The Military Lending Act (MLA)

The Military Lending Act, also known as MLA, is a federal law enacted in 2006 that protects active military members, their spouses, and dependents from certain lending practices. These lending practices could present risks for service members and their families. Service members’ military readiness and member retention can also be affected negatively without the MLA.

The MLA consists of limitations on and requirements for certain types of consumer credit. Consumer credit is a credit that is offered or extended for personal, family, or household purposes, and that is:

  • Subject to a finance charge
  • Payable by a written arrangement in more than four installments
Contents
The Military Lending Act

Consumer credit is offered to covered borrowers. Covered borrowers are the covered members of the armed forces or a dependent of a covered member. Covered members of the armed forces consist of members of:

  • The Army
  • The Navy
  • The Marine Corps
  • The Air Force
  • The Coast Guard

Purpose Of The Military Lending Act

The purpose of the Military Lending Act (MLA) is to keep the active members of the military safe from lending practices. These lending practices can take advantage of them without the MLA. The MLA is being implemented by the U.S. Department of Defense (DoD). The DoD implements additional provisions such as:

  • Providing an optional safe harbor from liability for certain procedures that creditors may use in connection with the identification of covered borrowers
  • Requiring creditors to provide oral or written disclosures in addition to those required by the Truth in Lending Act (TILA)
  • Prohibiting certain loan terms like prepayment penalties, mandatory arbitration clauses, and certain unreasonable notice requirements
  • Restricting loan rollovers, renewals, and refinancings by some kinds of creditors

The DoD, in July 2015, also published some revisions to the MLA implementing regulations, such as the following:
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  • Extension of the MLA’s protections to a broader range of credit products
  • Modification of the MAPR to include additional fees and charges
  • Alteration of the provisions of the optional safe harbor that is available to creditors in identifying covered borrowers
  • Modification of the disclosures the creditors are required to provide to covered borrowers
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Military Lending Act Requirements

The Military Lending Act (MLA) requirements, as specified in TILA Section 108, are enforced by the authorized agencies. The authorized agencies are:

  • Federal Reserve System's Board of Governors
  • Consumer Financial Protection Bureau (CFPB)
  • Federal Deposit Insurance Corporation
  • National Credit Union Administration
  • Office of the Comptroller of the Currency
  • Federal Trade Commission

The MLA describes creditors as people who are:

  • Engaged in the business of giving extensions to consumer credit.
  • Assigned to a person engaged in the business of extending consumer credit with respect to any consumer credit extended.

The MLA also imposes several limitations upon creditors with regard to consumer credit extended to covered borrowers.
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  • Creditors should not roll over, renew, repay, refinance, or consolidate any consumer credit extended to the covered borrowers by the same creditors with proceeds of other consumer credit extended by the creditors to the same covered borrowers.
  • Creditors should not require a covered borrower to:
    • Relinquish the covered borrowers' rights to legal recourse under any otherwise applicable provision of federal or state law, with the inclusion of any provision of the Servicemembers Civil Relief Act.
    • Submit to arbitration or other difficult legal notice provisions in the case of a dispute.
    • Give unreasonable notice as a condition for legal action.
  • Creditors should not:
    • Use the vehicle title as security for the obligation involving consumer credit.
    • Require as a condition for the extension of consumer credit that the covered borrower establish an allotment to repay the obligation.
    • Prohibit the covered borrower from prepaying the consumer credit or charge a penalty fee for prepaying all or part of the consumer credit.
  • Creditors should not use checks or other methods of access to deposits, savings, or other financial accounts maintained by the covered borrowers through:
    • Obtaining a remotely created check or payment order.
    • Obtaining a post-dated check at the time credit is extended.
  • Creditors should include a proscribed term such as the mandatory arbitration clause within a standard written credit agreement with a covered borro

