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How Payday Loans are Different for Military Personnel

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In recent history, members of the military and their families have often been targeted for payday loan scams, sending them deeper into debt and heightening their financial burdens. The Military Lending Act of 2007, however, placed stringent limits on the relationship between payday lenders and these military personnel.

In its report to Congress in 2006 on the problems associated with payday loans, the Department of Defense stated that approximately 17 percent of military personnel used payday loans to help in tough financial binds, and that using this method for getting fast cash was not beneficial for those individuals or their families. The department recommended that Congress pass a law to protect these individuals.

The bill sets the cap for annual percentage rate (APR) for military borrowers at 36 percent, which includes any fees or charges that may come along with the loan. Lenders cannot use a personal check, debit authorization, wage allotment or vehicle title to secure a loan for military personnel and interest rate disclosure is required before issuing the loan.

The law also prohibits rollovers, same-creditor refinances, renewals or consolidations on military payday loans. Under these regulations, lenders cannot require the military borrower to waive his or her rights or require mandatory arbitration or unreasonable notice provisions.

Individual states are responsible for enacting and enforcing laws to protect the members of the military in their jurisdiction. The federal law comes with civil and criminal penalties for those lenders – and also military members – who do not comply.

This law does not affect retire service members, those who are no longer on active duty or civilians who work for the Department of Defense. Its stipulations also have an effect on vehicle title loans and refund anticipation loans.

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