After nearly three years of study, the Department of Defense today issued the final Military Lending Act (MLA) rule.
The MLA aims to better protect service men and women from predatory credit practices by expanding financial protections, and helping ensure military families receive consumer protections.
“With this action, the department takes an important stand against companies that can prey on our men and women in uniform. This new rule addresses a range of credit products that previously escaped the scope of the regulation, compromising the financial readiness of our troops. Today, with our regulatory and enforcement partners, we stand united in support of our service members and their families,” said Deputy Secretary of Defense Bob Work.
This rule applies the protections of the Military Lending Act to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards.
The regulation provides several significant protections to active duty service members and their families, including:
- A 36 percent Annual Percentage Rate limit. This cap, which is referred to as the Military Annual Percentage Rate or MAPR, covers all interest and fees associated with the loan. This limit now includes charges for most ancillary “add-on” products such as credit default insurance and debt suspension plans.
- The MLA prohibits creditors from requiring service members to: submit to mandatory arbitration and onerous legal notice requirements; waive their rights under the service members’ Civil Relief Act; provide a payroll allotment as a condition of obtaining credit (other than from relief societies); be able to refinance a payday loan; or be able to secure credit using a post-dated check, access to a bank account (other than at an interest rate of less than 36 percent MAPR), or a car title (other than with a bank, savings association or credit union).
- The changes to definitions of credit in the final rule bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.
To assist industry in complying with the MLA, the new rule will go into effect Oct. 1, 2015, and have a staggered compliance dates.
This rule will help protect all active duty service members and their families from committing to loans with excessive fees and charges. Additionally, service members will still have access to no-interest loans, grants, and scholarships from the four military relief societies, and not all credit products will be affected by the regulation – notably residential mortgages and purchase-money loans (to buy items like cars) are excluded from the MLA’s definition of “consumer credit.”
Congress passed the Military Lending Act (MLA) in 2006 with bipartisan support to provide specific protections for active duty service members and their dependents in consumer credit transactions. The MLA caps the interest rate on covered loans to active duty service members at 36 percent; requires disclosures to alert service members to their rights; and prohibits creditors from requiring a service member to submit to arbitration in the event of a dispute, among many other protections.
The final rule was published in the Federal Register at Noon on Tuesday.