WASHINGTON — A bipartisan coalition of lawmakers on Thursday backed legislation limiting instant loans made to troops and vowed they’ll fight to keep the language in next year’s defense budget.

“This has become a readiness problem,” said Sen. Jim Talent, R-Mo. “They’re targeting younger troops. Our fine young men and women are dedicated and great warriors, but many are not sophisticated in finances. This becomes a distraction from their mission.”

But representatives from the short-term lending industry said they aren’t targeting military bases, they do provide an important service and they expect Congress will ultimately kill the proposed limits.

In June, Talent and Sen. Bill Nelson, D-Fla., inserted an amendment into the 2007 Defense Authorization Bill that would cap interest on all loans to servicemembers at 36 percent and prevent multiple automatic loan rollovers.

Critics of the payday loans industry have complained that lenders often entice troops and their families with the allure of short-term cash without fully explaining their fee structure, with charges that equate to a 400 percent or higher annual interest rate.

Last month the Defense Department agreed, releasing a report labeling the instant loan industry a “predatory problem” and backing the rate caps.

Rep. Sam Graves, R-Mo., has introduced similar legislation over the past few years and said Talent’s decision to attach the issue to the defense budget has brought more attention to the problem and, he hopes, will ultimately lead to its passage.

Talent and 30 other senators on Thursday sent a letter to members of the conference committee finalizing the defense budget bill, imploring them to keep the limits intact. Talent said those conferees have come under heavy pressure from the industry since the Senate approved the language in June.

Steven Schlein, spokesman for the Community Financial Services Association of America, said if the rate cap is approved, all instant lenders will be forced to stop accepting military members as customers.

“The military makes up less than 2 percent of our overall business, but we don’t want them to lose our services,” he said.

Schlein said comparing the short-term loans to traditional bank loans is unfair, because the payday loans aren’t designed to last longer than a few weeks.

But Michael Calhoun, president of the Center for Responsible Lending, said the industry’s whole business model is designed to flip customers from one loan to the next, compounding interest each time.

Terry Scott, who recently retired as master chief petty officer of the Navy, said he saw sailors who signed off on loans with annual interest rates as high as 2,000 percent.

“That’s just criminal,” he said. “One of the arguments they make is that they’re meeting a need that’s out there. So do loan sharks, but we’ve made them illegal.”

Scott noted that more than 2,000 sailors lost their security clearances for financial problems last year, and he said payday loans played a role in many of those cases.

But Schlein said the industry has developed business practices specifically for the military and polices its own to make sure no one is taking advantage of troops.

If the language is included in the final defense budget legislation, it would apply only to loans made to troops or their families.

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