A Sea Lawyer’s Breakdown of the Military Lending Act of 2006


I am not a real lawyer, but my fellow O-3 Endoid, my High School Friend that I interned with at the Federal Reserve Bank 14 years ago, and myself are trying to wrap our heads around reading the actual guidance given by the FDIC on the MLA as posted here. The actual MLA can be found here, and a comptrollers guide can be read here. My head hurts after reading all of that. Any of you JAGs out there can chime in? This whole thing is goddamn rocket surgery to us!

First and foremost the entire point of this MLA passed over 12 years ago under George W. Bush was this:

The Military Lending Act (MLA), enacted in 2006 and implemented by the Department of Defense (DoD), protects active duty members of the military, their spouses, and their dependents from certain lending practices. These practices could pose risks for service members and their families, and could pose a threat to military readiness and affect service member retention.

It’s interesting how “Service member retention” is mentioned. I believe the MLA is the greatest retention tool of all time. Pretty much these $450 to $595 annual fees are the “new potential debt” that I am trying to avoid by staying active duty forever. Maybe this is the DoD’s plan to retain us forever as a 33 year retired retained O-6s.

It appears that the act was to keep E-1 Seaman Timmy from getting another Chevy Camero at 36+% APR. There are a couple of calculators for shady car dealerships to max out their exploitation, imagine an APR so high that you need a website to calculate reaching 36%. The main target is predatory lenders as the punishment for anyone not complying with the MLA is harsh:

creditor who knowingly violates this section shall be fined as provided in title 18, or imprisoned for not more than one year, or both.

This was an excellent effort to stop these young recruits from fucking up their financial life. Now we wonder why does Citibank, Chase, American Express, and U.S. Bank extend such provisions to their consumer products? The answer lies right here in the comptrollers’ guide:

The main reason these specific banks are waiving annual fees is out of an abundance of caution. They simply do not want to be in violation of potentially charging over 36% interest when the annual fee is factored in. Unless they have a dedicated super computer and some accountant on each service member’s account I don’t see how they could ever keep up making sure they are not in violation on a monthly basis.

The FDIC talks about Bonafide Fees of which any of us can say a $450 to $595 annual fee is excessive. The FDIC guide says these fees are considered reasonable in only these circumstances:

So it would be unreasonable for Citibank to charge $495 for a Citi Prestige card with a wimpy $5,000 credit limit. The bank could say, bring it on and challenge us because we can justify the fee. However since Citi is the same size as Chase and AmEx we look at the other provision mentioned here:

Just because Chase, U.S. Bank and AmEx are waiving fees, does that force Citi (and potentially Barclays) to follow suit? None of the other provisions make any sense. For example page 6 of the FDIC guide shows a calculation of the Military Annual Percentage Rate (MAPR) as per 12 CFR 1026.14(c) and (d) of Regulation Z.:

This section refers to personal loans of which AmEx has set their APR to 0.00% for military. When we look at the credit card section we see this:

For example my $495 annual fee Citi prestige has a $20,000 credit limit and a 17.99% APR.

If we do the MAPR calculation we take the APR of 17.99% and then add the ($495 AF /$20,000 CL) = 2.4% which is only 20.4%. This is less than 36% limit and is NOT in violation of the MLA, even if I drop my Credit Limit to $5,000 I am at an MARP of 28%. So this makes no sense that they are in violation of the MLA. However what if I carry no balance from month to month? Turns out no fee can be charged in this situation:

It appears the worse they could do is charge max of $100 a year for any of their premium products, and only if a balance is carried over!

The MLA interpretation is currently a very generous gift of Chase, AmEx, U.S. Bank, and Citibank. So keep that in mind, nothing lasts forever and this could all end abruptly like how the $995 fee waiver ended for the Gold Luxury Card.

Any one have data points on other banks?


6 thoughts on “A Sea Lawyer’s Breakdown of the Military Lending Act of 2006

  1. Steve says:

    Certainly an interesting perspective. I wish CNB would fall in line and stop charging AF.

  2. Ron says:

    I have been holding out in applying for the citi prestige as I have see reports of some AD getting the waiver and some other not getting it.

  3. Ron says:

    This is a comment from the reddit threat regarding citi prestige.

    “I did not. I just opened my account last week and they approved me for MLA but said they would not waive the fee because I didn’t reach the 36% threshold that the MLA states.” Source: https://www.reddit.com/r/MilitaryFinance/comments/atzp6y/psa_citi_prestige_mla_annual_fee_waiver/?utm_source=share&utm_medium=ios_app

    That is the reason I been holding on applying and waiting on more data points.

    • uiucderp2011 says:

      All the MLA letters say they will not waive annual fees, but the annual fees have been waived. Citibank is one weird company!

  4. […] Banks are afraid to charge service members more than a $100 annual fee per the Military Lending Act on any consumer credit card product per my armchair analysis of the MLA. […]

  5. […] Banks are afraid to charge service members more than a $100 annual fee per the Military Lending Act on any consumer credit card product per my armchair analysis of the MLA. […]

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