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Department of Defense Issues Final Military Lending Act Rule

dollar bill close up

After nearly three years of study, the Department of Defense today issued the final Military Lending Act (MLA) rule.

The MLA better protects our service men and women from predatory credit practices by expanding financial protections provided to service members, and helping ensure military families receive the consumer protections they deserve. These actions build on the president’s announcement during a speech at the Pittsburgh chapter of the VFW of a voluntary partnership with financial lenders across the country to help deliver important financial and home loan-related protections to our military community.

"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 implementing regulation provides several significant protections extended 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.

The process and the rule considered carefully input from many sources, and takes a balanced approach that preserves access to credit and allows for effective industry compliance. 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, it prohibits creditors from requiring a service member to submit to arbitration in the event of a dispute, among many other protections. Congress took these steps to protect service members and their families from predatory lending which negatively impacts military readiness and can make transitioning from the military service significantly more challenging.

The department asked the public for their perspective on changing the existing rule in June 2013, and published the proposed rule in the Federal Register for public comment Sept. 29, 2014.

In developing this rule, the department consulted with the Federal Trade Commission, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, the National Credit Union Administration, and the Treasury Department to develop the responsible protections found in the revised rule that preserve access to credit for service members and their families and protect their financial future.