Short Term Loans and Active Duty Soldiers: What is Legal?
Federal law, through the Military Lending Act, makes it illegal to offer short term loans, also known as payday loans or cash advances, to any active duty member of the military. In addition, their spouses are also ineligible to receive these loans, even if they are earning their own income. Any reserve members who have been more than 30 days without being called to active duty are eligible for a short term loan.
If a loan of this type has been obtained prior to being put on active duty, or if the loan is in default, the loan can be deferred with no interest accrual or action taken against the military member or their family, until after the active member has returned from deployment. There are services available for financial assistance through government loan programs, to enable the military member to repay these prior loans.
Despite the law, which was enacted in 2007, many lenders still offer these types of loans to military members, even those who are on active duty. While these loans are very similar to traditional short-term loans, they do typically offer slightly different details and requirements that make them technically legal.
Companies that advertise short term loans for active-duty members generally offer longer repayment terms. Instead of requiring payment within a week or two, they will instead extend the term to a year or more. The result is often much higher interest cost with significant savings if the loan is paid sooner.
The military does offer financing of their own, often with reduced interest rates. Many soldiers refuse to accept these types of loans because they prefer their superiors are not aware of their debt or possibly damaged credit. Especially since bad credit can result in losing some forms of security clearance.
Payday loans can attained quickly and nearly anonymously, often without a credit check. This makes it easy for the soldier to obtain the money they need without a lot of questions. Unfortunately, many of these loans can cost the borrower to pay interest rates as high as 400 percent or more.
Despite the lenders basically following the restrictions established by the Military Protection Act, the government is currently looking for ways to crack down on these types of lenders. New legislation is being considered to help reword the law to reduce the amount of these loans that are obtained. The military is also currently actively engaged in educating new recruits about payday, or short term loans, and making military members aware of their options.