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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Apr 15, 2013

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Military members cannot get payday loans because short-term loans are severely restricted by several laws. The laws protect military personnel against usury charges and predatory lending that are often seen in payday loans.

But limitations against payday loans have not always been around.

A 2006 Department of Defense (DOD) report, commissioned by the U.S. Senate, found that 17 percent of military personnel used payday loans and it hurt military readiness and hindered the morale of troops and their families.

Thomas Boley, Partner at Las Vegas-based Hawkins, Boley, and AlDabbagh law firm, said military borrowers are targeted by lenders because they have a steady income.

“Anyone who is arguably irresponsible with money and has steady income is the dream client of a short-term lender. Young enlisted soldiers often fall in this category,” he said.

After the 2006 report, the DOD recommended that an annual percentage rate (APR) cap of 36 percent be placed on all consumer loans for military personnel. Soon after, the Military Lending Act (MLA) of 2007 was passed which set limitations on short-term loans for military members.

Both payday loans and title loans are prohibited under the Act. It prohibits lenders from securing a consumer loan with a personal check, debit authorization, wage allotment, or a car title. For all forms of short-term consumer loans, the Act caps APR rates at levels below 36 percent. This severe limitation therefore makes traditional payday and title loans illegal for military borrowers. Due to the 2007 Act, all payday and title loan businesses around military bases were consequently shut down.

In addition to federal laws, many states have rules which limit or prohibit payday loans.

Boley’s first client, when he started a solo practice in Las Vegas between 2010 and 2011, was a payday loan company. He assisted with the legal end of collections but did not get involved with military personnel due to federal and state regulations.

In an interview with, Boley said the company did not lend to military members because Nevada state provision 604a eliminated the ability for payday lenders to collect their debts.

“State and Federal regulations have made lending to military members unattractive because the debt is now very hard to collect,” he said.

The easiest collection tactic, wage garnishment, is illegal for military members.

The MLA covers short-term loans such as payday loans, car title loans, and refund anticipation loans, but it excludes credit cards, overdraft loans, open-end credit, and military installment loans. Military installment loans were created to target this military sector that was severely limited due to the MLA.

Beyond the MLA and state laws, a recent Act put more pressure on the payday loan business. On Jan. 2, 2013, President Obama signed H.R. 4310, the National Defense Authorization Act (NDAA), which increases regulations set by the MLA in 2007.

Although heavy regulation is applauded by many, others are not as sure of their need.

Boley said that while payday loans are considered unsavory by most people, they do provide a service for many that do not qualify for traditional lending. He said that although there is a need for regulation, it is a mistake to remove all profit from the payday lending industry.

“There are members of the military who could use these loans responsibly,” he said. “If Congress is going to remove this service through regulation, they need to provide some other financial lending programs and counseling to military families.”