The Department of Defense and Payday Loans

The Department of Defense and Payday Loans

Length: 1209 words (3.5 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
Over the past several years, members of Congress and the Department of Defense (the Department) were notified about the negative effects exorbitant high interest payday loans were having on service members and their families. In 2006, the Department made a report to Congress Senate Banking Committee tilted “The Report of Predatory Lending Practices Directed at Members of the Armed Forces and their Dependents.” This study explored the pitfalls and the ramifications of exorbitant high interest payday loans directed at service members and their families. The study also found that at least 13 to 19 percent of service members that borrow money on pay day loans are paying Annual Percentage Rates (APRs) starting from 350 percent to 800 percent.
Instead of charging interest, lenders use nominal fees for lending money. This fee varies from $10 to $30 for each $100 service members borrow and is applicable for 14 days. After the 14 day grace period is over, and if the loan is not paid in full, service members must pay the fee again until the loan is paid off. If the fee is $15 per $100 borrowed, that equals an APR of 391.07%. These payday loans have been widely known as “debt traps” because of the inability for service members to pay the balance in full.
In response to the Department report, Congress delegated the department rulemaking amending 32 Code of Federal Regulation (CFR) section 232, “Limitations on Terms of Consumer Credit Extended to Service Members and Dependents” by implementing “John Warner National Defense Authorization Act for Fiscal Year 2007”, section 670. This part defines the different types of credit transactions for borrowers and creditors alike which are covered by the regulation and provisions found in 10 U.S.C 987, “Terms of consumer credit extended to members and dependents: limitations.” This essay will describe and critique the rule making process of limiting consumer credit to service members and their families, using the Department of Defense (the Department) amendment regulation under 32 Code of Federal Regulations (CFR) part 232, it will also touch on the process of the unintended consequences of implementing such regulation and finally it will illustrate whether or not the Department met its intended goals.
Introduction to the Limitations of Consumer Credit
The Federal Administrative Procedure Act of 1946 (APA) allows agencies to promote rationality and lawfulness in their decision making process which prevents decisions that are arbitrary or capricious 5 U.

How to Cite this Page

MLA Citation:
"The Department of Defense and Payday Loans." 19 Mar 2019

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Is Payday Loans Australia Legal? Essay

- Is Payday loans Australia legal. Description: Payday loans Australia is now a legalized loan concept and it has already been proved. The loan experts say that these loans are one of the best means for getting rid of financial troubles. Payday loans Australia has now created a great craze in the financial market and these kinds of loans are really special. There are few government regulations that can guide these loans and thus all lenders catering these loans should essentially abide by the same....   [tags: Loan, Debt, Payday loan, Predatory lending]

Research Papers
2190 words (6.3 pages)

Essay on Reducing Low Income Users Of Payday ' Loans

- The Gov 't Aims to Protect Low-Income Users of Payday ' Loans More than 200,000 low-income U.S households often borrow a brief loan every month. However, when it comes to the paycheck, they get short of cash. Due to this, they get something to overcome the situation thanks to the payday loans. However, these types of loans often land them in huge debts. It can go as far as their vehicles being possessed and their bank accounts being closed. On Thursday some rules were proposed by the Consumer Financial Protection Bureau to help Americans avoid many debts....   [tags: Loan, Debt, Predatory lending, Payday loan]

Research Papers
820 words (2.3 pages)

Getting A Fair Idea About Instant Approval Payday Loans Essay

- Get a fair idea about instant approval payday loans Description: The actual fact is that though instant approval payday loans are quite relaxing at the time of receiving funds but greater difficulties are faced at the time of repayment in case you do not have enough financial strength. Instant approval payday loans can be only acquired through online application and these kinds of payday loans are getting the highest popularity. In this case, the loan application is being reviewed speedily by the lenders as a result of which the loan amount is released quickly....   [tags: Loan, Debt, Payday loan, Personal finance]

Research Papers
2390 words (6.8 pages)

