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Soldiers Pinned Down by Predatory Payday Loans

By Martin H. Bosworth
ConsumerAffairs.com

October 21, 2006

Payday Lenders • Congress Moving Toward National Cap On Payday Loans • West Virginia Sues Online Payday Lenders • Senate Bill Would Rein in Payday Lenders • Virginia Considers Measure Aimed At Payday Lenders • Cash Today Hit with FTC Complaint • Payday Loans Can Lead to Bankruptcy • Pennsylvania to Require Licenses For Internet Payday Lenders • Bill Would Set National Limits on Predatory Lending • Payday Loan Lead Generators Settle FTC Charges • Tiny Virginia Town Stands Up To Payday Lenders • Payday Lenders Targeting Seniors • Payday Lenders Trumpet False Claims, Critics Charge • Pentagon's Predatory Lending Rules Faulted • Last Payday Lender Leaves West Virginia • Pennsylvania Class Action Challenges Payday Lender • Payday Lenders Fight Back in State Legislatures • Payday Lenders Fleece Consumers for $4.2 Billion A Year • Soldiers Pinned Down by Predatory Payday Loans • California Sues Payday Loan Business • North Carolina Declares Victory In War On Payday Lending • H&R Block To Settle More Payday Loan Suits • DOD: Payday Loans Affecting Military Readiness • States Want FDIC Crackdown on Payday Lenders • No Payday for Payday Lenders in Texas, New York • Payday Lenders Prey on African-American Neighborhoods • Payday Loan Report: Reform Needed • Illinois Warns of Payday Loans • Fast Cash Loans Charged with Illegal Practices • Cashback Payday Loans Banned in NY --- • Video: What is a Payday Loan? • Consumer Complaints

Adding to the many issues facing the American military today, thousands of soldiers are being denied overseas active duty because of severe debt and financial problems.

The chief culprit appears to be high-interest predatory lending, which will be at least partly reined in by new Congressional legislation.

The Navy, Marines, and Air Force have reported a steady increase in soldiers who have lost security clearances due to severe financial problems, according to an Associated Press report.

The numbers rose from 284 in 2002 to over 2,600 in 2006 between the three branches, with every indication that the trend is continuing.

The Army, responsible for the vast majority of forces currently engaged in Iraq and Afghanistan, refused to share its records of clearance loss with the AP.

Although reasons for soldiers' increasing indebtedness ranged from low pay to financial irresponsibility, high-interest "payday loans" were first on the list. Payday lenders entice borrowers into drawing advances on their next paycheck, at extremely high interest rates.

Some payday lenders charge interest of 15 percent on a two-week loan, which averages out to a yearly annual percentage rate (APR) of 390 percent.

Because of the generally low military pay and usurious interest rates, many military personnel fall deeply into debt with just a single payday loan.

Military members and their families are particular targets of predatory lenders, as they receive a steady income, but their pay is so low that any unexpected expense may require them to take out loans, according to the Center for Responsible Lending.

A Skinflint Congress

Last year the Department of Defense issued a warning that predatory lending was keeping troops from being effective in the field, as they were distracted by their financial problems.

The military stepped up its financial counseling services to urge personnel not to spend any bonuses or advances exorbitantly, and to avoid payday loan centers.

The continuing problems with predatory lenders led President Bush to sign legislation on October 19 that would cap the APR of payday loans at 36 percent nationwide.

Congress also authorized a 2.2 percent pay raise for armed forces personnel before adjourning for the election season. The pay raise was criticized as minuscule, given the added costs soldiers and their families have to deal with in times of war.

States Take Action

States are also taking action against predatory lenders for both military and civilian residents.

California's Attorney General Bill Lockyer filed a $2 million lawsuit against local payday lender Fast Cash for suing borrowers for triple the amount of the loan if they had insufficient funds available when they wrote checks to pay it off.

North Carolina recently finalized a series of agreements with lenders to change their practices, leading many of the companies to leave the state. State Attorney General Roy Cooper called it "the end of predatory lending" in North Carolina.

The Center for Responsible Lending estimated that payday loans cost American families upwards of $3.4 billion annually.

In congratulating Congress and President Bush for passing the new legislation for soldiers and their families, CRL President Michael Calhoun urged them to "extend these protections to all of America's working families."

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