What Are the Difference Between SCRA and MLA?
Active service members and their families are offered additional considered protection by two distinct federal statutes — the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA).
The SCRA is a modern incarnation of the Soldiers and Sailors Civil Relief Act of 1940, which was designed to ensure that servicemembers’ rights are not forgotten or neglected while they are on active duty.
The MLA offers servicemembers and eligible dependents additional protections against payday loans, auto title loans, and other financial products with unlawfully high-interest rates, large fees, and abusive practices. Together these two laws provide servicemembers with much-needed security in an ever-changing economy.
Typically, the SCRA is much more expansive but only affects debts and obligations incurred to the financial institution before active duty. The MLA covers mostly consumer transactions entered into while in active military service.
Servicemembers Civil Relief Act (SCRA) Overview
The Servicemembers Civil Relief Act (SCRA) is integral in protecting military personnel from the financial hardships associated with military service.
It limits active military members to a military annual percentage rate of 6%, capping interest rates on pre-service debt, and provides a wide variety of protections, such as preventing eviction or foreclosure proceedings during active military duty.
The SCRA instructs financial institutions to readjust the consumer credit of military personnel upon request by providing evidence that they are on active duty while also postponing civil court proceedings against servicemembers until their military service has ended.
Furthermore, they can terminate rental agreements and contracts when ordered to relocate due to military orders. Together these protections allow military personnel to stay on top of their finances without fear of repercussions due to their military service.
Military Lending Act (MLA) Overview
The Military Lending Act (MLA) was enacted in 2006 to provide active duty servicemembers with protections from some deposit advance products, tax refund anticipation loans, high-interest rates, and other unfair practices associated with consumer loans.
The law limits the maximum amount of interest that lenders can charge for certain types of installment loans given to servicemembers as well as any fees incurred when paying off such loans before due date.
The MLA has been a critical safeguard against debt-trap lending and a valuable resource for military families facing financial difficulties by providing a reliable source of consumer protection.
The MLA protections were also designed to deposit advance loans and purchase money loans given to servicemembers or their families, defined as covered borrowers. As such, the MLA requires lenders to provide these borrowers with clear and accurate information about the terms of their loans, protecting them from false or misleading statements in advertising or other communications.
This protection is especially important for military personnel whose income can be unpredictable due to deployments and frequent moves. The MLA helps ensure that this group of individuals is not taken advantage of financially during unpredictable times.
The SCRA provides consumer credit extended for those serving in the Armed Forces, Reserve, and National Guard.
This includes members of the Army, Navy, Air Force, Marines, Coast Guard, and commissioned officers of the National Oceanic and Atmospheric Administration and the Public Health Service. Reservists requiring a call-up order greater than 30 days – and approved directly by the president – are also covered by the SCRA.
A covered borrower and their dependents may qualify for consumer credit protection under this act. Likewise, their consumer credit should not be extended beyond their legal rights when on duty.
This would include vehicle title loans or any type of consumer debt that could extend potential harm to those away serving our country.
The MLA was created to provide covered borrowers, service members, and their covered dependents with additional protection when entering into a credit transaction.
While both the MLA and the SCRA work together to bring greater protections for these borrowers, the MLA outlines what types of loans are covered as well as restricts creditors and mortgage servicers from charging excessive fees for pay-day loans or vehicle title loans, among other consumer loan products, which have been more popularly aimed at military personnel.
In addition, it extends certain protections to covered service members by placing limitations on certain rights held by lenders in regard to property owned by a covered borrower, such as preventing creditors from foreclosing or repossessing covered property while on active duty, except under certain circumstances.
Ultimately the creation of the MLA has helped ensure that covered borrowers receive fair financial treatment when engaged in consumer credit transactions.
What Types of Obligations do the SCRA and the MLA Protect?
Above we highlighted the different types of protections that the SCRA and MLA provide to covered borrowers. However, in addition, it is important to understand what types of obligations they protect.
The SCRA protects the obligations below if servicemembers incur them PRIOR to active service. This is regardless of whether the obligation is personal or business.
