Essential Compliance for Credit Unions: The Military Lending Act (MLA), and the 36% MAPR Cap
The Military Lending Act (MLA), as implemented by the Department of Defense (DoD), stands as a cornerstone of financial protection for America’s military families. For every credit union and financial institution serving active-duty service members and their covered dependents, the MLA introduces strict consumer protection requirements that go well beyond the standard disclosure requirements of the Truth in Lending Act (TILA). Understanding these distinctions is critical for minimizing compliance risk and demonstrating a true commitment to member financial wellness. Let’s take a broad look at some important things to keep in mind with the MLA and your credit union.
Key Difference: The MAPR Rate Cap
The most significant provision of the MLA is the establishment of the Military Annual Percentage Rate (MAPR), which can never exceed 36% for a covered borrower on a covered transaction. This is not merely a disclosure; it is a substantive rate cap.
| Feature | TILA APR | MLA MAPR |
| Purpose | Disclosure: Standardizes the presentation of interest and finance charges. | Cap: Sets a maximum cost of credit at 36%. |
| Calculation | Primarily includes interest and certain mandatory fees (Reg Z Finance Charge). | Includes TILA’s APR plus nearly all ancillary fees, such as: Credit insurance premiums, fees for debt cancellation or suspension agreements, and certain application/participation fees. |
This expanded calculation means that a loan with a 15% interest rate that includes a high-cost add-on product could easily exceed the 36% MAPR threshold, rendering the contract void from inception. Credit union lending departments must incorporate all applicable fees into their MAPR calculations at both origination (closed-end credit) and at the end of every billing cycle (open-end credit).
Defining the Scope: Covered Borrowers and Products
For credit union compliance teams, the MLA’s applicability hinges on two key determinations:
1. Covered Borrower Status
A “covered borrower” is an active-duty service member (including active guard and reserve duty) or a dependent of such a person. MLA protection is determined at the time the loan is originated or the account is opened. The institution is not required to continuously monitor the status throughout the life of the loan.
To achieve safe harbor protection from liability, institutions must use one of two approved methods to check status
- Verify the consumer’s status using the Defense Manpower Data Center (DMDC) MLA Database
- Use a consumer report from a nationwide consumer reporting agency that provides a statement of covered status
2. Covered Transactions (Broad Scope)
Following the 2015 amendments, the MLA applies to a broad array of consumer credit products, generally mirroring the scope of TILA/Regulation Z. Key covered products that impact credit union operations include:
- Credit Cards and Open-End Lines of Credit
- Unsecured Personal Loans (Installment Loans)
- Payday Alternative Loans (PALs) and Deposit Advance Products
- Overdraft Lines of Credit (but generally excludes non-contractual, bona fide overdraft fees)
Crucially, the MLA excludes two categories of commonly offered loans: Residential mortgages and true purchase-money loans (e.g., a loan solely financing the purchase of an auto or appliance, secured only by that item).
Prohibited Practices and Disclosure Requirements
Beyond the rate cap, the MLA imposes strict prohibitions on the terms of the credit contract, creating additional regulatory burden and operational risk if ignored:
| Prohibited Action | Compliance Mandate |
| Mandatory Arbitration | Creditors cannot require a covered borrower to submit to arbitration or waive their right to legal recourse. |
| Waiver of SCRA Rights | Creditors cannot require a waiver of any rights under the Servicemembers Civil Relief Act (SCRA). |
| Prepayment Penalty | Creditors are barred from charging any prepayment penalty. |
| Mandatory Allotment | Creditors cannot require the borrower to use a voluntary military allotment of wages to repay the debt. |
Lenders must also provide two sets of disclosures before the borrower becomes obligated: the standard TILA disclosures and the required MLA disclosures, which include a statement of the applicable MAPR and a clear description of the payment obligation. This information must be provided to the covered borrower in both written and oral formats.
For credit union boards and management, ensuring a robust compliance management system (CMS) that integrates MLA checks into the loan origination workflow is paramount to serving the military community responsibly and protecting the institution from severe civil liability.
