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Military Lending Act: What Dealers & Lenders Must Know During Memorial Day

With the Memorial Day weekend coming up, I wanted to make you aware of some information and insight from Equifax regarding the Military Lending Act (MLA), and a few key things auto lenders and dealers should know when working with service members.


According to Equifax:


Dealers and lenders are still trying to better understand what they need to know about MLA, and whether it will continue to apply to auto loans.  MLA restricts certain contractual provisions, limits the terms to a maximum of 36 percent Military Annual Percentage Rate, and requires certain disclosures.


  • Ensure the Military Annual Percentage Rate (MAPR) does not exceed 36 percent – what’s covered and what isn’t.

The entire crux of the MLA discussion hinges on service members paying more than a 36 percent MAPR. Dealers and lenders must know which of the fees or ancillary product costs financed need to be included with the finance charges in the MAPR calculation as it is different than the Truth in Lending Act (TILA) APR calculation.   As stated by the Department of Defense, loans that include financing related to the vehicle being purchased are generally exempt. Examples that may fall within the exception of consumer credit:

  • Purchase price of vehicle including options like leather seats and extended warranty
  • Purchase price of vehicle including negative equity of trade loans that include financing a credit related product or service and not a product or service expressly related to the vehicle, or cash out / cash advance transactions, are not exempt under the MLA. Examples that do not fall within the exception of consumer credit may include:
  • Guaranteed Auto Protection (GAP) Insurance
  • Credit Life and Disability Insurance
  • Hybrid purchase money with cash advance, transaction not expressly intended to finance vehicle.


  • Know a borrower’s MLA status upfront.

It’s important to note that MLA covers active duty military members and their covered dependents.  To achieve a safe harbor, lenders are required to verify a consumer’s MLA covered borrower status prior to the point of origination. The consumer’s status can be verified using the Department of Defense database or verifying the status with a nationwide consumer reporting agency or a reseller of reports.   The status check must be retained to evidence compliance.

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