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Military Lending Act & How It Affects Military Families

October 24, 2019

Mike Saunders is the Director of Military & Consumer Policy at Veterans Education Success in Washington, D.C., a nonprofit organization serving veterans’ educational needs. Mike can be reached at [email protected]

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Did you know: as the family of an active-duty service member, you have legal rights covered by the Military Lending Act (MLA), which protects you from predatory lending practices?

The U.S. Consumer Financial Protection Bureau (CFPB), however, has decided not to supervise payday lenders and large banks to ensure they’re following the law when it comes to the MLA.

So, what does that mean, and how does it affect your rights? 

Here are some helpful facts:

  • It’s illegal to charge families of active-duty service members, including activated members of the National Guard and Reserves, over a 36% interest cap. The MLA protects all military families from being charged more than a 36% annual percentage rate.
  • There are no mandatory waivers of consumer protection laws. A creditor cannot require you to submit to forced, or mandatory, arbitration. Additionally, they cannot require you to give up certain rights you have under state or federal laws, such as the Service members Civil Relief Act (SCRA).
  • Mandatory allotments are not allowed. An allotment is an automatic amount of money taken from your paycheck to pay back your loan. A creditor can’t require you to create a voluntary military allotment to get the loan.
  • Prepayment penalties are blocked. A creditor cannot charge a penalty if you pay back part – or all – of a loan early.

The real-world effect of the CFPB’s decision regarding supervision of the MLA is that the agency will no longer be proactively monitoring for violations, including those by payday lenders. The agency, however, will take enforcement action against any lender found in violation of the law. 

That means it’s up to you, as a military family, to alert the CFPB if you discover the law is being broken. If you believe a lender has violated any of these provisions, submit a complaint to the CFPB here.

How to protect yourself against payday lenders:

The most important thing to know when it comes to payday loans is that they cause nothing but high-interest trouble for military families.

An alternative is military relief societies. These offer zero-percent interest loans to active-duty or retired military families experiencing emergency life events. These events range from vehicle repair to emergency travel, funeral expenses, and some medical and dental expenses. They may even include covering rent and utilities in a pinch.

Want more information on these particular loans? Here are some resources:

If you don’t find a military relief organization near your location, a local Red Cross chapter can process your request. You can also reach out to your installation’s Family Readiness Center for assistance.

In closing, last year, the Department of Defense switched to a system of “Continuous Evaluation” of service members’ security clearance eligibility. Meaning, military families no longer have months to fix financial problems. Therefore, the best policy is to avoid anything that can cause a financial blemish on your record. And high-interest loans always cause financial trouble.

Ultimately, military and veterans’ service organizations will continue advocating for CFPB to honor its commitment to military families who have dedicated their lives to protect our country. But until they do, you can do your part by spreading the word and avoiding toxic financial products.

Blue Star Families is here to support & empower you.

We’re continuously pushing for positive change in the lives of our nation’s military families. And in early 2020, we’ll be releasing our 2019 Military Family Lifestyle Survey results, which will better inform local and national government leaders of the realities military, veteran, and National Guard/Reserve families face.  

But you can join Blue Star Families for free today to read through the 2018 analysis of trends related to significant shifts in military issues. We can’t wait to welcome you into our family!