Two federal laws come up most often when an active-duty service member opens or already carries a credit card. One is the Military Lending Act. The other is the Servicemembers Civil Relief Act. They sound alike. They do different jobs. This guide walks through each one, step by step, and defines the terms as we go.
Two federal laws, one overlapping purpose
The Military Lending Act, or MLA, protects active-duty service members and certain covered dependents when they borrow money. It works alongside state laws and other federal laws. It does not replace them. A borrower may have protections under more than one rule at once.
The Servicemembers Civil Relief Act, or SCRA, is a separate federal law. It can limit, postpone, or pause some financial and civil obligations during military service. It also sits alongside state and other laws.
Here is a simple way to hold them in your head. The MLA is mostly about the terms of new credit. The SCRA is mostly about obligations a person already has. Knowing which law fits your situation is the first step.
Who is covered and when status is tested
MLA coverage reaches active-duty members of the Army, Marine Corps, Navy, Air Force, Coast Guard, and Space Force. It also reaches Reserve members on active duty. National Guard members count when they are mobilized under federal orders for more than 30 consecutive days. Spouses are covered, and in some cases so are dependents.
Timing matters. Covered status is generally tested at the moment the consumer becomes obligated on the loan. Say someone enlists after a loan was made. That person is not covered for that loan. They may be covered for later borrowing.
The SCRA has its own list. It includes certain Title 10 and Title 32 Guard and Reserve members, commissioned officers of the Public Health Service and NOAA, and people holding a power of attorney for a covered service member. Some family members may be covered too. Eligibility depends on the exact type of orders. Please confirm your own status with a military legal assistance office or other official resource instead of assuming.
What kinds of credit the MLA covers
Covered credit generally includes payday loans, deposit advance products, vehicle title loans, and most installment loans. It also includes overdraft lines of credit. Traditional overdraft services are not on that list. Credit cards are covered as well.
The dates are worth knowing. Most consumer loans to covered borrowers had to follow the MLA as of October 3, 2016. Credit card companies had to follow it as of October 3, 2017.
Some credit sits outside the law. The MLA excludes credit secured by the property being bought. That covers residential mortgages, mortgage refinances, home equity loans and lines of credit, and reverse mortgages. It also covers a vehicle loan secured by the vehicle being purchased, and a personal property loan secured by that property. So a loan can fall outside the MLA even when a service member takes it out.
Vehicle loans have a twist. Adding a product such as guaranteed asset protection (often called GAP) or a cash-out feature can bring the loan back under MLA coverage. The whole package matters, not just the headline terms.
The 36 percent cap and how it is measured
For covered credit, the MLA caps the Military Annual Percentage Rate, or MAPR, at 36 percent. The MAPR is wider than a plain interest rate. It generally counts finance charges, credit insurance premiums or fees, add-on credit-related products sold with the credit, and fees such as application or participation fees. Some exceptions apply.
For credit cards, the MAPR calculation includes certain fees. If a fee is left out as a bona fide fee, it should be reasonable compared with what other card issuers charge. That is one of the few card-specific points in the sources. Do not assume every card term is handled the same way.
Because the MAPR has many parts, a rate that looks fine alone can pass the cap once fees and add-ons are counted. Look at the total MAPR, not only the advertised rate.
How lenders verify military status
A lender may check the Department of Defense MLA database. It may instead use a consumer report with a covered-borrower indicator. The check must be run at application or up to 30 days before. A lender that relies only on the borrower's own statement does not get that protection.
Before you borrow, these questions are fair to ask:
- Does the lender check the DoD database or a covered-borrower indicator?
- Is the MAPR, with required fees and add-ons, at or below 36 percent?
- For a card, are any fees left out of the MAPR reasonable compared with other issuers?
- For a vehicle loan, do add-ons like GAP or cash-out change coverage?
A lender that asks only for a verbal or written statement of service, with no database or report check, is a warning sign worth noting.
The SCRA adds separate protections. These include an interest rate reduction to 6 percent on eligible debts, foreclosure protections on certain home loans, limits on repossession without a court order in some cases, lease exits without penalty, and limits on default judgments in civil court. The sources do not explain how the 6 percent rate is applied or how to ask for it. For that process, contact a military legal assistance office or the CFPB.
This article is education only. It is not legal or financial advice, and it cannot tell you how a rule applies to your own account.
Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.
