If you lend money, lease property, sell on credit, or sign service contracts with military families, federal law can rewrite your agreements without asking you first. Interest rates drop to 6 percent. Leases end early with no penalty. Evictions, foreclosures, and repossessions need a court order. And if you extend new credit to a covered borrower, a second law caps your all-in rate at 36 percent and bans the arbitration clause in your standard agreement. None of this requires your consent. All of it carries penalties if you ignore it.
Two federal statutes do this work: the Servicemembers Civil Relief Act (SCRA), which relieves active-duty servicemembers of burdens on pre-service obligations, and the Military Lending Act (MLA), which sets the rules for new consumer credit extended to servicemembers and their dependents. This guide walks through what each law requires, where businesses most often trip, and how to keep your books straight when the caps apply.
Two Laws, Two Directions
The SCRA and the MLA are easy to confuse because both cap interest and both protect military families. They operate in opposite directions:
- The SCRA looks backward. It adjusts obligations the servicemember incurred before entering active duty: earlier credit cards, auto loans, mortgages, student loans, and leases. You, the creditor or landlord, must honor the relief once the servicemember invokes it.
- The MLA looks forward. It governs new consumer credit you extend to a covered borrower: the rate you may charge, the disclosures you must give, and the contract terms you may not use.
A single customer relationship can implicate both. A National Guard member called to active duty might invoke the SCRA's 6 percent cap on her existing auto loan from your dealership, while the MLA's 36 percent all-in cap and disclosure rules govern the new credit account she opens with you after activation. Treat them as separate compliance tracks, because the triggers, caps, and paperwork differ.
One boundary worth stating up front: neither law is the employment-protection statute. Reemployment rights for returning servicemembers come from a third law, USERRA. This guide covers the financial and contract side only.
The SCRA's 6 Percent Interest Cap
The centerpiece of the SCRA is simple to state: debts a servicemember incurred before active duty cannot bear more than 6 percent interest per year during military service. Credit cards, auto loans, mortgages, private student loans, and business debts of the servicemember all qualify, so long as the obligation predates service.
Four details decide whether you apply it correctly:
The servicemember must invoke it, but the relief is retroactive. The borrower sends written notice plus a copy of the military orders (or, for Guard members, the call-up orders), and can do so during service or up to 180 days after release. The reduced rate applies from the first day of active duty, not from the date you receive the letter. If notice arrives six months in, you reprice the whole covered period.
The excess interest is forgiven, not deferred. This is the mistake creditors make most often. Interest above 6 percent during the covered period is permanently written off. You may not tack it onto the back of the loan, capitalize it into principal, or collect it after discharge. When service ends, the loan reverts to its original contract rate going forward.
"Interest" includes fees. The SCRA defines interest to include service charges, renewal charges, and other fees except bona fide insurance. If an annual fee or late charge pushes the effective rate above 6 percent, you must reduce or eliminate the fee, not just the stated rate. Run the computation on the total cost of the debt, not the headline APR.
Mortgages get an extra year. For mortgage obligations, the 6 percent cap runs through active duty and for one full year after service ends — the longest SCRA rate protection on the books.
Who and what is covered
The SCRA covers active-duty members of the uniformed services, reservists and National Guard members called to federal active duty (generally for more than 30 consecutive days), commissioned officers of the Public Health Service and NOAA on active duty, and, for some protections, their dependents. Debts incurred during service are not eligible for the cap; only pre-service obligations qualify. Joint debts with a spouse are covered to the servicemember's share, and courts can extend protection to a dependent who applies.
Leases, Evictions, Foreclosures, and Repossessions
The SCRA's housing and property protections matter most to landlords, property managers, auto dealers, and equipment sellers. Each one replaces your normal remedy with a court-supervised version.
Early lease termination
A servicemember may terminate a residential lease, a business lease, or an automobile lease early when military service intervenes: entering active duty after signing, receiving permanent-change-of-station (PCS) orders, or deploying for 90 days or more. Retirement and separation orders can qualify as well.
