Editor’s Note: A version of this document first appeared on the Javelin Strategy & Research blog.

Short-term loan products fill a financial gap for their users, but the rates charged by lenders – and sometimes obscure as fees – can border on predation. Most consumers avoid these products, but the active military seem to embrace them.

For those who are enlisted, they have certain protections under the law. The Military Loans Act, which was first enacted in 2006, deals with predatory lending. This law also goes beyond the Consumer Financial Protection Bureau’s rule designed to end payday debt traps, which has not yet taken effect. But given the popularity of these products with active-duty military personnel, it is questionable whether the current law has not encouraged bad financial practice.

Regardless of the product, rates of use of short-term loans and other alternative financial products are incredibly high among active-duty military personnel, despite concerted efforts by the U.S. military to promote fiscal responsibility and deter their members. on active duty to obtain short-term credits. -term loan products. On the Javelin Strategy & Research blog, we found that 44% of active duty military received a payday loan last year, 68% got a tax refund, 53% used a cash-out service non-bank checks and 57% used a pawn. shop – these are all extraordinarily high usage rates. For context, less than 10% of all consumers got each of these same alternative financial products and services last year.

Why is this happening? At least some of this can be attributed to age, as the military tend to be young, and millennials tend to be adopting these services more often because they are earlier in their financial lives – they are earning. less income and have less traditional forms. credit.

But these conditions don’t tell the whole story. With the explosion of digital financial services, lack of accessibility does not explain these gaps. Is there something more? Why are these products so attractive to a segment of the population with a very regular salary? This may be due to unforeseen consequences.

The military has certain protections against the predatory aspect of short-term loans. The Military Lending Act was enacted to combat predatory lending, as was the recent CFPB regulation on short-term lending. One area where the military loan law goes beyond bureau regulations is precisely in setting limits on one of the most criticized aspects of short-term loans: the interest rate. The law caps the interest rate that lenders can charge the military at just 36% for products like tax refund loans and payday loans. The intent of the law was to prevent companies from hampering the U.S. military with loans while they were overseas – an outcome that could induce stress and hamper their ability to focus. But even at interest rate caps, the military still pay high rates – the kinds of rates that are typically reserved for consumers with bad credit.

Considering that so many members of the active military are younger and may lack established credit, the question becomes, has the law legitimized these products for members of the active military and, therefore, has it resulted in higher utilization than it would otherwise be? And does this delay progress towards obtaining traditional financial products on more favorable terms?

It’s possible. Consider that the rates the military pay to use these services as a result of the law is not much higher than what a thin or unaccounted consumer might expect to pay on more traditional types of products, such as credit cards. As a result, there is less incentive to engage in traditional credit and lending products if they do not have strong and established credit. Unfortunately, using these types of short term loan products does not help the military build a positive credit history.

With financial health being such an important factor for our military, it is evident that more needs to be done not only to encourage good financial habits, but also to pave the way for the use of more traditional financial products. In doing so, active-duty military personnel will have quicker access to reasonably priced financial products. Over time, this will help them avoid falling into a short-term loan trap that could extend far beyond their service.

James Wilson contributed to this article.