Military Payday Loans
Many people are unaware of it, but the government recently made it illegal for lending companies to make payday loans to members of the military.
You used to be able to see payday loan stores outside of every military base in the United States. However, that really is no more since the Military Authorization Act was passed in 2007.
In addition to banning payday loan practices from being used on members of the military, the legislation also bans interest rates of more than 36 percent from being charged to servicemen (this percentage includes fees in the calculation of interest), the full disclosure of all fees and charges for any loan given to a service member, and full disclosure on what the ultimate amount of all payments will be.
While many people decried the legislation, it was in fact recommended by the Department of Defense itself. The legislation was very effective. Today, most of the payday loan stores no longer exist around military bases. Some online shops claim to be able to get around the legislation, but it is not very feasible. Because the legislation prohibits the use of a check or car title loan as collateral for a loan, any type of loan given to a member of the military today is more of a “personal loan” than a payday loan.
The defining characteristic of a payday loan was the lender’s ability to access the borrower’s checking or other financial accounts. The legislation absolutely forbids the collection of this information, so today lenders have little recourse if a service member defaults on a loan. These laws have been strictly enforced. A number of lenders have actually been sent to prison for violating them.
Additionally, the laws make the contracts that members of the military sign very favorable from a borrower’s standpoint. For example, the legislation makes pre-payment penalties illegal, opens up lenders to litigation for unfair lending practices, prevents the use of a car title for collateral, and prevents lenders from allowing service members to forfeit the protections they have under the Servicemembers’ Civil Relief Act. If you are a service member and you believe a lender is taking advantage of you, you have a good deal of recourse under the Military Authorization Act.
These laws were passed in order to prevent predatory lending practices on the part of people offering military payday loans. Although it cut off a source of money for service members with extremely poor credit, in the end it should prevent service members from being taken advantage of.
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