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Money and Mobility: For Military Personnel and Families

Payday Loans

Many off-base check-cashing stores also make "payday loans" to military personnel and other individuals who work full time. Let’s say you need $100 and go to a payday lender. Here’s how your loan works:

  • You show the store whatever proof they need that you can cover the loan. This can be pay stubs or other paperwork.

  • The store asks you to write them a check for around $120 and agrees not to cash it until your payday.

  • You get back $100 in cash. The store keeps the extra $20 as the fee for the loan. (Most stores charge between $15 and $30 for a payday loan.)

  • The store cashes your check on the agreed-upon date.

But, after the time period is up, what happens if you don’t have the money in your checking account to cover the check you wrote? For a fee, you can extend the loan. In fact, this cycle usually continues as long as you pay the fees. In time, you could end up paying anywhere from 450 percent to 650 percent in fees and interest charges. Why so much? Because many states have no rules limiting the fees these stores can charge.

You have a far better option than a payday loan: your military relief association. Each branch of the military provides its servicemembers with emergency relief through an official military nonprofit organization. Its mission is to help relieve financial distress for servicemembers in need. Relief services include interest-free loans or grants, help with medical and dental bills, rent, and child-care expenses. To find out how you become eligible for emergency relief and what relief services your branch of service provides, visit:

Navy-Marine Corps Relief Society

Air Force Aid Society

Army Emergency Relief

Coast Guard Mutual Assistance

Military Lending Act

Oftentimes, unexpected financial emergencies, such as an expensive car or home repair, force servicemembers to seek sources of quickly available, short-term loans. To protect servicemembers from predatory lenders—companies that sell high-cost, short-term loans and other expensive loan products—Congress passed the Military Lending Act (MLA) in the fall of 2006, and the Department of Defense implemented it in October 2007. The MLA sets an interest rate and fee cap of 36 percent of the total loan amount—still an outrageous cost for credit—on these three types of loans:

  • Payday loans

  • Automobile title loans

  • Tax refund anticipation loans (high-cost, 14-day advances on tax refunds)

To put this 36 percent rate and fee cap into perspective, as of November 2009, the average variable rate on credit cards is 11.68 percent, the average nongovernment interest rate for a college education loan is 8.83 percent, and the average interest rate for a personal loan is 12.97 percent. While there may be other fees associated with those loan products, the point is this: a loan rate of 36 percent is very expensive. Before you accept any loan offer, be sure you inquire about its fees, interest rate, and any other costs you can be charged. This information is usually listed in the flyer—in the small print—that accompanies a loan offer.

Important Note: All lenders of these types of loans must disclose, orally and in writing, your rights before you commit to a credit transaction. This law is an important step in helping servicemembers take note of financial products that sound good at first but can cause financial chaos and stress in the end. To help you get a better understanding of how expensive and potentially damaging these loans are, check with financial educators at your installation support centers. Additionally, make a focused effort to maintain your emergency fund so you can avoid predatory lenders altogether.

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