MLA Violation Investigation
Do you believe your rights under the Military Lending Act (MLA) have been violated?
If you are a member of the armed forces, you and your spouse are provided extra protection from unscrupulous and immoral lending practices. Federal law provides for, at least, a potential refund of all fees and interest paid, and up to $500 for each violation of your rights.
If your lender is charging you more interest than permitted under federal law, please contact Peiffer Wolf for a FREE Consultation by filling out our questionnaire.
Why do you, as an armed service member, receive special financial protections?
Congress has expressly recognized the importance of our troops. Acknowledging that troops are often targeted by predatory lenders, and that this conduct adversely affects not only individual victims, but also the national defense, Congress passed, and President George W. Bush signed into law the Military Lending Act (10 U.S.C. § 987) – the “MLA” for short.
This law prohibited certain lending practices in covered loans made to service members or their dependents.
Within broad guidelines, the MLA gave the Secretary of Defense (SECDEF) discretion to determine what loans were covered, how the interest rate was to be calculated, what disclosures lenders need to make, and what contracts these rules applied to.
MLA | Who is protected?
The MLA protects all “covered borrowers.” A “Covered Borrower” under the MLA includes active-duty servicemembers, Reserve and National Guard on active duty, and their dependents. Active duty means called up or ordered to serve more than 30 days. 32 C.F.R. § 223.3(g)(1).
MLA | What Loans are Covered?
The MLA was amended in 2016 (32 C.F.R. § 232) to cover any credit extended primarily for personal, family, or household purposes that is: (a) subject to a finance charge; i.e., interest is charged, or (b) payable by a written agreement in more than four installments. As a result, the MLA now covers a wide variety of credit, including installment loans, personal loans, credit cards, refund anticipation loans, payday loans, and, essentially, every type of loan or credit (with two important exceptions) extended to a service member or dependent. This regulation applies to covered loans and finance contracts entered into after October 3, 2016, and to credit card transactions after October 3, 2017.
There are two important exceptions to MLA coverage: (a) mortgages, and (b) contracts where “the loan is offered for the express purpose of financing the purchase and is secured by the car or personal property procured.”
Examples of the exceptions 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.
What requirements and prohibitions are imposed on covered loans and lenders?
The MAPR. Covered loans may not charge a military annual percentage rate of interest (MAPR) exceeding 36%.
In calculating the MAPR, the lender must include the cost of other credit related products, including, but not limited to, application fees, a debt cancellation policy, credit life policy, or debt suspension policy. Failure to include these costs in calculating the MAPR, falsely understate the actual rate.
If the listed rate of interest in your contract is at or near 36%, and the lender asks you to pay other fees (excluding late fees) that have not been included in calculating that rate, it is likely that the actual MAPR is illegally high. (If state law imposes a lower maximum interest rate, the contract must comply with that state law as well.)
Can we do an example of the “roll in fees” MAPR
Examples includes:
- Loan Application Fees
- Finance charges
- Credit insurance premiums
- Add-on credit-related products sold in connection with the credit
- Fees like participation fees, or fees for debt cancellation contracts, with some exceptions.
Forced Arbitration. Many contracts require consumers to give up their right to sue the lender or to be a member of a class action lawsuit; instead agreeing to resolve all disputes through arbitration. Most of the time, such contracts are between two parties of vastly unequal bargaining power: for example, a consumer contract with a bank, lender, or credit card issuer.
As a condition of purchasing the loan, or financing the sale, the consumer must agree to binding arbitration even before there’s any dispute.
Such pre-dispute, or “forced” arbitration provisions are prohibited in contracts covered by the MLA.
What are the penalties for violating the MLA? Knowing violation of the MLA is a crime punishable by a fine and up to a year in jail. Any promissory note or contract violating the MLA is void from its inception. The parties revert to the status prior to the loan: the borrower must repay the loan, but no interest can be charged, and any interest already paid must be returned to the borrower. Furthermore, in a suit brought by the borrower, the lender violating the MLA is potentially liable to pay actual damages or up to $500 per violation. The lender may also be required to pay punitive damages and shall be required to pay court costs and attorney fees of the prevailing plaintiff.
If your lender is violating the MLA, or if you suspect that your lender is doing so, please contact Peiffer Wolf for a FREE Consultation by filling out our questionnaire.
MLA Litigation | Peiffer Wolf
Casework is handled by Peiffer Wolf Partner Brandon Wise who founded and manages Peiffer Wolf’s St. Louis, Missouri office. His practice is focused on a wide variety of class and mass cases, including an emphasis on mass arbitration. Brandon leads the firm’s data privacy practice and is a tireless advocate for individual’s privacy rights.
Brandon is joined by Domenica Russo who is an Associate in the St. Louis Office. Domenica represents plaintiffs in privacy and consumer protection cases. Following her undergraduate degree, she commissioned as an Officer in the United States Army. Domenica spent four years as an Army Engineer Officer. During her time in the military, she was stationed in Fort Leonard Wood, Fort Drum, and Erbil, Iraq. She received multiple awards and honors for her service.