The Soldier's Rate

The problem

The Department of Defense reported to Congress in 2006 that payday and title lenders were clustering outside the gates of American bases, that the loans were trapping enlisted families in cycles of debt, and that the debt was costing the services security clearances and readiness. Congress acted within the year. The Military Lending Act capped the cost of consumer credit to active-duty service members and their families at a Military Annual Percentage Rate of 36 percent, a measure that counts not only interest but every fee, credit insurance premium and add-on a lender can attach. In 2015 the Pentagon extended the rule to nearly all consumer credit, including credit cards. The industry said the cap would cut off credit to the troops. The troops are fine.

Everyone else is where the troops were. A typical payday loan carries an annual rate near 400 percent. The Pew Charitable Trusts found that about 12 million Americans use payday loans in a year, that the average borrower takes eight loans of about $375 and pays about $520 in fees to do it, and that the industry collects on the order of $9 billion a year in fees. Title lenders, which lend against the family car, take the car from about one borrower in five. These are not loans in the ordinary sense; they are a fee for being short of money, charged to the people who are most often short.

About 20 states and the District of Columbia have concluded that the military rate is the right rate for everyone, and cap consumer credit at or near 36 percent all-in. In the rest, the loan the law forbids a lender to make to a sergeant is legal to make to the sergeant's sister. Bipartisan bills to extend the military cap to veterans and then to all consumers have been introduced in every Congress since 2019 and have never reached the floor.

№ 004 argued that being a citizen should get you something you can feel. This one is small and concrete: the same protection the country already gives the people it sends to war.

The proposal

The Soldier's Rate: the Military Lending Act's 36 percent all-in cap on the cost of consumer credit is extended to every citizen and, since the rule binds the lender, to every borrower in the United States. The definition, the covered products and the enforcement machinery are the Act's own, already in force for twenty years. States may set a lower cap. None may set a higher one.

How it would work

1. The military definition, unchanged. The Military Annual Percentage Rate counts interest, finance charges, credit insurance, membership fees and every add-on; that is why it works where a simple interest cap fails. The Soldier's Rate adopts the Act's definition, its list of covered products, its exclusions for mortgages and purchase-money loans on cars, and its treatment of credit cards, which permits bona fide fees at market rates. Nothing is invented. The regulations exist and lenders already comply with them for one class of customer.

1. Every borrower. The cap binds the lender, not the borrower, so it applies to every loan made in the United States regardless of who takes it. A guest under № 003 is protected in the same shop as a citizen, because the alternative is a rule that tells lenders which customers to prey on.

1. Floor, not ceiling. A state that caps at 36 percent may keep its cap; a state that caps lower, as several do for small loans, keeps that. What ends is the state that permits 400.

1. Enforcement, the Act's own. A loan that exceeds the cap is void as to the interest and fees, as under the Act; the lender may recover principal only. The Consumer Financial Protection Bureau and state attorneys general enforce, as they do now for service members, and the borrower has the Act's private right of action. The rule reaches online and out-of-state lenders because it binds any loan made to a person in the United States, as the Act does.

1. The payment rails. A lender outside the reach of the courts still has to be paid, and the Act's experience is that the rails are the enforcement point: a bank or processor that knowingly debits a void loan's fees is liable for them. The rule is stated in the statute rather than left to regulation.

1. The alternative on the same street. № 091, The Postal Bank, is the other half of this proposal: a small-dollar loan at a legal rate in a building that already exists in every town. A cap without an alternative sends some borrowers to worse places; the two proposals are written to arrive together.

The numbers

What the cap saves. The fees the industry collects, on the order of $9 billion a year, are paid overwhelmingly by households earning under $40,000. A 36 percent cap does not reduce that to zero, because some lending continues at legal rates; the experience of the states that have adopted it is that most of the fee income disappears, and with it most of the storefronts. Call it $6 to $8 billion a year left in the pockets of the people who can least spare it.

What it costs the Treasury. Nothing. The rule is a cap, not a programme, and the enforcement machinery is already built and staffed.

What the Pentagon found. Its 2021 report to Congress on the Act's effects found no evidence that service members had lost access to credit they needed, and continued evidence that high-cost debt harmed readiness where it persisted. The twenty-year experiment has been run, on two million people, and published.

The states. In the states that have adopted the cap, payday storefronts have largely closed, and studies find borrowers turn to family, to credit unions, to instalment plans and, in some cases, to online lenders the state cannot reach, which is the reason for items 4 and 5. What they do not find is a wave of bankruptcies or evictions where the stores closed.

The honest objections

"A cap cuts off credit to people who have no other source, and they will be worse off." The strongest objection and the one the twenty-year experiment addresses. Some borrowers in capped states do lose access to a legal loan, and some of them are worse off for it in the week they needed $300. What the evidence does not show is that the loss outweighs the harm of a 400 percent loan renewed eight times; the Pentagon's own finding was the reverse. The honest answer is that a cap without an alternative is incomplete, which is why № 091 exists, and that a lender who cannot make money at 36 percent all-in is running a business the country should not want.

"Lenders will move offshore and online, and the cap will be a dead letter." They will try, and the Act's experience is that the payment rails are the choke point: a loan that cannot be collected through an American bank or processor is not a business. Item 5 says so in the statute. Some leakage will remain, as it does in the capped states, and the proposal does not claim otherwise.

"36 percent is itself an outrageous rate." It is high, and it is the rate Congress chose for soldiers after the Pentagon asked for one that would work without ending small-dollar lending altogether. A lower national cap is a defensible position; this proposal takes the number that has been tested, and leaves states free to go lower.

"This is federal interference in state usury law, which has been state law since the founding." State usury law has been overridden by federal law since 1978, when the Supreme Court let a bank export its home state's rate to every other, which is the reason a 400 percent loan can be made in a state whose own law forbids it. The Soldier's Rate is the federal government using the same power to set a floor of decency rather than to remove one. States keep every power to go lower.

"Credit cards will be caught, and ordinary Americans will lose their cards." The Act has covered credit cards for service members since 2017 with a bona fide fee exclusion, and no soldier has lost a card. The mainstream card market runs below 36 percent all-in; the cards the cap reaches are the subprime cards whose fees exceed their credit lines, which are payday loans with a logo.

Sources

• Military Lending Act, 10 U.S.C. § 987, and the Department of Defense's implementing regulation, 32 C.F.R. Part 232, including the 2015 amendments
• Department of Defense, Report on Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents (2006), and Report on the Military Lending Act and the Effects of High Interest Rates on Readiness (2021)
• The Pew Charitable Trusts, Payday Lending in America series, on borrower numbers, loan size, fees and renewals
• Consumer Financial Protection Bureau, payday and vehicle title lending data and enforcement actions, consumerfinance.gov
• National Consumer Law Center, Predatory Installment Lending in the States (2025), on state rate caps
• Marquette National Bank v. First of Omaha Service Corp., 439 U.S. 299 (1978)
• Proposals № 004 (CitizenCare); № 013 (The Portfolio Act); № 091 (The Postal Bank, forthcoming)