And that has many members of the military in Utah upset, according to the managers of some payday loans stores that count servicemen and women among their customers.
"We've had a lot of people upset. It has been hard the last few days telling them that we're no longer able to make loans to people in the military," said Wendy Gibson, the store manager at Check City in Ogden, which serves personnel from nearby Hill Air Force Base. "And what is sad is they seem hesitant to speak out for fear of offending their superiors in the chain of command."
At the urging of the Pentagon, Congress last fall passed a law that caps interest rates on consumer loans for military personnel at 36 percent. Military commanders argued that payday loans that went unpaid often resulted in borrowers ponying up annual interest rates of 400 percent to 500 percent.
The law went into effect Monday. It also regulates the interest rates on car title and tax-refund anticipation loans.
Responding to the new federal interest rate cap, Utah's payday lenders contend they can no longer afford to extend credit to servicemen and servicewomen.
"What we offer are short-term, high-risk loans," said Cort Walker of the Utah Consumer Lending Association, which represents the payday loan industry. "The bottom line is that at a 36 percent annual interest rate, we can charge only $1.38 for a two-week, $100 loan - or less than 10 cents per day. And there is no way we can turn a profit under those restrictions."
He said the break-even amount payday lenders need to charge is $13 to $14 for each $100 loaned, and about $15 to turn a profit. Nationally, publicly held payday lenders operate on a profit margin of 6.6 percent, he said.
Walker contends that the law could force members of the military to turn for short-term cash needs to more expensive alternatives, such as simply bouncing checks or relying on pricey bank overdraft protection.
Chris Doyle of South Ogden, who works as a product manager for a telephone manufacturer, said he occasionally uses payday loans to tide him over while he is traveling, instead of relying on credit cards.
He said he is sympathetic to the plight of those in the military who are discovering they no longer can get the short-term loans they may need. "I know I'd be a little bit rubbed if my ability to use payday lenders was suddenly cut off. Sure, people can get into trouble with payday loans, but they can get into trouble using credit cards or bouncing checks, too."
Yet Linda Hilton, an advocate for low-income people and the disabled with the Crossroads Urban Center, said removing the payday loan option from military personnel is a good thing.
"Payday loans are the worst option available to those who need money. And what this [law] does is encourage those people to turn to other alternatives, such as their credit unions or even their families for help."
She argued that some consumers often find themselves deeper in debt after taking out a payday loan.
"While the initial payment they must make to get the loan may not seem like much, the industry is based upon a model that 80 percent to 90 percent of the people who have taken out loans will not pay them off when they first come due. Instead, they'll roll over their loans," Hilton said. "And that is when the interest starts to accumulate."
Walker disagrees, pointing to data that suggests 90 percent of all payday loans are paid off within four weeks. "And what a lot of people don't realize is that here in Utah we have a state law that restricts us to collecting only three months of interest on any loan we make."
In a statement issued last week, David S.C. Chu, undersecretary of defense for personnel and readiness, said the Defense Department is stepping up efforts to educate service members about financial planning and where they can go for help in an emergency.
"Many times service members can go to their bank or credit union directly and ask what loan products they have available, or they can go to their military aid societies or the family community support centers," he said.