Handout: SCRA and MLA protections

Servicemembers Civil Relief Act and

Military Lending Act protections

Learn how the Servicemembers

Civil Relief Act and the Military

Lending Act provide interest

rate relief and limits on loans to

active-duty servicemembers.

Both of these federal laws provide consumer

financial protections and benefits for

servicemembers and sometime their

dependents.

SERVICEMEMBERS CIVIL RELIEF ACT (SCRA)

The SCRA caps interest rate charges including

late and other transaction fees to six percent

(6%). The SCRA covers existing debts when

a servicemember is on active duty. In other

words, it only applies to debt incurred before

active duty begins.

The SCRA applies to:

• Student loans

• Credit cards

• Car loans

• Mortgage loans

• Medical bills

• Installment loans

• Title loans

Joint loans qualify if the active duty

servicemember is one of the owners and the

loan was incurred before entering active duty.

During active duty, any interest charged

over and above 6 percent must be forgiven.

For mortgage loans, the interest rate can be

reduced for the duration the servicemember is

in the military plus one year.

The SCRA interest rate reduction does not

happen automatically. To be eligible for the

interest-rate reduction of the SCRA you must:

• Notify each lender for which you have a

legal obligation to pay.

- Some lenders have an online application

process for SCRA benefits. If they don’t,

make the request in writing.

• Know your rights.

- Lenders may not change the terms

of the loan. For example, they cannot

accelerate the payment schedule when

a servicemember applies for an SCRA

adjustment.

- Lenders also cannot add the amount of

interest above 6 percent back into the

loan later after you leave active duty.

OTHER SCRA PROTECTIONS

In addition to the SCRA interest-rate

reduction, there are other protections for

servicemembers:

• Servicemembers sued while on active

duty have some protections from a default

judgment in a civil action. A default

judgment is a court order in favor of the

party or “plaintiff” suing the servicemember

when he/she does not appear in court or

defend herself against the lawsuit.

• Servicemembers who took out a mortgage

before active-duty service can’t be

foreclosed on without a court order, unless

the servicemember has waived his/her

rights. This protection applies while on

active-duty and for an additional one year

after leaving active-duty. This protection also

applies in states that do not require a court

order to foreclose and whether the lender or

servicer was informed about servicemember

status.

• In some circumstances, the SCRA

prohibits creditors from repossessing

servicemembers’ personal property,

including vehicles, without a court order.

That means that even if the servicemember

violates a contract by, for example, failing to

make monthly payments, the creditor must

first file a lawsuit and get an order from a

judge before the vehicle or personal property

can be repossessed.

• Servicemembers have the right to terminate

residential leases of property that is

occupied or intended to be occupied by the

servicemember and his or her dependents.

In addition to this right for residential leases,

under certain circumstances, the SCRA also

allows servicemembers to cancel or terminate

an auto lease without paying early termination

charges or penalties.

• Servicemembers and their dependents

cannot be evicted from their primary

residence without a court order. Even with a

court order, the eviction could be delayed for

90 days.

MILITARY LENDING ACT (MLA)

The MLA is different from the SCRA in that it

applies to certain loans after a servicemember is

on active duty. The MLA limits the interest rate

and fees to 36 percent. This is called the Military

Annual Percentage Rate or MAPR. Spouses and

dependents are also protected by the MLA.

The MLA applies to:

• Certain payday loans

• Vehicle title loans

• Tax refund anticipation loans

• Deposit and advance loans

• Unsecured, open-end lines of credit

• Credit cards

The MLA also covers additional products sold

with a loan and often wrapped into the loan

including:

• Credit insurance premiums and fees

• Debt cancellation contract fees

• Fees associated with extra products

There are some loans the MLA doesn’t cover –

namely, credit that is secured by the property

being purchased. These loans include:

• Residential mortgages (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

• A loan to buy personal property when the

credit is secured by the property you’re

buying, like jewelry or a home appliance

The Department of Defense operates

databases that lenders can use to verify that

servicemembers are covered by the SCRA

or MLA (including members of the Reserve

or National Guard). The SCRA database can

be found at scra.dmdc.osd.mil and the MLA

database can be found at mla.dmdc.osd.mil.