Military Payday Loan
Active duty military personnel are considered up to 3 times more likely than civilians
to resort to payday loan advances, according to a study by the Durham, North Carolina-based
Center for Responsible Lending published in 2005. Estimates indicate that nearly
17% of servicemen and women across the country took out payday loans in 2004. Military
leaders and public interest groups have been campaigning for a cap on military payday
loans, labeling them ‘predatory’. Further, most people who take out
payday loans have been found to be less than 35 years old, and therefore, less financially
astute. Payday lenders are a powerful lobbying group but they have been regulated
in some states. New York has enforced a cap of 16% on the
annual percentage
rate (APR) and armed forces hub North Carolina has prohibited payday loans
and imposed a cap of 36% APR on small loans.
Further, a defense bill approved by Congress on September 30, 2006, has imposed
a cap of 36% APR on payday loans for the military.
With a job as steady as one in the armed forces, there is no dearth of loans available
for military personnel at lower rates of interest. Many banks offer special rates
to personnel, such as the Bank of America’s Military Bank that offers 12.9%
APR on small loans less than $2000. Additionally, federal law provides all members
of the armed forces, including reserve and guards, reduced interest rates in mortgage
payments, auto loans, credit card debt etc. While the law has its limits, it also
requires you as an active duty service member to write to your creditor to request
for a change in terms.
The ‘six percent rule’ applies to debts that you entered into before
being called to active duty. According to this rule, once your mobilization is ordered,
you can request a lender to reduce your interest rate to six percent annually, but
you must explain why going out on duty at lower pay will ‘materially affect’
your payment capability. Further, there are a number of special credit sources where
servicemen can apply for loans and advances at reduced interest rates. Information
on these can be obtained from financial readiness programs at Army Community Services
centers at your base.
However, as the 36% annual cap comes into effect on October 1, 2007 nationwide,
many payday lenders may cease to provide their services to military personnel and
the numerous payday loan centers concentrated around military bases may shut shop.
This is due to claims from these lenders, such as payday loan giant, Advance America,
that loans to servicemen will become unprofitable and unviable at that interest
rate.