The Military Lending Act Gives You Special Protections

(U.S. Army/Mary Davis)

As an active-duty service member, you have a federal law that gives you special protections against financial fraud that civilians don't have. 

The Military Lending Act contains special rules that prevent some - but not all - shady business practices that often are designed specifically to prey on members of the military.

What Is The Military Lending Act? 

The law says that military members, including active Guard and Reservists:

  1. Can't be charged more than 36% Military Annual Percentage Rate on loans. For military members, Military Annual Percentage Rates takes into account add-on junk fees like 
    • credit insurance
    • application fees, 
    • add on credit protection products, and more.
  2. Can't be forced into arbitration during a dispute. The law gives a service member the right to lawyer up if they feel wronged by the lender, including getting military legal assistance. Most civilians often don't have this right.
  3. Can't be forced to pay prepayment penalties, or take out mandatory allotments. 

This gives service members some protection against predatory lenders who often lure inexperienced borrowers with low interest rates, hiding the extra charges in the fine print.

What Type of Loans Does the Law Apply To?

While the law is somewhat limited; it doesn't apply to mortgages or loans secured by collateral, like rent-to-own stores or car dealers; it does apply to most types of cash loans, including:

  • credit cards
  • payday loans
  • car title loans
  • tax refund loans.

These types of loans are often used as a last resort by those deeply in debt, and often end up making things much worse for the borrower. 

Protect Yourself Against Payday Lenders

Here's the most important thing to know when it comes to payday loans: You shouldn't even have to use them. You can avoid payday loans, and you should because they cause nothing but high-interest trouble for service members.

Instead, military relief societies can provide active-duty service members with interest free loans for emergency life events such as vehicle repair, emergency travel, funeral expenses and some medical and dental expenses. They may even help cover rent and utilities in a pinch.

Here's where you can go for more information on those loans:

Military One Source can also offer free financial counseling and recommendations for local assistance, depending on your situation.

All of these sources are confidential, your chain-of-command will not be notified.

Remember, military members also have special federal protections on interest rates, breaking leases or cell phone contracts, being taken to court, foreclosures and more under the Servicemembers' Civil Relief Act.

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