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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Aug 6, 2013

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In 2007, the Military Lending Act (MLA) was implemented to shield members of the armed forces from the difficulties that could potentially ensue by borrowing payday loans and other high-interest short-term loans.

Under the terms of the MLA, payday loan lenders can only give financing to service members with an interest rate capped at 36 percent. This applies to all members of the armed forced and also their dependents. The MLA also requires payday loan storefronts to maintain a strict distance from military bases so that they are not readily accessible by military personnel.

A central argument in the MLA holds that military service members, despite being trained as part of the world’s largest superpower, are somehow unable to manage their finances and will be unfairly abused when they borrow payday loans.

While the vast majority of payday loan borrowers repay the money they borrow, military members are essentially prohibited from obtaining short-term loans.

Veterans of the Armed Forces and military insiders told just how much of an impact payday loan debt can have on the lives of borrowers and whether or not the MLA is overkill on an already financially-educated military.

Veterans’ Voices on Payday Loans

Former Army Specialist and author of You Against Them, John-Talmage Mathis, told that when he was in the Army before 2007, he never attended a single course in financial education. However, when he had financial questions he visited the military lawyers at Judge Advocates (JAG), who try their best to answer queries from enlisted personnel.

While enlisted Mathis did witness several soldiers who were stressed by payday loan debt. In his opinion, it is easy for soldiers to get ensnared in snowballs of debt, especially when they’re deployed soon after borrowing money.

“You have to understand that for some, this is their first time having money, and of being away from home,” he said. “And since soldiers receive a paycheck twice a month, regardless of the economy — the soldier will get paid.

As far as Mathis is concerned, the MLA is a joke with far too vague of language that allows for plenty of manipulation by payday loan lenders.

Joke or no joke, payday loan lenders understand just how to make sure enlisted personnel pay up on their debt.

“Lenders are aware of the military structure,” said Mathis. “These institutions are aware that if they call the solder’s superior that this will cause trouble and encourage a payment.”

Many of these lenders structure their loan applications so that they get a soldier’s superior’s information before ever lending money. Then, if a soldier cannot or refuses to make payment, Mathis described the process as follows:

“The first sergeant is called; the soldier is beckoned to the office; he is told that he will need to make arrangements with the lender or face UCMJ charges.”

The UCMJ that Mathis refers to is the Uniform Code of Military Justice, which is basically the laws that our country’s service members must hold themselves accountable to.

As one can imagine, involving a superior officer in a debt dispute with a payday loan lender is not a situation that most enlisted men and women want to be in. On top of adding career difficulties to the professional lives, it also embarrassingly reveals that one is in dire financial straits.

However, one expert felt that the payday loan debt situation in the military is little different than the civilian world.

Peter Murray, Co-Founder of LifeCounts, served as an Infantry Officer with the 101st Airborne Division. As a leader, he found that American military personnel are largely representative in terms of education and intelligence of the broader American population, if not slightly better educated. 

“Our service members’ financial mistakes and issues are shared by people across the entire country,” said Murray. “Financial issues are not isolated to the enlisted ranks as is commonly presumed. College educated officers succumb to the same financial pitfalls as their soldiers, such as spending more than they make and not having sufficient reserves set aside for emergencies.”

Murray agreed with Kay that the various branches of the Armed Forces offer a wide range of financial support services for military personnel. In addition to these services, many unit commanders have quarterly or annual evaluations to help leaders evaluate individual soldiers’ financial issues and to provide them with additional counseling and support. There are even grant programs such as the Army Emergency Relief along many with others to help provide cash in the event of emergencies.

Helpful programs or not, one branch of the military (due to sheer numbers alone) handles the bulk of payday loan debt problem.

Big Army, Big Debt Trouble

Doug Nordman, a retired Navy submarine lieutenant commander and author of The Military Guide to Financial Independence and Retirement, told that even though he suspects each branch of the military has roughly the same percentage of teens and young adults with money problems, given the sheer size of the Army, it is likely that they have the bulk of payday loan borrowers.

He attributes temptation to be the main reason why so many military personnel end up in trouble with payday loan debt, even though the military pays for their housing and healthcare.

“Every young adult (officers included) feels tempted by a hot car or pickup truck, a cell phone, a computer, a HDTV with a gaming machine, and of course clubbing,” said Nordman. “Vehicles break down, cell phones get lost or stolen (or upgraded), gamers need to buy more games and gear, and drinks are expensive. In addition to learning combat skills they’re still figuring out how to track their spending, make a budget, and save for life after the military. Add in the possibility of student loans and starting a family, and it’s easy to feel forced into seeking a payday lender.”

As far as Nordman is concerned, there is no need to update or expand the MLA since the military is already doing enough to handle any debt issues brought on by misunderstanding payday loans.

“We already have decades of experience with command financial specialists, required annual training on financial responsibility, financial advisers at military base family support centers, and all of the military relief organizations,” he said. “We can’t lay yet another training requirement on them.”

Still though, service members are reluctant to bring their financial troubles to the attention of their superiors since they may be reprimanded, marked down in evaluations, or risk their security clearance. Fortunately, educational training is required in order to nip these issues in the proverbial bud.

As a midshipman, Nordman had to attend mandatory training several times a year covering tracking spending, budgeting, and savings.

“The military encourages financial responsibility and not so much financial literacy,” he said. “Troops might have to sit through a mandatory presentation a couple of times a year, but it’s just the basics.”

While the military, and even society, will always struggle with the financial mistakes of its individual members, Nordman believes that the Military Lending Act has been hugely effective.

“Service members are admonished that payday loans are a bad deal, but there’s always a few who are desperate enough to start that downward spiral of high-interest-rate debt,” he said. “When it ends badly, they get much more publicity than the 99.9 percent of service members who do not use payday loan lenders. However those few also take a great deal more of the command’s time and effort, so it’s considered more effective to cut out the payday lenders than to train each and every service member.”

A Military Mother Speaks on Payday Loans

Ellie Kay, wife of a retired Air Force fighter pilot and author of Heroes at Home: Hope and Help for America’s Military Families, told that in her experience, the lowly paid younger enlisted ranks are often the ones who borrow payday loans. She even met a few families that wished to keep their financial problems secret out of fear of losing a security clearance or being asked to leave the military.

According to Kay, military members and their families can go to the Airman and Family Readiness Center in order to receive financial counseling.They can also turn to the Military Family Life Counselors.

The Air Force has also operated a program called the Financial Readiness Campaign since 2003, with the goal of increasing the ability of Air Force members to manage their finances.

As the wife and mother of military service members, Kay believes that the financial education that the military provides is sufficient, but only if it’s used.

“The problem is that the military members do not take advantage of the resources available,” she said.