MLA Finance Definition

MLA Finance: Protecting Military Families

MLA Finance, often referred to simply as the Military Lending Act, is a US federal law enacted in 2006. Its primary goal is to safeguard active-duty service members, their spouses, and certain dependents from predatory lending practices. Specifically, it aims to curb abusive lending practices that could negatively impact military readiness and financial stability.

Key Protections Offered by the MLA

The MLA imposes several crucial restrictions on the types of loans that creditors can offer to covered borrowers. These protections include:

Interest Rate Cap: A core provision is the establishment of a Military Annual Percentage Rate (MAPR) cap of 36%. This MAPR encompasses not just the stated interest rate but also includes many fees and charges associated with the loan, such as application fees, credit insurance premiums, and participation fees. This comprehensive calculation prevents lenders from circumventing the interest rate limit by imposing excessive fees.
Mandatory Disclosures: Lenders must provide clear and conspicuous disclosures regarding the loan’s terms, including the MAPR, payment obligations, and a description of the borrower’s payment schedule. These disclosures are designed to help borrowers understand the true cost of the loan before committing to it.
Prohibition of Mandatory Arbitration Clauses: The MLA prohibits lenders from requiring borrowers to agree to mandatory arbitration clauses in loan agreements. This allows service members and their families to pursue legal recourse in court if necessary, rather than being forced into a potentially biased arbitration process.
Prohibition of Certain Loan Terms: The MLA also restricts other potentially harmful loan terms, such as requiring borrowers to submit to wage assignments, using checks or other payment methods to secure the loan, or requiring pre-payment penalties.

Who is Covered?

The MLA covers a broad range of active-duty service members, including those in the Army, Navy, Air Force, Marine Corps, and Coast Guard. It also extends protections to members of the National Guard and Reserve components when they are on active duty for more than 30 days. Furthermore, the spouses and certain dependents of these service members are also covered by the MLA, ensuring financial protection for military families as a whole.

Types of Loans Covered

The MLA initially covered specific types of credit, including payday loans, vehicle title loans, and refund anticipation loans. In 2015, the Department of Defense expanded the scope of the MLA to cover a wider range of credit products, including installment loans, credit cards, and most personal loans. However, some types of loans are exempt, such as loans secured by real estate (mortgages) and loans to purchase personal property (e.g., auto loans) where the credit is secured by the property being purchased.

Enforcement and Compliance

The MLA is enforced by various federal agencies, including the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ). Lenders who violate the MLA can face significant penalties, including fines, civil lawsuits, and even criminal prosecution in certain cases. Compliance with the MLA is crucial for lenders who wish to avoid these penalties and maintain a positive reputation within the financial industry.

In conclusion, the MLA is a vital piece of legislation that provides critical financial protections to members of the US military and their families, helping to prevent predatory lending practices and promote financial stability among those who serve our country.