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Why is the military targeted by payday loans?

Soldier with arms crossed
Believe it or not, the military forces our service members to repay their debts—and lenders know that. The military actually punishes personnel for nonpayment, and delinquent personnel can be punished with loss of security clearance, demotion, and even discharge in some situations. These threats, in addition to the universal threats of credit score damage and late fees, pressure military borrowers with stress and frustration as they attempt to repay high interest payday loans.

Highlighting the military’s inherent vulnerability to payday lending, a disproportionate number of service members affected by payday loans are junior enlisted personnel.

Almost 75 percent of service members are considered to be junior personnel—those who are in the six lowest ranks of the military—and make less than $31,000 a year. Many service members marry at an early age and quickly start families. Payroll errors, which are not infrequent, often leave these young families struggling to survive on only a fraction of their paycheck, sometimes forcing them to turn to payday loans.

Another reason for payday lenders taking advantage of military borrowers is that many states only regulate payday loans lent to permanent residents. Due to the nature of deployments and military policies most military personnel are not posted to their home states. Lenders who had targeted them were beyond regulation due to this loop hole.

Also attracting the attention of payday lenders are the intrinsic characteristics of military professions. Military personnel are unlikely to be fired and unable to quit their jobs. Our soldiers have consistent income and paychecks, which are necessities for payday loans. Finally, military policy requires service members to have checking accounts for direct deposit, which, in the event of default, allows payday lenders to garnish service members’ wages.

Many states have noticed the physical relationship between bases and payday loan storefront establishments. While some states have attempted to limit the proximity of payday lenders to military bases, online payday lenders remain a constant and often unregulated presence. Payday lenders have been known to emotionally appeal to our soldiers by using patriotic-sounding names and logos with American flags or other patriotic symbols on their websites. The military recognizes the threat payday lenders pose to service members and offers low-interest military loans and free debt counseling.

Additionally, the military has sponsored and pursued legislation, such as the Military Lending Act, in an effort to protect our soldiers. The Military Lending Act caps payday loans offered to service members at 36 percent in addition to also prohibiting payday loans that require collateral in the form of bank accounts, vehicles, or a service member’s paychecks.

Fortunately, many payday loan lenders have recognized the military’s efforts to protect our soldiers and have instituted military-specific loans. These payday loans adhere strictly to the Military Lending Act. Using free online tools on trusted websites, prospective borrowers can see if they qualify for a payday loan whether they are in the military or not.