket.

Loan Types Covered by the Military Lending Act

Only certain types of loans fall under Military Lending Act protections. If you’re buying something with a loan that is secured by the property you’re purchasing (such as a residential mortgage to buy a house or an auto loan to buy a vehicle), the MLA doesn’t apply. 

The MLA applies to the following consumer loan types:

• Overdraft lines of credit

• Installment loans not intended to purchase property secured by the loan

• Payday loans

• Deposit advance loans

• Tax refund anticipation loans

• Vehicle title loans

• Some student loans

• Credit cards (since 2017)

The MLA’s protections can have a positive impact on military families and their finances. The Military Lending Act can save you money and offer recourse (by filing a complaint with the Consumer Financial Protection Bureau or asking for help from your local JAG office) if a lender breaks the law.