The Military Lending Act protects active-duty service members (including active Guard and Reserve duty) and their dependents from exploitative lending and the many excesses of payday lenders. For instance, it forbids lenders from charging an interest rate higher than 36% on most types of consumer loans.
Here are your basic rights under the MLA:
36% interest rate ceiling: Lenders and creditors cannot charge you more than a 36% Military Annual Percentage Rate (MAPR). This includes application fees, participation fees, finance charges, credit insurance premiums and add-on products sold in connection with the loan product.
No mandatory allotments: Some creditors require loan applicants to create a voluntary military allotment to get a loan. This, however, isn't a requirement for people covered by the MLA. An allotment is an amount of money automatically deducted from a borrower's paycheck to pay back the debt they owe.
No prepayment penalty: Sometimes lenders charge borrowers for paying back their debt before the expiration of the loan term. Prepayment fees are usually charged to discourage borrowers from paying off a loan ahead of time, which could let lenders lose out on interest income. The MLA protects you from such penalties or fees.
No mandatory waivers: Those protected by the MLA cannot be required to give up certain rights they have under state or federal laws or give up mandatory arbitration. An example of these laws is the Servicemembers Civil Relief Act.
If the MLA covers you, your payday lender is obligated to give you written and oral disclosures on your payment obligations and the MAPR charged on the loan. Regulation Z, a part of the Truth in 1968's Lending Act, also mandates them to disclose certain key loan terms and conditions in the loan contract.
A loan will be considered void if it violates the MLA. The punishments meted out to the lender may be even stiffer if they are adjudged to have violated the act knowingly. They may be held civilly liable or charged with multiple fines and even prison time.
Other loans covered under the MLA include deposit advance loans, overdraft lines of credit, vehicle title loans and installment loans. Loans excluded from the MLA include home lines of credit or equity loans, residential mortgages to build or buy a home, auto loans and personal property purchase loans.
You can ask your installation financial readiness office or visit the JAG Legal Assitance Office locator if you need any information or help relating to a consumer loan.