The Purpose of Payday Loans Essay

- Payday loans were created with the intention to assist people in times of financial need, for the short-term, with the promise to be repaid by the next working paycheck. In addition, payday loan companies such as Cash Connection even helped struggling people who didn’t use banks as a way to increase access to their services, in effort to convince nearly every type of person that they could benefit by pulling out a short term loan. This was a beneficial, ethical approach because during 1995 to 2003, banking overdraft fees nearly doubled and banks refused to serve individuals who sought payday loans, making payday loan companies the optimal choice for short term financial services....   [tags: financial needs, credit cards]

Research Papers
629 words (1.8 pages)

Essay on The Issue of Payday Loans

- One cold morning Sam Black woke up with aching chest pain. Troubled by this new condition he went to see his Heart Doctor. Little did Sam know that hours later he would be lying on the operating table in route for a triple bypass surgery. The surgery went as planned, but it was not the last of them. Sam was sent to many specialists and rehabilitation centers, building a large bill, which they had no money to pay them with. He still pays several grand a year for the medication he is prescribed. Years after the operation Sam and his wife, Elsie, have narrowly escaped foreclose, however the most problematic debt they have is the hundreds of small term loans with interest rates in the triple dig...   [tags: Poverty, Lower Class]

Research Papers
1828 words (5.2 pages)

Payday Loans : A Fair Number Of Individuals Do Not Trust Lenders That On Excessive Interest Rates?

- A fair number of individuals do not trust lenders that tack on excessive interest rates. The thing about payday loans is that they do have high interest rate. You are going to want to take note of that. The following tips can give you guidance on protecting yourself whenever you need to take out a payday loan. Never take out a loan for more money than you can reasonably pay back with your paycheck. There are many lenders that tend to offer more than what you 're asking since you 'll struggle to pay them right away....   [tags: Loan, Debt, Payday loan, Predatory lending]

Research Papers
810 words (2.3 pages)

Essay on Tips For Payday Loan For A Loan

- If you have found yourself in an unpleasant financial predicament, you may want to consider the options that a fast loan can offer. Quick cash can be just what you need to hold you over to the next paycheck. Read this article for helpful tips about payday loans. Checking with the BBB (Better Business Bureau) is smart step to take before you commit to a payday loan or cash advance. This will give you the necessary information you need in order to know if the company you are dealing with is trustworthy....   [tags: Loan, Debt, Payday loan, Interest]

Research Papers
827 words (2.4 pages)

Performance-Based Logistics in the Department of Defense Essay

- Performance-Based Logistics grew out of the efforts to comply with Section 912c of the 1998’s National Defense Authorization Act (NDAA). Section 912c called for the use of the best commercial practices, competitive sources, modernizing through spares, program manager oversight, and the expansion of the prime vendor programs. In 2001, the Quadrennial Defense Review (QDR) mandated the use of PBL to make the supply chain more efficient and improve the readiness of major weapons systems. On May 12, 2003, DoD Directive 5000.01, The Defense Acquisition System, directed Project Managers to “develop and implement performance-based logistics strategies that optimize total system availability while mi...   [tags: National Defense authorization Act]

Research Papers
1570 words (4.5 pages)

Payday Loans: Playing Families Like an Instrument Essay

- According to, a whopping 61% of American households lived paycheck to paycheck in 2009. That number is huge, especially since only 49% lived that way in 2008, and only 41% in 2007. Whether it is due to losing one or both household incomes or simply a reduction in the household incomes, the statistic is staggering. With families not able to adequately save for any unexpected expense that may arise, they are finding that more often than not there is more month than money. So what happens when the rent/mortgage payment is due, groceries need to be purchased, and then the car breaks down....   [tags: Finance ]

Research Papers
912 words (2.6 pages)

Rules Curbing Cash Advance Loans Essay

- Rules Curbing Cash Advance Loans in Republican Crosshairs Rules Curbing Cash Advance Loans in Republican Crosshairs Sweeping reform in the direction and tone of congressional legislation is increasingly likely under unified Republican control of the executive and legislative branches of government, and one of the biggest items on the conservative agenda is replacing Dodd-Frank and the CFPB’s regulations of cash advance loans and other financial products. Rep. Jeb Hensarling, who chairs the House Financial Services Committee, recently outlined his priorities for the 2017 Congress in a report posted at, which is better known as The Wall Street Journal....   [tags: Debt, Loan, Payday loan, Financial services]