The procedure is fixed by statute. The servicemember delivers written notice plus a copy of the orders to the landlord or lessor by hand, by mail, by private carrier, or electronically. For a lease with monthly rent, termination takes effect 30 days after the next rent payment comes due following delivery of the notice. Rent for the final partial period is prorated, prepaid rent and deposits attributable to the period after termination must be refunded, and you may not charge an early termination fee or penalty. Auto leases work the same way, with excess mileage and wear charges still collectible but no early-termination penalty allowed.
Eviction protection
You may not evict a servicemember or dependents from a residence during active duty without a court order, provided the monthly rent sits below an inflation-adjusted ceiling that the Secretary of Defense publishes each year in the Federal Register. For 2026 the ceiling is a bit over $10,500 a month, which covers nearly every rental outside the luxury market. Check the current Federal Register notice rather than memorizing the figure, since it moves every year. If you apply for eviction, the court can stay the proceedings or adjust the lease obligation.
Foreclosure and installment contracts
If the mortgage predates service, you must get a court order before foreclosing, and this protection runs during service and for one year after it ends. That one-year tail, made permanent by 2016 legislation, applies even in states where foreclosures are normally nonjudicial. The same court-order requirement covers installment contracts for the purchase of real or personal property, including seller-financed deals: no repossession or rescission for nonpayment without going to court. Knowing violations of the foreclosure provision can draw fines and imprisonment, not just civil liability.
Auto leases and phone contracts
Vehicle leases get double coverage: the court-order rule for repossession plus the early-termination right above. Separately, servicemembers who deploy for 90 days or more, or relocate to an area their carrier does not support, may terminate cell phone contracts without early-termination fees. If your business bundles financed devices with service plans, both halves of that bundle can unwind at once.
The Courtroom Protections Behind the Scenes
Three quieter SCRA provisions shape any collection or litigation strategy against a servicemember, and ignoring them is how creditors manufacture liability even when the underlying debt is valid.
Default judgments require an affidavit. Before a court may enter a default judgment, the plaintiff must file an affidavit stating whether the defendant is in military service, based on facts supporting the statement. If you cannot determine status, you must say so. When the affidavit shows service, or the court cannot tell, the judge must appoint an attorney to represent the servicemember's interests and must grant a stay of at least 90 days on request. Judgments entered in violation can be reopened.
Proceedings can be stayed. Courts may pause civil actions, including collections, bankruptcies, and administrative proceedings, during service and for a period after, when military duties materially affect the servicemember's ability to appear. Build this delay into your recovery timeline rather than fighting it.
Limitations periods are tolled. The time a servicemember spends in service generally does not count against statutes of limitations for or against them. A limitations defense that looks solid on a calendar may fail once the service period is excluded.
The Military Lending Act: Rules for New Credit
Where the SCRA adjusts old debts, the MLA polices new ones. If you extend consumer credit to active-duty servicemembers or their covered dependents (spouses and young children), these rules attach at origination.
Covered credit is broad, with two big carve-outs. The MLA covers most consumer credit: credit cards, installment loans, lines of credit, payday and vehicle-title loans, and tax-refund anticipation loans. It does not cover residential mortgages or purchase-money loans secured by the property being bought, such as a standard auto loan used to buy the car or a furniture loan secured by the furniture. Everything else you finance for a covered borrower is in scope.
The 36 percent MAPR cap is all-in. The Military Annual Percentage Rate may not exceed 36 percent, and the MAPR captures far more than a Truth in Lending APR: finance charges plus credit insurance premiums, fees for ancillary products sold with the credit, application fees, and participation fees, with only narrow exceptions. A loan priced at 24 percent APR with mandatory add-on products can breach the cap once everything is folded in. Price the bundle, not the rate sheet.
Disclosures come in two channels. You must give covered borrowers a written statement of the MAPR and a clear description of the payment obligation, plus oral disclosure of the MAPR and payment terms, in person or through a toll-free number that appears on the application or alongside the MAPR statement. The oral leg surprises first-time MLA creditors; build the phone script or in-person disclosure into your origination flow before your first covered loan.
Several standard terms are banned. Credit agreements with covered borrowers may not require arbitration, waive the borrower's right to legal recourse under state or federal law, demand unreasonable notice as a condition of suit, impose prepayment penalties, require allotments from military pay, or demand a postdated check or electronic access as a condition of the loan. If your form agreement contains an arbitration clause, it needs a covered-borrower carve-out.
