Servicemembers Civil Relief Act (SCRA) or Military Lending Act (MLA) – What’s the Difference?

by Sherry Jones, Senior Consultant, CRCM, Regulatory Advisory Services

In its simplest form, the SCRA protections apply to loans that were originated prior to active duty and the MLA applies to qualified transactions that are originated during active duty.  Protections and benefits under each of the Federal laws vary, and it’s important not to confuse the two .

Servicemembers Civil Relief Act

The SCRA is a law created to provide protections for servicemembers in the event that legal or financial transactions adversely affect their rights during military or uniformed service. These protections enable servicemembers to devote their entire energy to the defense needs of the nation.  The SCRA applies to the following servicemembers:

• Active duty members of the Army, Marine Corps, Navy, Air Force, and Coast Guard;
• Members of the Reserve component when serving on active duty;
• Members of the National Guard component mobilized under federal orders for more than 30 consecutive days; or
• Active duty commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administration.

It is important to note that SCRA rights may be exercised by anyone holding a valid power of attorney for the servicemember. Some SCRA protections also apply to dependents. 

There are 5 key protections under the Servicemembers Civil Relief Act:

1. Reducing the interest rate on any pre-service loans to a maximum of 6 percent
2. Protections against default judgments in civil cases
3. Protections against foreclosure on their home 
4. Protections against repossession of their property 
5. Termination of residential housing and automobile leases without penalt

For additional details regarding each of the key protections above, you can find additional information at the Consumer Financial Protection Bureau (CFPB) website. 

Military Lending Act

The MLA applies to active duty servicemembers (including those on active Guard or active Reserve duty), spouses, and certain dependents. The MLA limits the interest rates that may be charged on many types of consumer loans to no more than 36% and provides other important protections.

In 2015, the Department of Defense (DoD) expanded the types of credit products that are covered by the MLA. In general, the consumer credit products now covered when offered to active-duty servicemembers and their covered dependents include, but are not limited to:

• Payday loans, deposit advance products, tax refund anticipation loans, and vehicle title loans;
• Overdraft lines of credit but not traditional overdraft services;
• Installment loans but not installment loans expressly intended to finance the purchase of a vehicle or personal property when the credit is secured by the vehicle or personal property being purchased;
• Certain student loans; 
• Credit cards.

What types of loans are NOT covered under the MLA?

There are some loans the MLA doesn’t cover – namely, credit that is secured by the property being purchased and certain other secured loans. These loans generally include:

• Residential mortgages (any credit transaction secured by an interest in a dwelling), including financing to buy or build a home that is secured by the home, mortgage refinances, home equity loans or lines of credit, or reverse mortgages;
• A loan to buy a motor vehicle when the credit is secured by the motor vehicle you are buying; and
• A loan to buy personal property when the credit is secured by the property you’re buying, like a home appliance.

Rights under the MLA include:

• A 36% interest cap. Servicemembers can’t be charged more than a 36% Military Annual Percentage Rate (MAPR), which includes costs like the following when calculating the interest rate (with some exceptions).
  • Finance charges
  • Credit insurance premiums
  • Add-on credit-related products sold in connection with the credit
  • Fees like application fees, participation fees, or fees for debt cancellation contracts, with some exceptions.
  • Fees like application fees, participation fees, or fees for debt cancellation contracts, with some exceptions.
  • Fees like application fees, participation fees, or fees for debt cancellation contracts, with some exceptions.

• No mandatory waivers of certain legal rights. A creditor can’t require you to submit to mandatory arbitration or give up certain rights you have under State or Federal laws like the Servicemembers Civil Relief Act.
• No mandatory allotments. A creditor can’t require you to create a voluntary military allotment in order to get the loan.
• No prepayment penalty. A creditor can’t charge a penalty if you pay back part – or all – of the loan early.

How Capco Can Help

Capco Regulatory Advisory Services has a variety of tools and reference materials to help you navigate both SCRA and MLA requirements. Our Big Orange Book compliance manual, quick reference guides, and online database of compliance webinars assist financial institutions with making SCRA and MLA compliance easier. For information on subscribing to RAS, contact us.