Why Can't Armed Forces Personnel Get Payday Loans?

For most purposes, payday lenders are regulated at the state level, and states vary widely in the rules they impose on the industry. The one exception is military personnel. Federal legislation governs the way that payday loans can be offered to members of the armed forces and often effectively prohibits lenders from doing business with military families.

Payday lending operations used to be common around any military installation, and thousands of military families used payday lenders as a way to make it to the end of the month. But the Department of Defense became increasingly concerned about military members being preyed upon by unscrupulous lenders who would charge as much as 800 percent interest, keeping some families in debt without prospect of relief.

In 2006, the Pentagon made a report to Congress on the damaging effects of payday lending on military families, and as a result, in the Defense Act of 2007, lawmakers included a clause that regulates payday lending to service personnel. This legislation imposed a cap of 36 percent on the APR interest rates that can be charged to military personnel and their families. This effectively ended the bulk of predatory payday lending activity to military families.

Some lenders still target military families with their products. As of March 2011, these are marketed as “military” payday loans and conform to the federal interest rate cap on such products. Lenders still cluster around some bases and advertise widely on the Internet.

The Federal Trade Commission urges military members to try to obtain financial assistance from other sources before going to a payday lender. Agencies that can help include the Army Emergency Relief, the Navy and Marine Corps Relief Society, the Air Force Aid Society and the Coast Guard Mutual Aid. Credit unions for service personnel also offer specials.