The Military Lending Act – What You Need to Know

Imagine you are a young active duty service member, living paycheck to paycheck. Every month you are stressed about meeting your financial obligations with what little pay you receive, not to mention getting enough food to last until next payday.

You are at your wit’s end when you see an ad for a cash advance loan. You think to yourself, “I really need the money now, I’m drowning. If I could just get some cash now, maybe I could catch up.” You take the loan. But when it comes time to repay, they say it will cost most of your next paycheck. Sounds fake, right?

Sadly, it is not.  However, the military provides some avenues to protect you from just this situation.

Educating yourself as a military member, or family member of a service member, is very important. There are many benefits, protections, and services available to military families that go unknown and unaccessed.

As a prior military member, and now an active duty spouse, I really try to understand the benefits the military offers my family and families around the world. The Military Lending Act (MLA) is one benefit that many people in service don’t know much about. I think it is extremely important to become well versed in this topic, and I intend to give you an information-packed, no-nonsense guide to the Act itself, as well as an understanding of what it means for you and your family.

What is the Military Lending Act?

Enacted in 2006, the MLA protects active duty service members, including Active Guard and Reserve, veterans, spouses, and dependents under age 21 (or 23 if they are full-time students). Dependents who cannot provide for themselves due to disability are also protected under the MLA.

The Military Lending Act protects against lenders taking advantage of the steady pay of military members. Some lenders, such as cash advance lenders, target younger customers who might not understand interest rates and loan terms in general. These companies entice potential customers with the ability to get money immediately, and for those struggling or living paycheck to paycheck, as many military families are, it’s a tempting idea.

These lenders then charge astronomically high interest rates, just to get a little piece of their paycheck early. For some, this can lead to even more serious financial hardship. This doesn’t just apply to cash-in-advance companies.  Credit cards, payday loans, car title loans, tax refund anticipation loans, deposit advance loans, installment loans, and unsecured open-end lines of credit are all covered under this Act. Mortgages and car loans are not covered, however.

Whatever the case may be, if a military member ends up in serious financial trouble, it can adversely affect military readiness and can create security risks. Service members are far more prone to engage in illegal behavior when faced with financial anxiety.

Whether they try to fix the problem or because they are in a bad state of mind, this poses serious problems for the military. The Military Lending Act works to prevent these problems by capping the interest rate for loans given to service members and their dependents at 36 percent, and prevents some specific predatory terms from being included in contracts with military members and their covered dependents.

This is incredibly important, as some of these companies can charge so much interest on a two-week loan and induce such steep late fees, that your entire next paycheck might disappear, leaving you wondering how you are supposed to pay all of those bills now? The cycle can become never-ending, leaving the loan companies profiting continuously by extending loan after loan, and their victims falling further and further in debt.

One question that has been in the air regards possible coming changes to the Military Lending Act. The military did update some things in 2017 to help close some loopholes exploited by predatory lenders. However, recently, the White House has been pushing to change regulations on car loans. This might, unfortunately, make things easier for lenders to take advantage of military members and their families, something of which many service members are not in favor.

The Consumer Financial Protection Bureau (CFPB) is also planning to do away with routine examinations of lenders to make sure they are not violating the Military Lending Act. There has been no push or need for this, as the Act has been helping prevent lenders from taking advantage of military members and their families.

It’s especially shocking considering statistics showing that military members and their families are four times more likely to be targeted by lenders looking to swindle them. These actions are just proposals for now, but the military community should stay vigilant to see the end results.

Military Lending Act Summary

The important things to remember to start understanding the ins and outs of the Military Lending Act are:

1. What is the Military Lending Act?

It was put in place to protect military members and their families against predatory lenders and caps all interest at 36 percent.

2. What Loans are covered by the Military Lending Act?

Credit cards, payday loans, car title loans, tax refund anticipation loans, deposit advance loans, installment loans, and unsecured open-end lines of credit.

3. When did the Military Lending Act go into effect?

The Military Lending Act was enacted in 2006 and updated in 2017 due to lenders finding loopholes.

4. Are credit cards covered under the Military Lending Act?

Yes, as noted before, credit cards are definitely included in the protection.

5. Are changes coming to the Military Lending Act?

There are proposals in place to do away with the routine examinations to make sure lenders are following protocol, though they will still go after anyone who violates the act.

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