Military Payday Loans and Standard Payday Loans Compared

As a result of many cases of predatory lending, military payday loans are now capped at a 36 percent annual percentage rate, or APR, as dictated by Federal law and a ruling by the Department of Defense. While this may still seem like a high interest rate to pay, some standard payday rates can be well over 500 percent APR. Because of these abuses, payday loans are now banned in fifteen states, as well as in the District of Columbia.

Military Payday Loans

Because of their deployment obligations or other service-related duties, military members have often been targeted by predatory payday lenders as an easy source of revenue. Generally, a payday lender does not perform an in-depth analysis of a borrower’s ability to repay a loan, instead relying on proof of employment in the form of a recent pay stub, and an established bank account, as grounds for approving the loan.

The 36 percent APR cap imposed under Federal law has now addressed the predatory lending issues for military members, to some degree. Military members must now receive a full written disclosure from the lender of a payday loan, describing all of the associated costs of repayment. Any violations of this can result in the loan being voided.

While these regulations are a step in the right direction, they still do not fully protect a member of the military from paying exorbitant rates if they constantly roll over their payday loan. It would be better for a military member to borrow from one of their family members, or approach a bank for the cash that is needed, instead of continuing to go back to the payday lender. The amount paid in finance charges alone makes it more logical to use a traditional lender over a payday lender.

Standard Payday Loans

Payday lenders are usually regulated by the state in which they conduct their business. As mentioned above, fifteen states have now permanently outlawed payday loans altogether due to usurious lending.

Consumers that use the internet for payday loans are particularly vulnerable to outrageous rates of interest on their payday loans, with little disclosure as to the risk that is involved. There are many consumer groups that warn against using an online source for payday loans, due to the growing problems associated with this type of short-term financing.

Payday loan borrowers would be better off seeking short-term financing from a lender that does not charge a high rate of interest. However many borrowers simply have no other viable alternative when they need fast cash, except the payday lender. Many of these borrowers have banded together to form online groups that are actively campaigning for rate caps, and more federal regulation for payday lending.

The Community Reinvestment Act, Truth in Lending Act, and Equal Credit Opportunity Act all provide some borrower protection with regards to payday lending, however there are many consumer advocates still in the process of lobbying for further federal regulations to protect borrowers against predatory lending practices.

 


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