Article

Extend the Military Lending Act to All U.S. Consumers?

civilian soldier handshake
Veronica Madsen Photo
Attorney
ESTEE Compliance LLC

3 minutes

Even if that proposal doesn’t gain traction, the act seems to have benefitted servicemembers.

The Military Lending Act, first enacted in 2006 and amended in 2015, provides financial protections for active duty servicemembers and their eligible dependents. MLA caps interest rates on consumer loans to 36% (the military APR or MAPR), imposes specific disclosure requirements, and prohibits unfair credit practices to ensure financial health and military readiness.

The Department of Defense enhanced the MLA protections in 2019 by implementing financial literacy training for military personnel on the responsible use of credit, alternatives to high-cost credit products, consumer protection laws, and how and where to report potential violations of consumer rights.

According to the Department of Defense’s July 2021 “Report on the Military Lending Act and the Effects of High Interest Rates on Readiness”, MLA and the military’s financial education efforts are paying off.

“The Department believes the MLA is currently working as intended and that Service members continue to have ample access to necessary credit. Survey results generally reflect decreased use of high-cost credit products and improved financial condition among Service members over time. Engagements with DoD financial educators and counselors indicate fewer seek assistance for financial challenges or debt resulting from high-cost credit products. Military aid societies, which provide financial assistance, similarly report fewer requests for assistance related to high-cost credit products.”

This report also examined the effect of reducing the MAPR from 36% to 28% to reflect the rate provided by federal credit unions for small dollar loans. While the DoD is not currently advocating for such a reduction, it does not believe doing so would impair servicemember access to credit.

Possible Next Steps for the Military Lending Act

If these measures can improve the financial lives of military members, should they be afforded to all consumers? If the United States Congress has its way, that is exactly what would happen.

U.S. Senator Jack Reed (D-RI) introduced S. 2508 on July 28, 2021, entitled “Veterans and Consumers Fair Credit Act” that would expand the MLA interest rate cap for all consumers. A number of U.S. House of Representatives introduced an identical measure (H.R. 5974), on Nov. 15, 2021, though neither bill has come up for a vote in the respective committees.

There are no specific interest rates in the proposed legislation, so if the DoD successfully reduces the MAPR from 36% to 28% sometime in the future, this rate would automatically become the maximum rate for all consumers, which would also be lower than some state consumer loan usury laws and some consumer credit card rates.

If these bills get enacted into law, what would become of the MLA’s MAPR special disclosure requirements designed to educate servicemembers and their dependents? If all consumers are afforded the same maximum rate, there would be no need for a separate military APR.

On the other hand, for credit unions that have decided to limit loans to servicemembers to avoid compliance with the MLA (a decision that could have fair lending implications, even though military status is not a protected class), this could expand credit offerings for servicemembers and their dependents.

Regardless of whether further action is taken to expand MLA protections to everyone, the MLA and its amendments appear to have improved the financial health and military readiness of our servicemembers.

Veronica Madsen is CEO of ESTEE Compliance, LLC in the Detroit area. Please note: The information and opinions provided here are not intended to be legal advice. No attorney-client relationship is formed, nor should any such relationship be implied. Nothing in this content intended to substitute for the advice of an attorney licensed in your jurisdiction.

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