Veterans, the Mobile County NAACP wants you to know your rights!
If you’re an active duty member of the armed forces or are on active Guard or Reserve duty, the Military Lending Act (MLA) says that you can’t be charged an interest rate higher than 36% on some types of consumer loans. But that doesn’t mean some businesses won’t try to take advantage of your financial need. So the rules protecting veterans has been expanded.
The Department of Defense has recently expanded considerably the scope of the Regulations issued under the Military Lending Act. When the military interest cap of 36% was imposed a few years ago, it applied only to payday loans, title pawns, and tax refund anticipation loans. The new Regulations significantly broaden the kinds of credit transactions with service members and their dependents which are covered by the Military Lending Act.
Basically, any loan to a “covered borrower” (a service member or dependent) falls under these Regulations, with the narrow exceptions of residential mortgages and purchase money loans to finance the buying of an automobile or other personal property. A lender will no longer be able to rely on the borrower’s written statement that he or she is not a member of the armed services or a dependent of such a member. In order to qualify for a “safe harbor,” the new Regulations will require that the lender search the Military Lending Act online database or obtain a credit report.
If a lender makes a loan to a covered borrower, there is a strict interest rate ceiling of 36%. The finance charge must be calculated including the cost of any ancillary products purchased by the borrower and the premiums for any credit insurance purchased by the borrower (even if the insurance coverage is not required by the lender). In other words, the 36% rate is intended to be “all in.”
Once the Regulations become applicable, there can be no mandatory arbitration provisions for covered borrowers, and a lender cannot collateralize a loan to a covered borrower with a security interest in an automobile.
These Regulations cover over fifty pages (three columns, single-spaced) in the Federal Register, so this is necessarily an incomplete summary. The Regulations take effect on October 1 of this year but will not begin applying to consumer credit transactions until on and after October 3, 2016. This gives the industry time to prepare. (Click here to see the regulations)
Veterans’ Rights Under MLA
Your rights under the MLA include:
- A 36% interest cap.You cannot be charged more than a 36% Military Annual Percentage Rate (MAPR), which includes the following costs:
- credit service charges
- credit renewal charges
- credit insurance premiums
- other fees for credit-related products sold in connection with the loan
- Written and oral disclosure. Creditors must tell you the interest rates and other fees you owe, both orally and in writing, before a loan is issued.
- No roll-over loans. A creditor cannot “roll-over” or refinance the same loan, unless the new loan results in more favorable terms for you. This rule helps to make sure you will not get stuck with a loan that becomes more expensive to pay back every few months.
- No mandatory waivers of consumer protection laws.Creditors cannot require you to waive any state or federal law, including the Service members Civil Relief Act, which protects service members from being sued while on active duty.
- No mandatory arbitration. Creditors cannot require you to submit to arbitration, which is when an outside party decides how a dispute should be resolved instead of a court.
- No mandatory allotments. A creditor cannot require you to create a voluntary allotment in order to get the loan. An allotment is an automatic amount of money taken from your paycheck to pay back your loan.
- No prepayment penalty. A creditor cannot charge a penalty when you pay back part or all of a loan early.
Contact your local Judge Advocate General’s (JAG) office to learn more about lending restrictions. You can also seek assistance from your installation financial readiness office.
If you have an issue with a consumer loan, you can submit a complaint to the Consumer Financial Protection Bureau. We’ll forward your complaint to the company and work to get a response from them.
The CFPB will forward your issue to the company, give you a tracking number, and keep you updated on the status of your complaint.