Military members face several financial challenges while on active duty \u2014 unpredictable deployments, base relocations, spouse unemployment \u2014 and may need to borrow money to help cover expenses.<\/p>\n
But needing access to credit can also leave them vulnerable to predatory lenders offering high-interest products. The federal government enacted the Military Lending Act (MLA) to help protect service members from these lenders.<\/p>\n
By establishing regulations around lending, the MLA helps service members access credit without enduring more financial hardship.<\/p>\n
The Military Lending Act is a federal law enacted in 2006 by the Defense Department to increase protections for active-duty service members, their spouses and dependents.<\/p>\n
A report from the Defense Department, issued before the MLA rolled out, found that predatory lending was common among the military, with 17% of military personnel taking out\u00a0payday loans. These short-term, high-interest loans can lead to a cycle of debt.<\/p>\n
\u201cWhen the law was signed into effect, there was a lot of attention on the military community,\u201d says Jim Rice, assistant director of the office of servicemember affairs at the Consumer Financial Protection Bureau. \u201cThat was the peak of the call of reserve forces to active duty, but it also opened up the aperture for bad actors to prey on that population.\u201d<\/p>\n
Also see: <\/strong>A shocking number of veterans are getting scammed out of their assets\u2014here are some of the common frauds<\/p>\n The MLA established automatic protections \u2014 most notably, a 36% interest rate cap on payday loans, vehicle title loans and tax refund loans. That means lenders can\u2019t charge more than a 36% military\u00a0annual percentage rate\u00a0(MAPR) on these types of credit. This percentage is widely considered the maximum rate at which credit can still be affordable.<\/p>\n The MLA established other protections, too, including eliminating prepayment penalties and mandatory military allotments, in which creditors require service members to make repayments through direct withdrawals from their paychecks.<\/p>\n Protections under the Military Lending Act apply to the following groups:<\/p>\n Don\u2019t miss: <\/strong>Veterans have less than 6 months to make this change to their pension<\/p>\n In 2015, the Defense Department expanded the MLA to include more types of credit.<\/p>\n The new legislation covers payday loans, credit cards,\u00a0unsecured loans, vehicle title loans, deposit advance loans, some installment loans, certain student loans and tax refund anticipation loans.<\/p>\n The MLA doesn\u2019t apply to all credit, though. Mortgages, home equity loans, lines of credit and certain\u00a0secured loans, including secured auto loans, are not covered under the MLA.<\/p>\n The MLA differs from the Servicemembers Civil Relief Act. The SCRA also provides financial protections to active duty service members, but it only covers debt taken on before active duty service began.<\/p>\n Predatory lending is still a concern in the military community. According to Rice, the CFPB has recovered $175 million in monetary relief through 39 public enforcement actions that involved harm to service members and veterans. This includes six enforcement actions for violations of the Military Lending Act.<\/p>\n Service members, therefore, need to stay diligent, Rice says. If you believe a lender is violating the MLA, you can\u00a0file a complaint online with the CFPB\u00a0or by phone at 855-411-2372. You are not required to identify as a service member, he says.<\/p>\n If you\u2019re on active duty and need financial help, you have built-in options, says Lacey Langford, accredited financial counselor and founder and CEO of the podcast \u201cMilitary Money Show.\u201d<\/p>\n Langford says service members should start with military aid societies, which may be available on your military installation and offer free grants or loans at 0% interest. Some even have surplus cash, she says, due to service members\u2019 hesitancy about asking for assistance. These include Army Emergency Relief, the Navy-Marine Corps Relief Society, the Air Force Aid Society and Coast Guard Mutual Assistance.<\/p>\n \u201cThere\u2019s often this thought of you\u2019re going to get in trouble if you go in there and ask for help,\u201d Langford says. \u201cBut that\u2019s not the way it works. You can go in and tell them your situation, that you\u2019re not able to make your car payment, and your boss doesn\u2019t even have to know.\u201d<\/p>\nWho is covered by the Military Lending Act?<\/strong><\/h2>\n
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Types of credit covered by the Military Lending Act<\/strong><\/h2>\n
How to report predatory lenders<\/strong><\/h2>\n
Other ways to get financial assistance<\/strong><\/h2>\n