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MLSSCRA

Key information about two important laws

Being in the military can be an incredibly rewarding experience, but it can also be an incredibly difficult one, especially financially. While those who serve do receive a steady paycheck, they can’t just up and leave to earn more money somewhere else, nor can they get a second job if they need more income. Because of these and other factors, military members do receive a few financial protections not seen in the civilian sector, with the two largest being the Military Lending Act and the Servicemembers’ Civil Relief Act.

(Note that this guide is informational in nature only and is not to be substituted for legal advice. For full legal information about the law, visit your branch’s Judge Advocate General or a civilian attorney.)

Military Lending Act

In 2006, Congress passed the Military Lending Act (MLA), which put into place restrictions on certain types of loans and the Annual Percentage Rates (APR) they can charge. Recently, the Department of Defense broadened those restrictions to cover many more financial products. The following is some basic information about the original MLA and its update.

MLA of 2007

The MLA of 2007 put into place a 36% APR cap on certain loans given to active-duty military members and their dependents, called “Military APR” (MAPR). In addition, certain types of loans could not require a military customer to hand over a pre-dated check, a vehicle title, allotment, or debit authorization before approval, nor could they have a pre-payment penalty. Lenders were also prevented from “rolling over” a loan unless the terms of the loan were improved (e.g., a refinance at a lower interest rate would be allowed), and had to clearly disclose all terms of the loan both verbally and in writing.

The original MLA applied to three specific types of loans:

  • Payday loans—These were defined as loans of less than $2,000, that were obtained either in person or online, and had a payback time of 91 days or less. 
  • Car title loans—These had terms of 181 days or less, and were secured using the title of the borrower’s vehicle.
  • Tax refund anticipation loans—These were closed-end credit that were paid through the borrower’s income tax refund check, which was signed over to the lender.

MLA of 2015

The updated law, which takes affect in 2016, will now apply to a much broader range of consumer credit. The MAPR restriction of 36% now applies to all payday loans (including those that last longer than 91 days), vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, and credit cards. It also requires that lenders include most “add-on” products, such as credit insurance, be factored in when calculating the MAPR.

For more information about the MLA, the Department of Defense website has a full news release and infographic.

Servicemember’s Civil Relief Act

The original Soldiers and Sailors Civil Relief Act of 1940 (SSCRA) provided the men and women of the Armed Forces with certain protections from legal and financial matters, including a cap on interest rates, limits on how a landlord could evict a tenant, and rules governing civil court actions. In 2003, Congress made changes to the law to reflect the realities of modern life.

Who it covers

The SCRA protects active-duty service members, reservists, and members of the National Guard called to active duty. In some situations, dependents of military members are also covered. While not commonly encountered, officers of the Public Health Service or the National Oceanic and Atmospheric Administration who are in active service, and American citizens that serve with forces from other nations that are allied with the United States, are also eligible for SCRA protection.

What it does

The part of the law most often utilized, and the part that causes the most confusion, involves the interest rate cap. The SCRA states that any loan, credit, or other financial obligation that has an interest rate in excess of 6% can be reduced to no more than 6%—but there are certain restrictions.

  • The loan, credit, etc., had to be taken out prior to the service member being called to active duty; any loans taken out after being on active duty do not qualify.
  • The service member must show that the higher rate has had a "material effect" on his or her legal or financial situation;
  • Protection under the SCRA must be requested during the member's military duty or within 30 to 180 days after military service ends, depending on the protection being requested.

Note that if a company challenges a military member’s claim that he or she has been materially affected, the burden of proof is on the company, not the customer.

To learn more about the SCRA and its protections, visit the SCRA section of the DoD’s website.

As we noted earlier, all of this is basic information and you should not take it as legal advice—for that, please see your local JAG office or civilian attorney. Hopefully, however, this does give you a better understanding of these two very important laws and how they might affect you.