The Talent-Nelson amendment to the Defense Authorization Bill, which takes effect October 1, 2007, is a response to reports that predatory payday lenders exploit military personnel. The amendment caps the annual interest rate on payday loans for military personnel at 36 percent; prohibits the use of a personal check to access the borrower's bank account; and forbids the use of a vehicle title as collateral for payday loans.
Payday loans are popular among military families because unexpected deployment, financial inexperience, and costs abroad make cash advances extremely appealing. However, the Pentagon reported that predatory payday lenders were burdening military personnel and comprising military readiness. Some military families have sought debt consolidation and debt settlement as a means to escape financial hardships caused by payday loans.
The amendment could be a precedent used by Congress to legislate and restrict the general practice of payday loans. Borrowers can pay up to 400 percent interest on payday loans due to excessive fees and interest spikes. A national usury cap for predatory payday lending may be on the horizon. For now, military families will be the first affected by such legislation.
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