Financial Protection Laws for the Military

By Charlestien Harris, Retired Financial at Coach Southern Bancorp

May is celebrated as National Military Appreciation Month. Many companies and organizations recognize our service personnel by offering special discounts and promotions to show how much we appreciate the sacrifices they make for our country and for the freedom we all enjoy.

When service members are called to duty, they may be deployed at a moment’s notice and must sometimes leave their financial affairs in disarray. Often, this sudden deployment can lead to unexpected financial consequences. To address this issue, Congress enacted laws designed to prevent the financial industry from taking advantage of service men and women.

Below are two laws currently in place that help service members navigate and manage their financial affairs before and during deployment.

1. Military Lending Act (MLA)

The Military Lending Act was enacted in 2006 and expanded in 2015 to protect active-duty service members and their families from predatory lending. Predatory lending refers to unethical, deceptive, or unfair practices used by lenders to trap borrowers with excessive interest rates, hidden fees, and unmanageable repayment terms.

• Interest Rate Cap: The MLA caps the Military Annual Percentage Rate (MAPR) at 36% for many types of credit, limiting how much interest a lender can charge a service member.
• No Prepayment Penalties: Lenders cannot charge a penalty for paying off a loan early, removing fees that might otherwise discourage early repayment.
• No Mandatory Allotments: Creditors cannot require automatic allotments from a service member’s paycheck to repay a loan. This ensures service members can manage their obligations without undue hardship.
• Covered Loans: The law covers various types of credit, including credit cards, payday loans, vehicle title loans, and certain installment loans. Service members are often targeted due to the unique circumstances of deployment.
• Key Protections: The law prohibits mandatory arbitration, prevents lenders from requiring wage allotments, and requires clear disclosure of payment obligations. These protections help ensure service members are not bound to terms they cannot meet during deployment.

2. Servicemembers Civil Relief Act (SCRA)

The Servicemembers Civil Relief Act (SCRA) provides legal and financial protections to individuals entering active-duty service, including members of the Reserve and National Guard. Its purpose is to reduce financial and legal distractions so service members can remain focused on their duties.

• Interest Rate Cap: The SCRA limits interest rates to 6% on debts incurred before active duty, including mortgages, credit cards, and vehicle loans. This helps prevent excessive financial strain during service.
• Foreclosure & Eviction Protections: The law protects service members from foreclosure and eviction without a court order. In states like Mississippi, where most foreclosures are non-judicial (meaning lenders typically do not need court approval), this protection is especially important, as it helps prevent legal complications during deployment.
• Lease Termination: Service members who receive deployment orders or a Permanent Change of Station (PCS) can terminate residential and vehicle leases early without penalty, providing flexibility when sudden relocation is required.

Both laws are designed to provide essential financial and legal protections for active-duty service members, National Guard and Reserve members, and their families. Because the details of the MLA and SCRA can be complex, service members and their families are encouraged to contact a legal assistance office if they need help understanding their rights and managing their financial obligations.

Those facing financial challenges can also seek support through Military OneSource, a Department of Defense program that offers 24/7, worldwide information and resources for service members, their families, and survivors.

For more information on this or other financial topics, you can email me at [email protected] or write to me at P.O. Box 1825, Clarksdale, MS 38614.

Until next week – stay financially fit!