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Payday Loans Affecting Military Readiness, DOD Decrees

Military Organizations Providing Zero-Interest Loans in Some Areas

August 15, 2005
Military organizations and Florida Attorney General Charlie Crist have organized a program of low-cost loans to servicemen and women, as an alternative to the ruinously expensive payday loans increasingly used by hard-pressed military families.

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The problem has become so widespread that the U.S. Department of Defense has determined that the astronomical rates have an impact on military readiness. The debt resulting from these loans places a service member at risk of losing their security clearance, or worst case, being discharged from the military.

In an effort to address the problem, the Navy/Marine Corps Relief Society and counterparts serving the other branches are providing zero percent interest loans to assist servicemen and women trying to get out of debt and to those with emergency financial needs.

Each week, servicemen and women and their families – trying to make ends meet – are victimized by payday loans with exorbitant fees that make it difficult, and sometimes impossible, to get out of debt.

These loans, carrying actual interest rates of at least 100 percent, keep military members literally living from paycheck to paycheck while going ever deeper into debt.

The practice of payday loans centers on advancing a serviceman or woman a portion or all of the amount of their upcoming salary. These loans normally require repayment at high rates within a short period of time. It is often impossible to repay the loan within a few days because most military installations pay on a twice-monthly basis.

Despite this, the interest continues to effectively increase and the serviceman or woman is farther behind by the next payday than they were prior to obtaining the loan.

“Zero interest loans are a godsend and a financial lifeline for military families,” said Crist. “Thankfully there are organizations who care about the well-being of those who give so much to our country.”

Attorney General Crist urged the Florida Legislature to take a close look at the statutes to ensure that the men and women in uniform are being protected. Current Florida law allows an effective annual percentage rate of 390 percent. Some states have no statutory limits on payday loans.

On June 30, the Attorney General issued a consumer alert to military families advising them to avoid “predatory lenders” and offered tips on how to avoid becoming involved with them. The alert also revealed another option for military families – the Servicemembers Civil Relief Act – which entitles personnel on active duty to more favorable loan repayment requirements.

However, these protections are available only for loans received by personnel prior to the time they are called to active duty. The zero percent interest loans expands coverage to more members of the military.

The June 30 alert also stated that certain payday loan providers were under investigation for possible illegal activity. The investigation is ongoing.

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