History of the Military Lending Act
Passed originally in 2006, the intention of the Military Lending Act was to protect consumers, particularly those with low income, from what legislators consider to be “predatory” interest rates and other potentially “exploitative” lending practices. Since then, the MLA has been updated with newer forms of legislation.
Despite what the name would suggest, the Act is not limited in scope to active United States military personnel. It also has provisions which affect various aspects of lending and credit policy for other citizens and residents of the United States, more generally. In total, the Act impacts more than five million Americans.
Primarily, the bill’s purpose was to make standard at the federal level certain lending caps which had already been ratified and enforced at the local level. Specifically, the MLA is a federal bill which emulates the 36% interest cap passed in states like Arizona for consumer loans, though a few exceptions to that rule do exist. To put that another way, a maximum of three percent interest can be placed on a given loan per month.
Beyond that, the Military Lending Act adds additional regulations on credit insurance fees and premiums, general finance charges, products which had been added on to a line of credit, and fees associated with an application, as well as assorted finance charges.
Under the Act, a creditor is legally prohibited from charging a penalty if a customer pays back a loan, either in whole or in part. Furthermore, a creditor is not allowed to require a customer to create a voluntary military allotment to secure a loan. In short, the MLA is a regulatory bill intended to shield consumers from substantially high interest rates, as well as other lending practices which would put certain consumers at a considerable financial disadvantage were they to engage in select borrowing transactions.
The parts of the Act which are pertinent to military personnel specify that the MLA reinstates and extends certain protections granted to servicemen and women under the 2016 Servicemen Civil Relief Act. Under the privileges granted by the aforementioned bill as well as the MLA, American members of the armed forces, as well as commissioned officers of the Public Health Service and National Oceanic and Atmospheric Administration, are not required to submit to mandatory arbitration. Further, the aforementioned individuals cannot be sued while involved in military service nor for a year following their service over a loan.
It is worth noting that the MLA also extends its provisions to the families of service members as well.
Curiously, unlike other regulatory bills, this act in part has been influenced and updated by the Department of Defense rather than other often used regulatory agencies. According to the National Consumer Law Center:
‘”New DoD rules announced on July 21, 2015, dramatically expand the MLA’s coverage to almost all forms of credit within the Truth in Lending Act’s scope, other than residential mortgages and purchase money loans, so that this wider range of creditors will be prohibited from charging more than 36% interest or requiring consumers to submit their disputes to arbitration. Notably, MLA coverage is expanded to include credit cards and other forms of [open-end] credit, and creditor attempts to structure credit to evade the prior MLA definition of “consumer credit” will be thwarted.'”
This means that loans, including those given by pawnbrokers, have and will be affected for the foreseeable future. Consequently, pawn shop owners should take note of these developments.
Advocates for and Against the MLA
Though hardly a recent point of advocacy, various left-wing consumer advocacy groups, such as the Center for Responsible Lending, have been arguing for more stringent financial regulations as well as an increase in enforcement of existing regulations. Said proponents argue that regulations like the Military Lending Act, protect consumers from what is perceived to be exploitative lending practices which may lead to the levy of unmanageable loans which would most negatively affect poor people.
On the contrary, small government activists, as well as financial service advocacy groups, believe that these regulations are unneeded rule additions, if not an overreach of the role of the federal government. Further, those groups fear that added regulatory pressure will disrupt business interactions and ultimately hurt both pawnbrokers and the customers they serve.
How Does The MLA Effect Pawnshop Customers?
As previously mentioned, those who are military members that use the services of pawn shops are subject to certain legal protections that regulate pawn loans. In practice, this means that the interest on a loan cannot exceed three percent per month.
Furthermore, all of the other protections of MLA and related legislation affect you as well. Keep in mind; this bill applies both nationwide and throughout all US territories and military bases. Consequently, whether or not a pawn shop you frequent is located on or near a military base is irrelevant. The effects of the Military Lending Act still fully apply.
As a customer, all you will need when applying for a loan through a pawnbroker is to provide identification and your Social Security number. The employees at the pawn shop which you are using will do all of the rest.
Given the way the MLA is structured and currently being enforced, a pawnbroker will ask for identification and check your Social Security number even if you are not an active military member or a dependent of one.
Finally, since the MLA is apart of a series of financial regulatory bills passed relatively recently, this Act falls under the direct enforcement of the Consumer Financial Protection Bureau. Any misapplication of the MLA or any other existing financial regulation should be reported to the CFPB.
How Does the MLA Effect Pawnshop Owners?
Since the Military Lending Act updates the effects of the Military Annual Percentage Rate (MAPR) which affect all loans and credit transactions, every form of pawn transaction is included. Further, it is worth reiterating that not only does this law affect military personnel, their dependents are included as well.
Legally speaking, dependents are defined as members of one’s immediate family who are fiscally reliant on the voluntary financial provisions of another individual. In practice, this means most often that an individuals spouse and children are dependents. By extension, the MLA affects them as well so pawn shop owners should be prepared to address and service them as mandated by law.