Research Papers
1062 words (3 pages)

S.C. 706. When dealing with administrative law, agencies decisions may be either “formal” or “informal”. The formal rulemaking process operates much like a trail-like proceeding where everything is recorded for developing regulations. On the other hand, informal rulemaking process involves public hearing comments which are used for developing regulations.
While there is no set definition of administrative rules agencies must follow, the Federal APA act defines them as “the whole or the part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy describing the organization, procedure, or practice requirements of an agency.” 4 U.S.C 551 Nevertheless, the Department complied with all eight steps of the APA act during the informal rulemaking process.

The Department initiatives resulted from Congress delegating the statutory mandate John Warner National Defense Authorization Act for Fiscal Year 2007”, section 670, which provided the Department the rule making authority to develop a regulation to assist service members and their families. As required under the APA Act, 5 U.S.C . 552, and with the assistance of other federal agencies the Department released a draft regulation for public comment to analyze the overall impact high cost predatory lending, low cost alternatives to high interest loans, the efforts to provide financial education to service members and their families and recommendations for limitations. Some federal regulators perceived this draft regulation as a benefit to service members and their families while some consumer advocates saw the draft language as too narrow, they also express their concern about the prohibition of military installments loans.
The Department conceptualizes and defines the different types of installment loans in such a way to prevent future acts of predatory lending practices. While there is no uniformed definition of predatory lending, the Department has adopted the language of the Federal Deposit Insurance Corporation (FDIC) Office of Inspector General Audit Report 06-111, June 2006, which reads, “Characteristics associated with predatory lending include, but are not limited to, (1) Abusive collection actions (2) balloon payments with unrealistic payments terms, (3) equity-stripping associated with repeat financing and excessive fees, and excessive interest rates that may involve steering a borrower to a high cost loan.”
The Department also identified three types of loans that would have limitations or prohibit in the provisions of Limiting Consumer Credit to Service Members and their families: 1) excluded military installment loans 2) curbed payday and car title loans and 3) restricted refund anticipation loans. Under the new rule, payday and car title loans interest rates will be capped at the maximum 36 percent Military Annual Percentage Rate (MAPR). The Department acknowledged this narrow definition will not allow room for ambiguity but they made sure the definition is as close to the APR definition file under the Truth-in-lending Act.
These types of loans are good choices for the Department to consider implementation of and compliance with the regulation because many of these loans involves exorbitant high interest rates and its widely known they are most detrimental among service members. Eliminating refund anticipation loans was very important because there are many alternatives that can expedite service members’ tax returns at no cost. For example, most active duty military bases have volunteer income tax programs, which is a nonprofit organization that provides free tax preparation services to service members and their families.
The Department also recognized that amending this statue may have unintended consequences for its service members and their families in terms of narrow definitions. For this reason, the Department heard from different consumer groups through public comment which was received through the Federal Register notice DoD-2006-OS-0216 and through external meetings requested by the Department. The term “creditor” as defined in the statue is a broad definition and which includes entities as well as individuals. “Covered Borrower” is defined as a regular member of the Armed Services and the member’s spouse or child. This definition makes it clear to lenders it’s just not service members who is protected by this statue but the service members spouse’s and child that was obligated during the time of the transaction. “Consumer Credit” is defined as payday loans, car loans, and tax refund anticipations loans, but it does not include line of credit extended to service members for personal or family items such as home equity line of credit, mortgage payments and personal loans.
These narrow definition terms of the Department rules is an example of how an agency’s rulemaking authority could prevent unintended consequences while granting the intended recipients the protection provided by the statute. However, the Department efforts to solicit information from the public about its rule making process were feasible, but could be better. The majority if not all of the unsolicited and solicited public comments were obtain from consumer advocacy groups, credit unions, and bankers. The Department should have place a more emphasis on obtaining information from service members and their families. In addition, the term “consumer credit” is defined too narrow because it prohibit lenders from extending credit to service members in the terms of personal loans, mortgages, and home equity line of credit. The Department should have conducted surveys of service members and collect the data on what products they use frequently from credit lenders before defining the terms of specific actions.

Return to