In recent years, there has been a rise in the amount of restrictions placed on payday loan lenders. Several states have effectively outlawed the practice altogether by placing limits on the amount of interest lenders can charge on loans, while other states have allowed these services to continue, but have placed regulations on these businesses. These laws and regulations have generally been decided on a state to state basis, with each state placing their own legal limitations on this industry, if they choose to do so at all.
However, although rare, restrictions have been placed on payday loan lenders at the federal level as well. One such law that has been passed by Congress keeps lenders from loaning money to members of the military by limiting the amount of interest that can be charged to service members at 36%. While this is not an outright ban on lending to the men and women in uniform, the 36% Annual Percentage Rate is far too low for lenders to make a profit off of the loan, thus ensuring that they cannot pragmatically do so.
Some payday loan lenders might see the law as a violation of military personnel's freedom to choose what monetary options are best for them, claiming that "they deserve the right to decide what financial options best suit their needs," according to Kelsey McBride at BadCreditLoans.com. However, the Department of Defense sees it differently and a good lender will respects that. They claim that allowing military personnel to withdraw payday loans threatens the readiness of the troops, adds to military costs, and hurts military families. This directly harms individual members of the armed forces and thereby indirectly harms the military itself.
Congress's decision to ban loans for the men and women in uniform makes a strong statement for the payday loan industry in general. If these services are so bad for members of the military, how good can they be for civilians? The House and Senate's verdict is essentially a declaration that such loans are in fact harmful, despite claims by industry leaders to the contrary. However, we are left to wonder why, then, such restrictions have been placed only on members of the armed forces. Why not extend the ban to include non-military members as well?
There may a couple of reasons why Congress is willing to apply restrictions on service men and women's ability to take out these loans while failing to extend these restrictions to civilians. First and foremost, both Congress and the Department of Defense see the issue as primarily one of national defense. While one of their justifications in the ban is that it harms individuals and their families, this is of greatest concern because of the impact it can have on troop morale. If you go to war with your mind preoccupied by monetary matters, your effectiveness on the battle field may suffer.
A second reason why military members and civilians are subject to different laws concerning this subject is the differing legal status of either one. As a military member, you are subject to specific laws not governing non-military members, and in fact members of the armed forces even have their own courts in which justice is carried out. Troops may thus be subject to more strict regulations in order to ensure that the armed forces remains the well-oiled machine it is today, including restrictions on what they may borrow and who they can borrow from. Whatever the reasons for failing to make the ban universal, Congress's decision sends a strong statement about the harm that payday loans can do.
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