Military Lending Act: Protecting Military Service Members

The Problem – Lending Practices That Prey on Military Service Members:

“Holly Petraeus, Consumer Financial Protection Bureau Assistant Director, Office of Servicemember Affairs, issued the following statement:

‘When I drive down the strip outside a military installation and count 20 fast-cash lenders in less than 4 miles, that’s not a convenience, that’s a problem. I commend Secretary Carter for taking this important step to make the Military Lending Act more effective.’” [1]

The Law:

The Military Lending Act[2] and its enforcing regulations protect U.S. military-service members and their families from predatory lending practices, making it harder for financial firms to charge high interest rates. Among other safeguards, the rules cap the Military Annual Percentage Rate (MAPR) at 36 percent. That is far lower than the effective rates paid for short-term, small loans—such as for vehicles or to cover expenses between paychecks—that can cost service members thousands of dollars in interest.

The Solution:

The military-lending law was recently amended to broaden the kinds of loans and loan products that fall under the existing law. Previously, creditors would avoid that cap by offering military consumers products like rolling lines of credit that didn’t fall under the law, allowing them to charge excessive rates. Now, all such credit products will be capped at 36%.

The rate cap now also includes certain costs of credit like interest, application and participation fees, charges for credit insurance, identity theft monitoring products, and other add-on products. This means lenders can no longer avoid rate cap rules by imposing extra fees. The rules also prohibit lenders from taking account access or a security interest in a vehicle title, and they prohibit lenders from requiring service members to submit to arbitration in the event of a dispute. The new rules will be gradually implemented starting on Oct. 1.

A person who violates this section is liable in a civil lawsuit for (i) any actual damage sustained as a result of the violation, but not less than $500 for each violation; (ii) punitive damages; (iii) attorney fees, and (iv) any other relief provided by law. A person may not be held liable if the person shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person’s obligations under this section is NOT a bona fide error.

A recent court decision upheld the certification of a class of military service members who were charged excessive interest rates. If you feel that you have been charged an excessive interest rate, whether through stated amount of interest, or through add-on fees or products, please contact a business litigation lawyer, government litigation lawyer, predatory lending lawyer or our firm for a consultation.

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[2] 10 U.S.C. § 987