To easily and uniformly do this, pawnbrokers should ask all of their customers every time they ask for a loan to verify their identity for their Social Security number and cross check that with the Defense Power Data Center (DPDC) or from a nationwide credit reporting agency. This robust database will determine whether or not a customer is subject to “covered borrowed” status and thus eligible for the benefits of the MLA.
Fortunately, if your firm has access to the DPDC or similar credit reporting agency, the customer identity check is fairly quick. Information required to verify identity should only include a check on the customer’s legal name, address, and date of birth, along with a proper match of those vital statistics to the correct Social Security number.
Just because the verification process is simple, does not mean that it is something to be taken lightly. Being in a state of non-compliance with the MLA bears serious legal repercussions.
What If a Pawnbroker Is Out of Compliance with the MLA?
Remember, failure to comply with the regulations mandated by the Military Lending Act is associated with severe legal repercussions. Violations can result in a voided pawn ticket, result in legal claims against an offending pawnbroker owner in the form of civil liability. Said legal action could lead to fines of $500 per violation, along with punitive damages, attorneys’ fees, and legal action initiation costs included. Also, offenders of the MLA may face additional federal fines and/or up to an entire year in federal prison.
Consequently, it is highly recommended that any pawnbroker possess the necessary computer software equipment able to access the DPDC or other reputable credit reporting agency, and follow through with identity verification protocols in accordance with the MLA.
Given the attitudes of the previous presidential administration, plus actions taken by independently operating enforcement agencies, pawnbrokers are under scrutiny and will be targeted if the MLA is not followed.
Aside from updating your pawnbroker software as needed, pawn shop owners can refer to the National Pawnbrokers Association. The NPA has compiled the most up-to-date information on the specifics of the MLA and aims to partner with all other pawnbrokers out of mutual protection.
As a result, the NPA is also accepting new members. To join, call the NPA at (817) 337-8830 or visit their website at NationalPawnbrokers.org/join/.
Is There Any Good Pawnbroker Software Updated to Work Within the Structure of the MLA?
Obviously, operating a business within the financial industry is difficult, particularly so if you operate a business within the regulatory regime of the United States. What’s even more difficult is dealing with the financial and cultural scrutiny of managing a pawnbroker firm or similar establishment without running afoul of any number of regulatory hurdles, let alone the myriad general business obstacles which constantly present themselves.
Fortunately, PawnMaster is the premier software which has been designed to take as much stress off of running a pawnbroker as possible. Being a product of Data Age Business Systems Inc., PawnMaster has been designed to be the leading pawnbroker software service provider since it was first conceived and coded by Randy Peffly and Tom Streng in 1988.
Though their commitment to quality has remained a constant, Data Age Business System Inc.’s PawnMaster software has evolved extensively over the past three decades.
PawnMaster Classic is a Windows-based pawnbroker management system which need not be dependent on cloud support, though the system is compatible with cloud computing storage technology. Designed to be the all-in-one pawnbroker tool, this software provides virtually every service a pawn shop owner may need.
This variation of the software allows the user to easily monitor run-of-the-mill transaction operations as well as to overview and manage a business’s inventory. A related function also acts as a checkout feature, making PawnMaster a holistic pawnbroker software service.
Furthermore, with built-in marketing tools and analytic observational reporting, PawnMaster Classic can track what is and is not selling. Further, this system features layaway, pawn-buy-sell-consign, programmable price guide, employee time clock, and even multi-store management tools.
Other tools provided by PawnMaster Classic include the recording of repair transaction details. Repairs which have been dispatched are easy to track as they are addressed and record when completed. The system’s business intelligence software contains hundreds of individual reports to provide pawnbrokers with the maximum amount of information to best drive their business forward.
Finally, given the potentially precarious nature of pawn shop management PawnMaster Classic even includes a jewelry weight measurement program as well as a police reporting system.
Moving on, the PawnMaster Ignite software system is an entirely cloud-based, Amazon Web Services-powered solution which has been the result of years of studying the pawnbroker industry and refined through customer feedback. PawnMaster Ignite incorporates all of the features of its predecessor but also comes with the support of redundant data centers, allows for secure access to personal data, receives consistent software updates, and features a customizable interface. Plus, with this service, you are protected from program failures and have peace of mind due to consistent software updates.
Like PawnMaster Classic, Ignite is intuitive and easy-to-use, while also being simple to maintain or scale.
This means that the relatively new financial regulations provided the Military Lending Act, or any other new financial constraint, need not be a concern. The PawnMaster system can handle whatever regulatory challenge you may face. In fact, since PawnMaster’s was designed to be the best pawnbroker software on the market, the system features a portal, specially designed to identify active military members who would benefit from the MLA.
If you are interested in what services we have to provide to you, then do not hesitate. You cannot afford to wait while competitors pass you by. Contact them by email or phone immediately so they can best serve your pawnbroker needs today.