Military Lending Act – Everything You Need To Know (Annual Fee Waivers, Capped Interest)

Reposting because I don’t think this got enough attention the first time and Chase has also added a Military Lending Act notice to all of their card’s offer terms page. This seems to only apply to Chase personal & not business cards.

We’ve talked about credit card benefits for active duty service members in the past. Most of these benefits are due to the Servicemembers Civil Relief Act (SCRA). In 2006 the Military Lending Act (MLA) was enacted and implemented by the Department of Defense. The reason we’re talking about something that was introduced in 2006 is that:

• For credit card accounts, creditors are not required to come into compliance with the rule until October 3, 2017 (V13.2)

The major difference between MLA and SCRA is the SCRA focuses on existing debts when a service member enters into active duty and MLA focuses on credit extended to existing active duty members. In this post we will look at the Military Lending Act in detail and discuss the benefits available to those eligible with an eye on credit card benefits.

Who’s Covered?

MLA defines a covered borrower as:

• Full time active duty Service members (and those under a call or order of more than 30 days)
• A covered members dependent:
  • Spouse;
  • Children under age 21;
  • Children under age 23 enrolled full-time at an approved institution of higher learning and dependent on a covered member (or dependent at the time of the member’s or former member’s death) for over one-half of their support
  • Children of any age incapable of self-support due to mental or physical incapacity that occurred while a dependent of the covered member under the preceding two bullets and dependent on a covered member (or dependent at the time of the member’s or former member’s death) for over one-half of their support

Benefits

There are a number of benefits military members receive as part of MLA:

• 36% APR interest cap. The Military Annual Percentage Rate (MAPR) may not exceed 36%. 36% might sound alarmingly high, but this doesn’t just look at the interest rate charged by a card issuer. It also takes into account other fees and charges. The definition for calculating MAPR is found here (Terms of Consumer Credit Extended to Covered Borrowers (Calculation of MAPR) (§ 232.4)). Put simply it covers:
  • Annual fees/application fees/participation fees
  • Any credit insurance premium or fee
  • Any fee for add on products
• No mandatory arbitration or prepayment penalty. Certain loan terms are prohibited including prepayment penalties, mandatory arbitration clauses &  certain unreasonable
  notice requirements
• No mandatory allotments. Creditors are not allowed to require you to repay a loan via military allotment.

Annual Fees

So as mentioned annual fees can be used to calculate the 36% APR interest cap, but it’s not quite that easy. A bona fide fee is not required to be used in MAPR calculations. The FDIC (V13.5) gives us an example of how this might work on a premium credit card:

• Example #3: Even if other creditors typically charge $100.00 annually for participation in credit card accounts, a $400.00 fee nevertheless may be reasonable if (relative to other accounts carrying participation fees) the credit made available to the covered borrower is significantly higher or additional services or other benefits are offered under that account.

Card Issuers

I suspect each individual card issuer will have their own internal policies for dealing with the MLA. I’ll try to keep this section for discussing those rules, if you have any additions to make let us know in the comments.

American Express

Official statement:

• We have many different consumer card offerings both with and without annual fees. For those with an annual fee, we will waive the fee as part of our MLA compliance program.

Keep in mind American Express were already waiving fees under SCRA and that also applies to spouses.

Bank of America

Reader Kazu received an annual fee refund on their Alaska Airlines card with the notation MLA refund.

Barclaycard

Barclaycard provided the following statement:

Effective October 3, 2017, applicants who are approved for a consumer credit card and meet the Military Lending Act’s (MLA) definition of “Covered Borrower” will receive the protections of the MLA and certain benefits, including the following:

• The Military Annual Percentage Rate (MAPR) of any billing cycle will not exceed 36%.  Barclaycard will not assess any fees, other than the annual fee, for any Covered Borrower while on active duty.
• Contract rates and promotional rates will remain as described in the Cardmember Agreement.
• Covered Borrowers will not be required to submit to arbitration.
• Covered Borrowers will not be required to establish an allotment to repay the amount of the credit card balance.
• The Military Lending Act Disclosure Statement is contained within the Cardmember Agreement and a toll-free telephone number is provided for consumers who wish to call us to learn more about MLA.

Chase

Reddit user pandabear_actual received a notice from Chase stating that effective September 20th, 2017 (note this apparently affects accounts opened after this date only) the following would be implemented:

• Your Military Annual Percentage Rate (MAPR) won’t be more than 36%
• If you have a promotional or introductory rate, you’ll keep it for existing balances until it expires.
• Your contract rate won’t be impacted and will remain as outlined in your Cardmember agreement
• We won’t charge you fees, other than late fees and non-sufficient funds fees, if applicable.

Point #4 would indicate that annual fees will not be charged.

Chase cards now also call out the Military Lending Act in the fine print:

• MILITARY LENDING ACT NOTICE: Federal law provides important protections to members of the Armed Forces and their dependents relating to extensions of consumer credit. In general, the cost of consumer credit to a member of the Armed Forces and his or her dependent may not exceed an annual percentage rate of 36 percent. This rate must include, as applicable to the credit transaction or account: the costs associated with credit insurance premiums; fees for ancillary products sold in connection with the credit transaction; any application fee charged (other than certain application fees for specified credit transactions or accounts); and any participation fee charged (other than certain participation fees for a credit card account). To receive this information and a description of your payment obligation verbally, please call 1-800-235-9978.

Citi

Citi is waiving annual fees on cards opened after ending active duty. They were already waiving fees on cards opened before active duty under SCRA but now cards opened before and after are covered.

Our Verdict

I suspect MLA won’t affect the majority of our readers, I thought the 36% APR interest cap was interesting and would likely lead to a lot of annual fee card waivers before reading the bona fide fee exception, it shouldn’t be difficult for premium card issuers to argue that their fees are reasonable given the benefits provided. Although I’m not sure Barclaycard could make the case on their $995 annual fee gold card given how poor the benefits are in comparison to other cards with lower annual fees.

From my understanding it looks like Chase is providing benefits above and beyond what MLA requires of them. I actually think the annual fee exception makes sense, rules like this are introduced to protect service members and they aren’t meant to provide premium credit card benefits without any fees. If individual card issuers (e.g American Express or Chase) want to provide these benefits as a gesture of good will, I think that’s fantastic but it’s not something that should be regulated.  I’m also admittedly no expert on the MLA, so feel free to provide your own insight and corrections in the comments below.