Understanding the Federal Military Lending Act

The Federal Military Lending Act protects armed forces personnel who are on active duty and members on active Guard or Reserve Duty. It also provides protections to dependents, defined as a spouse, child, or a person for whom the service member provided greater than 50% support for 180 days preceding the extension of credit. The Act provides:

• 36% Interest cap: Creditors are prohibited from charging any member greater than a 36% Military Annual Percentage Rate (MAPR) which includes interest, fees, credit service charges, and credit renewal charges; credit insurance premiums; and fees for credit-related products sold in connection with the transaction. The MAPR must be stated orally and in writing.
• Roll-Over Loans: A creditor cannot “roll-over” or refinance the same loan between the same creditor and borrower.
• Mandatory waivers of consumer protection laws: Creditors cannot require borrowers to waive any State or Federal law, including provisions of the Servicemembers Civil Relief Act.
• Mandatory arbitration provisions: Creditors cannot require borrowers to submit to arbitration or onerous legal notice provisions.
• Use of check or vehicle title as loan security: A creditor cannot require a borrower to issue a check as a means of access to the borrower’s financial accounts or require a borrower to provide a vehicle title as loan security.
• Unreasonable notice requirements: A creditor cannot insert into credit agreements any unreasonable notice requirement as a prerequisite to a borrower’s right to bring legal action against the creditor.
• Mandatory allotments: A creditor cannot require a borrower to create a voluntary allotment for the benefit of the creditor as a loan prerequisite.
• Prepayment penalty: A creditor cannot charge a penalty for prepayment of a loan, in whole or in part.

The statute’s protections are limited to three types of consumer credit:

• Payday loans
• Vehicle title loans
• Tax refund anticipation

Any credit agreement subject to the regulation that fails to comply with this regulation is void from inception. The rule further provides that a creditor or assignee that knowingly violates the regulation shall be subject to certain criminal penalties. The Federal Military Lending Act will be in effect beginning October 1, 2007.

(Source: Deputy Assistant Judge Advocate General, Legal Assistance Division, LAPA 8-07 dated 13 Dec 07.)