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DoD regulation limits interest rates for military, families

Most of us have heard the horror stories of payday loan offices and used car lots charging military members interest rates that are through the roof. Some service members find it difficult to get out of a cycle of debt that grows faster than they can repay.

DoD was tasked by law (National Defense Authorization Action for Fiscal Year 2007) to draft a Predatory Lending regulation which protects service members and their families from unscrupulous loan products. The regulation was written and enforcement began on October 1, 2007, and sets the max interest rate allowed is 36 percent.

Military members and families are often targeted by payday lenders. Payday loans are short-term cash loans based on the borrower's personal check held for future deposit or electronic access to the borrower's bank account. Borrowers write a personal check for the amount borrowed plus the finance charge and receive cash.  In some cases, borrowers sign over electronic access to their bank accounts to receive and repay payday loans. Lenders hold the checks until the next payday when loans and the finance charge must be paid in one lump sum.  To pay a loan, borrowers can redeem the check for cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period. 

Since October 2007, the Federal regulation has prohibited creditors from making payday loans, vehicle title loans and tax refund anticipation loans to active duty service members and their dependents with annual percentage rates over 36 percent. Knowing the rules can help military members understand their rights, and to report violators to their base legal office.

To avoid debt, consider financial management courses and personalized support from financial management specialists – often known by their initials, “PFMs” – that are available at military installations. In the Army, these services are located at the Army Community Service Office; in the Navy and Marine Corps, you’ll find these services and experts at the Fleet and Family Support Office; and in the Air Force, they are located at the Airman and Family Readiness Center. More information on developing your own financial plan is available to Military Homefront and Military One Source. Updated August 23, 2011