The maximum interest rate for military members is set by two different federal laws. The Military Lending Act (MLA) caps most new consumer credit at a 36% Military Annual Percentage Rate for active-duty service members and their dependents. The Servicemembers Civil Relief Act (SCRA) goes further on debts you already had when you entered active duty, cutting the rate on those to 6% for the duration of your service. The caps cover different debts and work in different ways, so which one protects you depends on when the loan was made.
The 36% Cap on New Credit
Under the MLA, a lender cannot charge a covered service member more than a 36% annual rate on most consumer credit.1Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Members and Dependents: Limitations The rate is called the Military Annual Percentage Rate, or MAPR, and it is broader than the APR you would normally see on a Truth in Lending disclosure. Fees and charges that a standard APR calculation would leave out still count toward the MAPR, so lenders cannot dodge the cap by relabeling interest as a fee.2National Credit Union Administration. Military Lending Act (MLA)
The MAPR calculation pulls in:3eCFR. 32 CFR 232.4 – Limitations on Terms of Consumer Credit Extended to Service Members and Dependents
- Finance charges, including the interest itself
- Credit insurance premiums, including debt cancellation and debt suspension fees
- Fees for credit-related ancillary products sold with the loan
- Application fees and participation fees
Add all of that up, and the total cost of credit cannot exceed 36% on an annualized basis. A payday lender quoting a “flat fee” instead of an interest rate is still bound by the cap, because that fee gets rolled into the MAPR.
What the MLA Covers
Since a 2015 expansion of the Defense Department regulation, the MLA reaches most types of consumer credit offered to service members, including payday loans, deposit advance products, vehicle title loans, credit cards, installment loans, and overdraft lines of credit.4Consumer Financial Protection Bureau. What Is Covered Under the Military Lending Act? Traditional overdraft service on a checking account is not covered.
What the MLA Does Not Cover
Certain purchase-money loans sit outside the 36% cap:5Consumer Financial Protection Bureau. Military Lending Act Applicability Flow Chart
- Residential mortgages, including purchase loans, refinances, construction financing, home equity loans, HELOCs, and reverse mortgages
- Loans taken specifically to buy a vehicle, where the vehicle secures the loan
- Loans taken to buy a specific piece of personal property, where the item secures the loan
The exemption depends on the loan being designed to finance the purchase and secured by the thing being purchased. An unsecured personal loan you happen to spend on a car is still covered. A vehicle title loan against a car you already own is not a purchase loan, so it stays under the 36% cap.
The 6% Cap on Debts You Had Before Serving
The SCRA reduces the interest rate on any debt you took on before entering active duty to 6% per year.6Office of the Law Revision Counsel. 50 USC 3937 – Maximum Rate of Interest on Debts Incurred Before Military Service It applies to essentially every type of pre-service consumer debt: car loans, credit cards, mortgages, home equity loans, and student loans.7U.S. Department of Justice. 6% Interest Rate Cap for Servicemembers on Pre-service Debts Joint debts held with a spouse qualify too. “Interest” is defined broadly to include service charges, renewal charges, and fees, not just the stated rate.
Any interest above 6% is forgiven, not deferred. It does not get added back to your balance later, and the lender cannot accelerate your principal payments to make up the difference. Your monthly payment simply drops.7U.S. Department of Justice. 6% Interest Rate Cap for Servicemembers on Pre-service Debts
How long the cap lasts depends on the debt:6Office of the Law Revision Counsel. 50 USC 3937 – Maximum Rate of Interest on Debts Incurred Before Military Service
- Mortgages: during active duty and for one year after service ends
- All other debts: during active duty only
How to Get the 6% Rate
The SCRA reduction is not automatic for most debts. You have to ask for it. Send each creditor a written notice requesting the rate reduction and include a copy of your military orders calling you to active duty, or a certified letter from your commanding officer.6Office of the Law Revision Counsel. 50 USC 3937 – Maximum Rate of Interest on Debts Incurred Before Military Service You can send the notice any time during your service or within 180 days of being released from active duty.
Once the creditor has your notice and orders, the reduction applies retroactively to the date you were called to active duty. Any excess interest you already paid gets refunded. There is no reason to wait: send the letter as soon as you have your orders.
Federal student loan servicers are an exception. They are required to check the Defense Manpower Data Center and apply the reduction automatically, without waiting for a request.8Consumer Financial Protection Bureau. Servicemembers Civil Relief Act (SCRA)
Who Counts as a Covered Service Member
Both laws protect active-duty members of the Army, Navy, Marine Corps, Air Force, Space Force, and Coast Guard, along with Guard and Reserve members on active duty under orders that are not limited to 30 days or less.1Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Members and Dependents: Limitations Spouses and certain children qualify as dependents.9Consumer Financial Protection Bureau. Military Lending Act (MLA)
Lenders verify your status through the Defense Manpower Data Center, a Defense Department database tied to DEERS.10Defense Manpower Data Center. MLA A lender that checks the database and finds no active-duty record gets a safe harbor from MLA liability, so make sure your DEERS enrollment is current before applying for new credit.
Terms Lenders Cannot Include in a Covered Loan
The MLA bans several loan terms in addition to capping the rate:1Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Members and Dependents: Limitations
- Mandatory arbitration clauses, which are unenforceable in covered loans
- Waivers of your rights under the SCRA or other federal or state consumer laws
- Required allotments from your military pay as a condition of the loan
- Prepayment penalties, so you can pay off a covered loan early at no extra cost
- Rollovers or refinances of existing debt with the same lender
What Happens if a Lender Charges Too Much
A loan that violates the MLA’s rate cap or includes a prohibited term is void from inception, meaning the law treats it as if it never existed.1Office of the Law Revision Counsel. 10 USC 987 – Terms of Consumer Credit Extended to Members and Dependents: Limitations A service member can sue and recover actual damages (with a $500 minimum per violation), punitive damages, equitable or declaratory relief, and attorney fees and costs. The statute of limitations is two years from when you discover the violation. Knowing violations are also a misdemeanor punishable by a fine, up to one year in prison, or both.
Which Cap Applies to Which Debt
The two caps cover separate territory:
- Credit taken out while you are on active duty: MLA, 36% MAPR, enforced by the lender at origination.
- Debts you had before going on active duty: SCRA, 6% rate, applied once you send the creditor written notice and a copy of your orders.
A service member with a credit card opened before enlistment and an installment loan opened at a duty station would have the SCRA protecting the older card and the MLA protecting the newer loan. The SCRA rate cut for most debts only happens if you ask for it, so a service member who does not send the notice keeps paying the original rate on old debts even though the law entitles them to 6%.