- Debts (but not student loans)
- Real estate mortgages
- Life insurance
- Eviction (including self-storage lockers)
- Motor vehicle leases
- Real estate leases (limited by some dollar amounts)
The MLA extends consumer credit to servicemembers and their dependents. Obligations include:
- Car title loans
- Payday loans (loan term of less than 91 days, principal loan less than $2,000 with other attributes)
- Tax refund anticipation loans
- Any consumer credit extended to a servicemember or dependent if
- incurred after 10/3/2016, and
- after start date of military service that:
- Includes a finance charge, or is
- Payable in five or more installments
What Are the Main Protections Under the Statutes?
Below is a summary of the main protections under the SCRA and MLA:
The SCRA provides a variety of protections to an active duty service member. This includes capping the interest rate defined by the SCRA at 6%, disclosure requirements of military status, and delay or suspension of judicial proceedings.
The disclosure requirement is in place so that a lender provides disclosure notice to an active duty servicemember when they incur debt. The disclosure requirement notifies them of their rights and experiences under the law.
In addition, the SCRA also stays court actions, attachments, seizures, and garnishments unless waived by the service member or granted by a judge due to special circumstances. These are just some of the main protections under statutes within the SCRA, ensuring that a servicemember is supported during times of need.
The Military Lending Act (MLA) was created to provide economic protection for service members and their families by implementing a cap of 36% for the Military Annual Percentage Rate (MAPR), which includes much more than just interest charges.
This act also limits roll-overs and consolidations and prohibits prepayment penalties, as well as requiring any agreements that enter into active duty status on or after the MLA Compliance Date to be in compliance with certain provisions.
These provisions include limiting credit extensions, protective advance notices, and personal property exemptions such as the execution of judgment are prohibited. With these protections in place, service members and their families can rest easy knowing they are taken care of by the government.
Obligations NOT Covered by These Statutes
Now let’s look at what types of obligations are NOT covered under the SCRA and MLA:
The SCRA does not protect against any obligation entered into after the start date of military service. This means that new lines of credit taken out, mortgages signed, or car loans taken during deployment cannot be managed, altered, or suspended under this statute.
However, through negotiation and discussion with creditors, thoughtful planning before deployment can still help protect service members from financial hardship.\
Although many debts are covered under a variety of federal and state statutes, several types of obligations will not be included in MLA.
Mortgages and loans that involve the purchase of the real estate, cars, boats, or mobile homes are usually secured against the asset itself. Additionally, obligations declared exempt in Regulation Z will not be affected by these laws either.
Consequences of Non-Compliance
Lenders who do not comply with the SCRA and MLA, risk penalties, fines, and reputational damage. Penalties may include civil damages of up to $500,000 per violation or twice the amount of any actual financial harm caused by the violation. Fines can also be imposed on those that violate these acts; maximum fines are usually $100,000 per violation. The reputational damage can include being excluded from participating in federal contracts or receiving grants and loans from the government.
In 2013 the MLA gave enforcement authority to the governing agency specified within TILLA. These agencies include the Federal Reserve Board, the Consumer Finance Protection Bureau, the federal bankers’ association and the National Credit Union Administration, among others. The regulation also provides that consumer credit contracts breaching the MLA are invalid at their inception.
For the SCRA, the enforcement authority is the Secretary of Defense, who can investigate any SCRA violation and refer them to the Department of Justice for prosecution if necessary. Additionally, the service member may also file a civil suit against those who violate the act.
Which is Better: SCRA or MLA?
SCRA and MLA are two different laws that serve to provide financial protection for servicemembers and their families during times of need. The SCRA provides additional protections for those who are already members of the military, while the MLA expands the scope of financial products covered by federal law.
Ultimately, both the SCRA and MLA are important laws that work together to protect a service member from financial hardship. So both of these laws are important and should be taken into consideration when making financial decisions.
For more information, it is always best to consult with a qualified attorney or financial advisor who can provide the most up-to-date advice. That way, you can make sure that your finances remain safe and secure, no matter what life throws at you!
Resource for Servicemembers Civil Relief Act compliance — Affidavits
SCRA: The Servicemembers Civil Relief Act Centralized Verification Service is a resource for determining whether an individual is covered by the provisions of the SCRA (as opposed to the MLA). We can provide military verification even if the Social Security number is unknown. Contact us for more information.