Announcing SCRA & MLA Search

Users can now use the POST /scra/searches and POST /mla/searches to determine whether their customers are covered under the Servicemembers Civil Relief Act and Military Lending Act Respectively. Both API routes have the option to additionally return a certificate from the Defense Manpower Data Center (DMDC), certifying the validity of the API response.

Servicemembers Civil Relief Act (SCRA)

The Servicemembers Civil Relief Act (SCRA) is a United States federal law that provides various protections for active-duty military personnel, reservists, and members of the National Guard when called to active duty. Originally enacted in 1918 as the Soldiers' and Sailors' Civil Relief Act, it was reenacted and renamed in 2003. The purpose of the SCRA is to ease legal and financial burdens on military personnel and their families brought about by the demands of active duty.

Key Provisions for Servicemembers

Interest Rate Cap: Interest on debts incurred prior to military service is capped at 6% per year during active duty, including fees and other charges. This applies to all debts, including mortgages, credit cards, auto loans, and other personal loans.
Protection Against Default Judgments: The SCRA provides protections against default judgments in civil cases, including divorce and child support hearings, if the servicemember cannot appear due to duty obligations.
Foreclosure and Eviction Protections: It protects servicemembers and their families from eviction without a court order and from foreclosure during and for a period after service, unless these actions are undertaken with a court order.
Termination of Residential Leases: Allows servicemembers to terminate residential leases when they receive deployment orders or are relocated for service.
Termination of Auto Leases: Permits the termination of vehicle leases under certain conditions related to deployment or permanent change of station.
Security Deposits: It also allows for the return of security deposits without penalty when leases are lawfully terminated under the SCRA.
Stay of Proceedings: The SCRA allows courts to temporarily stay civil proceedings in which the servicemember's ability to participate is materially affected by military service.

Implications for Lenders

Compliance Requirements: Lenders must comply with the SCRA's provisions or face penalties, including fines and voiding of transactions. It is essential for lenders to have processes in place to identify borrowers who are eligible for SCRA protections.
Loan Modifications: Lenders may need to modify loans, including reducing interest rates to the SCRA cap and adjusting loan terms.
Foreclosure Restrictions: Lenders are restricted from foreclosing on properties owned by servicemembers without a court order during the period of active duty and for a specified time after.
Lease Terminations: Financial institutions involved in auto leasing must accommodate lease terminations and adjust accounts accordingly without imposing early termination fees or penalties.
Increased Documentation and Verification: Lenders may need to invest in additional resources to verify active-duty status of borrowers to ensure compliance with SCRA requirements.

Learn more at: https://www.consumerfinance.gov/consumer-tools/educator-tools/servicemembers/the-servicemembers-civil-relief-act-scra/

Military Lending Act (MLA)

The Military Lending Act (MLA) is a United States law designed to protect active duty service members, including those on active Guard or active Reserve duty, and their covered dependents, from certain lending practices that could pose risks to their financial security. The MLA was enacted in 2006 and has been updated and expanded over time to provide broader protections. It aims to prevent lenders from charging excessive fees and interest rates on consumer credit products beyond a certain threshold.

Key Provisions for Servicemembers

Interest Rate Cap: The MLA caps the annual percentage rate (APR) on covered loans to military members and their families at 36%. This rate, known as the Military Annual Percentage Rate (MAPR), includes interest, fees, credit service charges, credit renewal charges, credit insurance premiums, and other costs associated with the credit.
No Mandatory Waivers: The act prohibits creditors from requiring servicemembers to submit to mandatory arbitration or relinquish their rights under state or federal laws, including the Servicemembers Civil Relief Act.
No Mandatory Allotments: It forbids creditors from requiring a military member to create an allotment as a condition of receiving the loan.
No Prepayment Penalty: Creditors cannot charge a penalty when a servicemember pays back part or all of a loan ahead of the schedule.

Covered Types of Credit

The MLA covers a wide range of credit products, including payday loans, title loans, overdraft lines of credit, installment loans, and certain open-end lines of credit. It does not apply to residential mortgages and certain other types of secured loans, like those used to buy a vehicle when the loan is secured by the vehicle being purchased.

Implications for Lenders

Compliance and Regulation: Lenders must ensure their products comply with the MLA requirements, including the 36% MAPR cap and disclosure requirements. This may require adjustments to interest rates, fees, and loan terms for eligible military borrowers.
Verification Requirements: Lenders are required to verify a borrower's eligibility for MLA protections by checking the Department of Defense's (DoD) database or using a credit reporting agency.
Operational Changes: Implementing the MLA can require significant operational changes for lenders, including updates to loan products, adjustments to fee structures, and the development of new systems for verifying military status.
Penalties for Non-Compliance: Failure to comply with the MLA can result in penalties such as voidance of the credit agreement, financial penalties, and potential legal action from regulators.

Learn more at: https://www.consumerfinance.gov/consumer-tools/educator-tools/servicemembers/military-lending-act-mla/