Payday Loans: New Laws Shove Military Personnel Aside [Payday Loan]
November 16, 2007, 19:36:31

It has been estimated that 1 in 5 soldiers use Payday Loans to make ends meet between pay periods. This might surprise some, but military families are prime candidates for payday loans. Soldiers have regular income, but don’t make a lot of money. Because of this, many soldiers seek out quick payday loans when strapped for cash.

All of that changed on October 1st, 2007, when the Military Authorization Act went into effect. This law prohibits interest rates higher than 36% on any loans made to military personnel or their families. Among other restrictions, the Act also prohibits “using a check or any other access to a member's financial account as security for a loan”, which effectively makes it illegal for payday lenders to serve members of the military.

The reasoning behind the law seems sound; Congress has found that soldiers who use short-term, high-interest loans put their credit scores at risk. This has unique implications for members of the military; bad credit can jeopardize security clearances, which, in turn, affects military preparedness. It has also been suggested that payday loans can harm troops’ morale; soldiers worried about repaying loans at home are unable to focus on their tasks on the battlefield

The Act was passed with the best of intentions, but it has had serious consequences for military personnel. Payday lenders find the new restrictions unprofitable, and so refuse to loan money to soldiers or their families. When a soldier goes to a Payday Loan outlet or web site, they are immediately asked whether they are a member of the military or a dependant of such a member. When they say yes, the lenders will not offer them a loan.

Plenty of people don’t like the new law. Lenders predictably disagree, but some soldiers and their dependants are also up in arms over this loss of convenient financial services. Many of these opponents maintain that they earned the money, and should have the right to spend it as they wish – even if that includes spending it on high payday loan fees. Others point out the fact that low wages and a lack of alternate borrowing options keep military personnel in a financial state where high-interest loans are a necessity. Still others suggest that payday loans are a cheaper alternative to bounced-check fees.

Some payday lenders are jumping through legal loopholes to stay in business. Charles Piedmont, the owner of several payday loan outlets near Camp Pendleton, admits that he has converted one storefront into a pizza parlor and check cashing store. Military officials worry that lenders will start giving loans to soldiers under the guise of ‘cash back’ rewards for purchasing pizzas, phone cards, and other small items.

Critics of the new payday loan restrictions feel that military personnel’s dependence on these loans is the symptom of bigger problems – low pay, few options, and lack of financial counseling. They suggest that, rather than cripple payday lenders with rigid legislation, a better option would be to pay soldiers more and teach them how to manage their money.

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