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The Federal Military Lending Act protects armed forces personnel who are on active duty and members on active Guard or Reserve Duty. It also provides protections to dependents, defined as a spouse, child, or a person for whom the service member provided greater than 50% support for 180 days preceding the extension of credit. The Act provides:
- 36% Interest cap: Creditors are prohibited from charging any member greater than a 36% Military Annual Percentage Rate (MAPR) which includes interest, fees, credit service charges, and credit renewal charges; credit insurance premiums; and fees for credit-related products sold in connection with the transaction. The MAPR must be stated orally and in writing.
- Roll-Over Loans: A creditor cannot “roll-over” or refinance the same loan between the same creditor and borrower.
- Mandatory waivers of consumer protection laws: Creditors cannot require borrowers to waive any State or Federal law, including provisions of the Servicemembers Civil Relief Act.
- Mandatory arbitration provisions: Creditors cannot require borrowers to submit to arbitration or onerous legal notice provisions.
- Use of check or vehicle title as loan security: A creditor cannot require a borrower to issue a check as a means of access to the borrower’s financial accounts or require a borrower to provide a vehicle title as loan security.
- Unreasonable notice requirements: A creditor cannot insert into credit agreements any unreasonable notice requirement as a prerequisite to a borrower’s right to bring legal action against the creditor.
- Mandatory allotments: A creditor cannot require a borrower to create a voluntary allotment for the benefit of the creditor as a loan prerequisite.
- Prepayment penalty: A creditor cannot charge a penalty for prepayment of a loan, in whole or in part.
The statute’s protections are limited to three types of consumer credit:
- Payday loans
- Vehicle title loans
- Tax refund anticipation
Any credit agreement subject to the regulation that fails to comply with this regulation is void from inception. The rule further provides that a creditor or assignee that knowingly violates the regulation shall be subject to certain criminal penalties. The Federal Military Lending Act will be in effect beginning October 1, 2007.
(Source: Deputy Assistant Judge Advocate General, Legal Assistance Division, LAPA 8-07 dated 13 Dec 07.)