Everything You Need to Know About Military Lending Act
Serving in the armed forces is a career full of sacrifices, but also a few perks. In the financial world, service members are often preyed upon by companies looking to score a quick sale or close a fast loan, often pushing young men and women of the armed forces into unfavorable loan conditions and ridiculous APRs.
Predatory lending became such a massive problem that the federal government had to pass the Military Lending Act, and today we’ll tell you all about it!
What Is the Military Lending Act?
Have you ever heard that joke about a young private and his brand new Ford Mustang? Enlisting in the military is a great way for young people to see the world, get an education, and pull their own weight. However, despite all the training new recruits get during their basic training and AIT, they aren’t taught basic finances and budgeting. Of course, local dealerships, payday loan places, and other lending companies are fully aware of this.
The Military Lending Act was passed by the federal government in order to prevent these predatory lenders from taking advantage of active-duty military personnel that simply don’t know better.
Who Is Protected by the Military Lending Act?
The Military Lending Act covers all active-duty personnel from all branches of the military who have been serving for more than 30 days. The addition of the Space Force as the latest branch of the military means that the act is extending to these service members as well. Additionally, the National Guard is also covered by the act to include activated national guardsmen as well as active reserves of the National Guard.
The federal government has also added dependents of active duty service members to the list of those who are protected by the Military Lending Act.
Your Rights Under the Military Lending Act
The core of the Military Lending Act revolves around capping the interest rate lenders can charge for any kind of loan to 36%. This is what the MLA was all about in the beginning. Even though 36% APR is still considered predatory in, say, car loans, the MLA does offer additional protections.
You are essentially protected from finance charges, add-on products sold in addition to the credit, various credit insurance fees, application fees, and similar. More importantly, the act protects you from having your service member rights abused by the lender. You can read more about the fine print of the Military Lending Act to find out all the protections it offers. All this being said, there are certain loans that aren’t protected by the MLA.
What Isn’t Covered by the Military Lending Act?
For all the benefits and protection that the MLA brings to the table, it does have its limitations. Put simply, most secured loans are not covered by the Military Lending Act. That means purchasing a mortgage on a residence won’t put you under the protection of the MLA. Similarly, getting a loan on a car where the vehicle you’ve just bought is also the security for a said loan puts you just outside the MLA protection zone.
What Is Covered by the MLA?
The purpose of the MLA is to guard the service members from predatory loans. As such, it covers the riskiest types of loans on the market. These include but are not limited to:
- Payday loans
- Tax refund anticipation loans
- Deposit advance loans
- Vehicle title loans
- Overdraft lines of credit
There is some gray area regarding the overdraft lines of credit as well as installment loans. For example, traditional overdraft services are not covered by the MLA. The same goes for installment loans that are financing a secured property.
When in Doubt, Ask for Help
When applying for a loan covered by the MLA, your lender should be able to discern whether you’re eligible or not. In case you have any questions regarding the terms of the loan you’re getting, you should always consult with a financial advisor. Similarly, if you’re suspecting that your lender is breaching the MLA, you should contact your Judge Advocate General and consult them regarding any further actions.
The Military Lending Act and the rights it brings to active duty service members have to be respected by any and all lenders who meet the requirements and are listed above. Failure to do so can bring all kinds of penalties and sanctions against such lenders. As an active duty service member or a dependent of an active duty service member, you should do your best to learn your rights including but not limited to the Military Lending Act.