    • Military Lending Act Benefits

    The Military Lending Act benefits are the rights of the covered borrowers. Covered borrowers include the active members of the armed forces, including their dependents and families. They enjoy the following benefits from the MLA:
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  • Sets the cap of the MAPR at 36%, including the following charges:
    • Any credit insurance premium or fee, any charge for single premium credit insurance, any fee for a debt cancellation agreement, or any fee for a debt suspension contract
    • Any fee for a credit-related additional product sold in connection with the credit transaction for closed0end credit or an account for open-end credit
    • Bona fide fee which can be excluded if the fee is reasonable for that type of fee, such as:
      • Finance charges associated with the consumer credit
      • Any application fee charged to a covered borrower who submits an application for consumer credit, aside from the application fee charged by a federal credit union or an insured depository institution.
      • Any fee imposed for participation in any plan or arrangement for consumer credit.
  • Creates an exemption from submitting mandatory arbitration or giving up certain rights under State or Federal laws like the Servicemembers Civil Relief Act
  • Generates an exclusion from creating a voluntary military allotment for loans that acts like an automatic debit every paycheck.
  • Makes an exception from getting penalties for paying back part of or all the loan early
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    The Military Lending Act Coverage

    The Military Lending Act covers certain types of credit, such as:

    • Payday loans are short-term credits that are usually around $500 or less and must be repaid when borrowers receive their next paycheck.
    • Motor vehicle title loans allow the borrowers to use their vehicles as collateral to receive short-term loans.
    • Tax refund anticipation loans are loans offered to borrowers based on the borrowers’ expected income tax refunds.

    These certain types of credit were broadened in 2016 to include the following:

    • Credit cards
    • Deposit advance products are like payday loans with the exception of automatic loan repayment as soon as the next electronic deposit is made in the borrowers’ accounts.
    • Overdraft lines of credit are used when the borrowers run out of money to cover the expenses on regular payments, debit card payments, or check payments.
    • Certain installment loans, except for vehicle or personal property purchases

    The MLA, on the other hand, does not apply to certain types of loans extended to covered borrowers, including:

    • Residential mortgages including transactions to finance the purchase of initial construction, refinance transactions, home equity loans, or reverse mortgages
    • Credit transactions for the purpose of purchasing a motor vehicle when credit is secured by the motor vehicle being purchased.
    • Credit transactions expressly intend to buy a personal property when credit is secured by the property being bought.

    The Military Lending Act Interest Rate Cap

    The Military Lending Act Interest Rate Cap limits the creditors from imposing a rate greater than 36% of the Military Annual Percentage Rate (MAPR). The Military Annual Percentage Rate (MAPR) is the cost of the consumer credit as expressed as an annual rate for creditors. For creditors, they are required to provide the borrower with the following information if they decide to extend the consumer credit:

    • A statement of the MAPR that is applicable to the extension of consumer credit
    • Any disclosure as required by Regulation Z that shall be provided in accordance with the requirements of Regulation Z that applies to that disclosure
    • A clear explanation of the payment obligation of the covered borrower

    Creditors can fulfill the requirements of providing an MAPR statement by giving descriptions of the charges they may impose. The charges must be in accordance with the regulation and subject to the terms and conditions of the agreement. The agreement is related to the consumer credit to calculate the MAPR. The MAPR, as a numerical value, is not required from the creditor. The creditor is also not required to describe the total dollar amount of all charges in the MAPR. The MAPR statement may be included if it is applicable to the consumer credit in the agreement with the covered borrower.Creditors can also deliver oral disclosures. Oral disclosures are permitted if the creditors provide a toll-free telephone number on either:

    • A form the creditors direct the covered borrowers to use to apply for the transaction or account involving consumer credit.
    • A written disclosure the creditors provide to the covered borrowers.

    The Military Lending Act Coverage for Dependents

    Yes, The Military Lending Act covers dependents. Dependents of covered members refer to:

    • Spouses
    • Children under the age of 21
    • Children under the 23 who are enrolled full-time at an approved institution of higher learning
    • Children under any age who are incapable of self-support because of physical or mental incapacity.

    Checking the MLA Status of an Applicant

    iSoftpull offers MLA checks that can be appended to any credit report making it quick and easy to ensure your business is adhering to MLA guidelines. Learn more about iSoftpull’s Identity Risk Suite and adding MLA searches to your credit pulls.

    For more information contact the professionals at iSoftpull today.

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