Check status through the safe harbor. The Department of Defense maintains an MLA database where creditors can verify covered-borrower status, and qualifying credit reports work too. A timely check through one of these channels gives you a legal safe harbor on the status question. Asking the applicant to self-certify is allowed but does not confer the same protection, so run the database check and keep the record.
Enforcement sits with the CFPB, the FTC, and the federal banking regulators, and violations can void the credit agreement outright in addition to drawing penalties. The MLA is one of the few consumer-credit regimes where the contract itself is at stake.
What Your Business Must Honor: A Role-by-Role Checklist
Landlords and property managers. Accept SCRA lease terminations without fees, prorate the final month, and return prepaid rent. Never evict a covered household without a court order. Train leasing staff to recognize orders paperwork and route it to a manager the same day, because the 30-day clock runs from delivery of notice, not from your acknowledgment.
Lenders, dealers, and anyone who seller-finances. Build an SCRA intake process: a single mailbox for notices, a checklist (written notice plus orders, pre-service origination date, rate recomputation including fees), and a rule that excess interest is written off, never capitalized. Calendar the mortgage one-year tail separately. Get a court order before any foreclosure or repossession touching a covered borrower.
Businesses selling on installments or subscription contracts. Review your standard terms for arbitration clauses, allotment requirements, and prepayment penalties that the MLA forbids for covered borrowers, and add a covered-borrower path through origination that produces the written and oral disclosures. If you check MLA status at application, keep the timestamped result with the account file.
Anyone who sues customers or seeks default judgments. Verify military status before filing, file the required affidavit honestly, and expect stays. The SCRA status check through the Defense Department's records takes minutes and prevents vacated judgments.
Mistakes That Cost Real Money
Treating the 6 percent cap as a deferral. Forgiven means forgiven. Systems that automatically accrue the contract rate and "true up later" will overcharge unless someone books the write-off.
Forgetting fees in the 6 percent computation. Annual fees, late charges, and service charges count. A card repriced to 6 percent interest with a $95 annual fee still attached can violate the cap on a small balance.
Assuming the MLA is only for banks. Finance companies, auto dealers who carry paper, furniture stores with installment plans, and tax preparers offering refund advances are all creditors under the MLA. If you extend consumer credit of any kind, you are in.
Using lease language that waives SCRA rights. Waivers of SCRA protections must meet strict statutory requirements, including being in writing, in a minimum type size, and executed during or after service. A blanket "military clause" in your pre-service lease form does not qualify. Do not draft around the statute; comply with it.
Repossessing first and checking status later. The court-order requirement for installment contracts and the affidavit rule for default judgments both punish the act-first approach. Check status before you act, every time.
Keeping Your Books Straight When the Caps Apply
SCRA and MLA compliance is partly an accounting problem. When a borrower invokes the 6 percent cap, your ledger has to reflect economic reality: interest income drops to the capped amount, and the forgiven excess comes off the receivable rather than sitting in accrued interest waiting to be collected. Create a distinct adjustment code for SCRA forgiveness so it never mingles with ordinary bad-debt write-offs; examiners, auditors, and your own management reports all want to see that number separately. Track the covered period per account, because the cap starts on the service start date and ends on release (plus the mortgage tail), and interest accrues at the contract rate outside that window.
Document everything at the account level: the date notice arrived, the orders received, the status-check result, the recomputed amortization, and the refund issued if the borrower already paid above-cap interest. MLA compliance needs the same discipline one step earlier: the covered-borrower check result, the MAPR calculation showing every included fee, and proof that both written and oral disclosures went out before consummation. A creditor that can produce this file in minutes answers an examiner's letter with a packet; one that cannot answers with a remediation project.
Keep Your Receivables Compliant From Day One
Interest-rate caps, forgiven interest, prorated final rent, and per-account compliance files are exactly the kind of detail that gets lost in a spreadsheet and found in an audit. Clean, explicit books make SCRA adjustments routine instead of frightening: every capped account traceable, every write-off coded, every disclosure documented. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
