Military payday loans are obtained in the same way as loans of this type are received in the civilian world, but there may be a slight difference.
What You Should Know
It is worth mentioning that military payday loans are meant to serve the purposes of a serviceman or his family experiencing unforeseen expenses or deployment.
Like a regular payday loan, military payday loans are a short-term but high-cost cash advance. It charges a fee from the servicemen to borrow money. The borrower is expected to return that cash within a short period of time, usually 2 to 3 weeks.
What Law Regulates Military Payday Loan
In the accordance with the Military Lending Act (MLA), 2006, the members of the military service can’t be charged an interest rate higher than 36% on most types of loans, payday loans including.
The Act covers the services provides to all active-duty service members as well as the members of their families and dependents.
A 36% interest cap refers to a 36% Military Annual Percentage Rate (MAPR), and it includes such points as:
- financial charges;
- add-on products
- and any other related fees and charges related to the cost of a loan.
Initially, the MLA related to short-term small cash loans and their variations. It only requested that lenders disclosed certain loan information about the rates and borrower obligations with regards to a loan, as well as prohibited certain loan features.
However, in 2015 the U.S. Department of Defense (DoD) issued new regulations that expended the power of the Act and included more creditor groups into it.
Besides, the same regulations request that lenders should screen each and every application from a military member and not take their words about active service or being a part of the family for granted. Lenders have 2 options for screening:
- it is either to use a DoD online database where active duty status of an applicant can be checked;
- obtain consumer information from a national consumer reporting agency (CRA) report.
Since October 3, 2017 the same regulations came into effect with regards to credit card loans. Now the latter are also subject to MAPR.
What Makes Military Payday Loans Different
Short-term lending loans are supposed to bridge a gap for the users when it comes to meeting financial needs. However, the fees lenders charge on them can be an obscure predatory act.
People tend to avoid these loans, but military members embrace them due to the cover protection of MLA law. The law, with its new amendments, not only addresses hidden predatory lending but also goes beyond the Protection Bureau rules to stop debt traps of payday loans.
In other words, MLA tends to provide protection that an average citizen does not get when it is about payday loans. It caps the annual percentage of interest rate on payday loans.
However, no matter if you are a civilian or serviceman, you must remember that this fast-funding is not a long-term solution for your money problems. If you somehow fail to pay back your loan, it may trigger some potentially unpleasant issues.
Overall, military payday loans relatively charge a low-interest rate and can help you get through challenging financial circumstances because of unexpected expenses.