Payday lenders survive by keeping customers caught in long-term debt, and before 2007, members of the American military service were not off-limits. In fact, payday loan stores clustered around bases, promising quick cash to military families in need, who, when they borrowed from a payday lender more often than not ended up caught in debt at triple-digit interest.
Congress acted to protect military families from this predation by including a measure in the Defense Authorization Act of 2006 that prohibits payday and title lenders from charging higher than 36 percent APR. The lawmakers were responding to a 92-page report from the Department of Defense documenting widespread and ongoing financial difficulties among military families due to predatory practices like payday and car title lending.
Testifying that the situation was not only affecting the quality of life of military families, but was also compromising national security by affecting troop readiness for war, the Undersecretary of the Department of Defense urged Congress to cap annual interest rates at 36 percent for military personnel.
The Military Lending Act took effect in October of 2007, capping payday loans, car title loans and refund anticipation loans at 36 percent APR. It has reportedly been significantly, though not completely, successful in keeping military families free of predatory debt. A spokesman for the Navy-Marine Corps Relief Society says that organization is providing assistance related to payday loans at one quarter of the level it was in 2006. (Army Times, p5, April 26, 2010)
But in addition to being susceptible to practices not covered by the Act, military families are also now vulnerable to payday loans from banks, several of which have recently entered the predatory market with high-cost cash advances secured by the borrower's direct deposit paycheck. And Congress has not broadened the protections in the Military Lending Act to cover civilians, which leaves the millions of Americans who live in states without protections vulnerable to predatory payday and car title lenders. However, the new Consumer Financial Protection Bureau has the authority to address these practices at the national level.
- Despite federal laws, military families continue to have widespread concerns with predatory lending.
- Montana veterans express support for a ballot measure capping interest rates at 36%. It passed by a landslide on November 2, 2010.
- Summary of the Military Lending Act restricting APR on high-cost loans to military families.
- CRL's 4-page summary of the Defense Department report on predatory lending.
- CRL report documenting the extent of the payday lending problem for the military before the Military Lending Act of 2007.
- A survey of Americans finding 70% in support of a 36% cap on APR. (March 30, 2009)
- Excerpts from Pentagon official testimony before Congress on the impact of payday lending on troops. Also includes excerpts from the president of the Navy-Marine Corps Relief Society.
- U.S. Senators condemn payday lending at a hearing featuring testimony from the Department of Defense.
- The Department of Defense report to Congress on predatory lending.
- Advocates comment on implementation of the Military Lending Act.
- Department of Defense report on the implementation of the Military Lending Act.
- Quotes on payday lending from people affiliated with the military or its support services.