Military Lending Act And Servicemembers Civil Relief Act: Important Updates

In December 2017, the U.S. Department of Defense ("DoD") issued updated interpretive guidance on the Military Lending Act ("MLA"), and President Trump signed into law the extension of certain protections provided to servicemembers through the Servicemembers Civil Relief Act ("SCRA"). Despite a change in leadership at the Consumer Financial Protection Bureau ("CFPB"), Department of Justice ("DOJ"), and elsewhere, these updates demonstrate regulators' continued interest in and focus on military lending. Against this background, those who lend to servicemembers will want to ensure that they are in compliance with both the MLA and SCRA, as well as with applicable requirements under related state laws.

Background

There are two principal federal military lending laws: SCRA and the MLA. SCRA contains a number of requirements designed to aid servicemembers during and after their period of military service. Among other things, SCRA caps interest at 6 percent on loans obtained prior to a servicemember entering active duty and protects a covered servicemember against the foreclosure, sale, or seizure of his or her home during military service and for a certain period thereafter.1 Many states have enacted similar laws.

The MLA contains many similar requirements and applies solely to consumer credit. Congress passed the MLA in 2007 in light of DoD's finding that "financial readiness [is equated] with mission readiness" and its concerns about "the debt trap some forms of credit can present for Service members and their families."2 Among other things, the MLA prohibits lenders who provide consumer credit to covered servicemembers from charging a military annual percentage rate ("MAPR") of interest (as calculated under applicable regulations) in excess of 36 percent.3 It also contains certain disclosure requirements and generally prohibits lenders from using arbitration clauses in servicemember loan agreements.4 While the MLA applies to a wide array of loan types, home mortgages and auto-secured purchase loans are explicitly excluded.5

Updates to Military Lending Laws

SCRA On December 12, 2017, President Trump signed into law legislation passed by Congress that extends protections within SCRA against the sale, foreclosure or seizure of a servicemember's home within one year of a servicemember's return from active duty until January 1, 2020.6 There is a long history of Congress providing similar extensions for this provision of SCRA. Absent this extension...