Service members have special protections to ward off predatory lenders trying to impose high interest rates.

"The Military Lending Act honors our military by helping them stay financially safe," said Eric Zittel, Vice President of Consumer Lending at Harborstone Credit Union.

The Military Lending Act (MLA) protects military and their families from wrongful loan practices, Zittel added. 

According to Zittel, the act was developed in 2006 after a rash of payday loan companies set up shop near military bases charging exorbitant interest fees. The act was amended in 2015 to expand protections in all lending situations, including credit cards.

• What is the Military Lending Act? The MLA limits the annual percentage rate for credit to no more than 36% and includes associated costs of the loan, like fees and credit products sold with the loan. This rate is known as the military annual percentage rate, or MAPR. Additionally, MLA prohibits mandatory arbitration, difficult contract provisions, using an allotment to secure the loan, waiving service member's Civil Relief Act rights, charging a penalty for early payments, using a post-dated check to secure a loan, refinancing certain loans, and the use of bank accounts and car titles to secure certain other loans.

"It ensures that there isn't a negative impact on our military," Zittel said.

Of course, places like Harborstone aren't impacted because they don't have loan programs that exceed the MAPR anyway. With military roots, the goal is always to help military members get the right lending products to help them thrive.

• Who does the Military Lending Act apply to? The MLA applies to active-duty members, members of the Reserve component when activated 30 days and longer, and family members enrolled in the Defense Enrollment Eligibility Reporting System, or DEERS.
• With new modifications to the MLA, what kind of credit does it cover? Current protections cover payday, vehicle title, and tax refund anticipation loans. Along with the current protections, the new MLA changes cover credit as defined in the Truth in Lending Act, which include installment loans, pawn loans, and open-ended credit like credit cards, as well. Purchases made through rent-to-own and overdrafts on checking accounts are not covered by TILA and, therefore, are not covered by the rule changes. The MLA does not apply to mortgages and certain secured loans for the purchase of personal goods and vehicles when the loan is secured by those items.

Still, acquiring a mortgage or car loan from a reputable lending institution like Harborstone will naturally protect military members because of their commitment to a member's good financial health. In fact, before paying a high interest rate, working with Money Management Coaches at Harborstone will help put your affairs in better order to secure lower interest rates.

"We are here to help our members prepare for expected and unexpected purchases before they have to pay high interest rates in an emergency," Zittel added.

• What if a service member needs a loan and all they can qualify for is credit that doesn't comply with the MLA? Military relief societies assist members and families with unexpected or emergency expenses. Service members and their family who need more than a small loan and are unable to qualify for a loan under the 36% APR rate cap, may need financial counseling along with short-term cash. Reasonable creditors like Harborstone will check to see if a borrower can pay back the loan (and meet other obligations). Consequently, being turned down for a loan with an APR of 36% is a good indication that the servicemember may need help to resolve long-term financial issues.
• How will creditors know if a person is in the military or is a family member? It is the creditor's responsibility to identify whether the MLA covers borrowers. The new rule directs creditors to a database maintained by the DMDC that provides the creditor with immediate feedback on whether the borrower is on active duty or a family member of an active-duty service member.
• What happens to creditors who violate the MLA to covered servicemembers and their dependents? Federal or state government supervision of creditors holds them accountable for their lending practices. Creditors risk having to refund loans (including principal and interest), and potentially pay fines for violating the new rule.

For more information, or help with loan questions, contact Harborstone at 1-800-523-3641 or (253) 584-2260.

Military Onesource contributed to this article.

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