Military Personnel Warned on Payday Loans

ABC News & Associated Press ^ | June 25, 2005 | Sam Hananel

[bd476]

Defense Department Warns Personnel About
Payday-Loan Services That Can Lead to a Spiral of Debt

By SAM HANANEL

The Associated Press

June 25, 2005 - Army Chief Warrant Officer Thomas Burden needed money. He had just been through a divorce, his credit was bad and he couldn't qualify for a conventional loan. So he turned to a payday lender one of dozens within a mile of his base at Fort Hood, Texas.

Thus began a vicious cycle of getting quick cash advances at high interest rates.

His first $300 loan cost a fee of $60 every two weeks. More loans and fees at the equivalent of 520 percent interest per year soon swelled the debt to more than $1,400.

"It just kind of keeps snowballing if you don't have the money to cover it," said Burden, 35.

Now the Defense Department is launching a new effort to warn service members about the dangers of payday loans, citing new reports that suggest these lenders are targeting them.

John Molino, deputy undersecretary of defense for military community and family policy, said last week the department would begin teaching service members how payday loans can lead to an endless cycle of debt.

A study released last month by two professors at the University of Florida and California State University found "irrefutable geographic evidence demonstrating payday lenders are actively and aggressively targeting U.S. military personnel."

In 12 of 19 states surveyed, the study found the single greatest concentration of payday loan stores in a county with a military base. Those states are Arizona, California, Colorado, Delaware, Florida, Kentucky, North Carolina, South Carolina, South Dakota, Texas, Virginia and Washington.

"Military folks tend to be young, they often come from financially vulnerable backgrounds and tend to have less education," said Christopher Peterson, a law professor at the University of Florida and co-author of the study. "All of these are reasons the military make particularly enticing targets for this type of loan."

The payday lending industry says it targets middle class consumers in the suburbs, not the military. Steven Schlein, spokesman for Community Financial Services Association, which includes two-thirds of payday lending companies, estimates military personnel account for 1 percent of customers.

"You'd think if we're targeting the military we'd be doing a better job," Schlein said.

In response to complaints, the association adopted voluntary guidelines last year requiring member lenders to stop garnisheeing military wages or contacting a customer's military chain of command to collect money. And collection efforts must stop if an active duty soldier is deployed to combat or a reserve or National Guard member is called to active duty.

Growth in the payday loan sector has exploded since the early 1990s, from about 300 stores in 1992 to more than 20,000 today, according to industry estimates.

Consumer groups have long criticized payday lenders for preying on poor and minority communities. Loan stores often encourage customers to "roll over" debts after the two-week loan period is up, which only compounds the fees.

While it is difficult to know exactly how many service members get payday loans, Defense Department surveys indicate the number is between 9 percent and 12 percent.

Congress' investigative arm, the Government Accountability Office, concluded in a report last month that the Defense Department was not using the tools it has in place to curb the effects of predatory lending practices.

The GAO report said some junior enlisted members were not receiving the financial management training required by service regulations, despite warnings from top defense officials that debt problems can affect performance and unit readiness.

Military personnel are often reluctant to get debt management counseling because service members with severe financial problems risk losing security clearances incurring penalties or facing discharge.

Burden, the Fort Hood officer, eventually ended his debt cycle. After clearing up his credit problems, he got a regular loan from a military loan company and paid off the $1,484 he owed, which included nearly $250 in accrued interest.

Some states have limited interest charges or restricted how often customers can get the loans. In Congress, Rep. Sam Graves, R-Mo., has introduced legislation to cap payday loans at 36 percent interest for military personnel and their spouses.

On the Net:

Community Financial Services Association

GAO report

[dakine]

Not this again...fools...

[goldstategop]

In the Middle Ages, lending with excessive interest was viewed as usury. The modern term for is loansharking. Basically, a lender charges more for the loaned money than its true value and the borrower finds there's no way to escape a cycle of vicious debt. All of which recalls the words of Polonius to his son Laertes: "Neither a borrower nor a lender be." How true and human nature finds those in need of money do not fare well at the hands of an unscruplous lender.

(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)

[TADSLOS]

Soldiers in debt is a time honored tradition.

[bd476]

From the article: "...36 percent interest for military personnel and their spouses."

Some of our military are swimming in shark infested financial waters.

Getting a loan with a 36 interest rate is not a matter of being foolish, it looks more like desperation.

[Mark was here]

I would suggest that the UAW invest their pension funds in this industry, even start their own lending company. They could pay their employees union scale living wages, and charge rates lower than those all ready in the business. This would provide a "fair" return to the pension fund, provide well paying jobs, and help those in debt. A true win, win, win situation.

[bd476]

It seems unfair that those serving our country are targeted by these loan sharks.

[dakine]

Living beyond their means...seen it, time after time after time... Just check out a parking lot sometime...

[cyborg]

http://www.daveramsey.com

payday loan and dave ramsey ping...the military needs Financial Peace U.

[bd476]

Time to start a new tradition. Security clearances are hard to obtain when a serviceman owes a loan shark.

[abb]

The hidden secret of "payday loans" is that the lenders are able to use government as their kneecapper.

To apply for a "loan" you simply write a check which the lender holds until you pick it up. If you don't pick it up within the specified time, they send it in to the bank for cashing.

If it is NSF, then the borrower must now deal with the local district attorney.

Even the mob had to hire their own collectors. With payday loans, collections are done for them.

[bd476]

...whispering shhh... Cyborg, what do you know about Dave Ramsey? Is he just another financial guru who will give you the secrets to wealth if you send him $$, or is he on the up and up? shhhhh...

Thanks for the link. :-)

[TADSLOS]

Some of our military are swimming in shark infested financial waters.

Getting a loan with a 36 interest rate is not a matter of being foolish, it looks more like desperation.

Go to any Army post that supports a Division or more of troops and survey the "legitimate" businesses outside the gate. They tend to fall into these categories:

Barbershops

Oriental Restaurants

Tattoo Parlors

New and Used Car Dealers

Fast Food Establishments

Pawn Shops

Tailor Shops

Military Surplus Stores

Loan and Check Cashing Services

Killeen and Copperas Cove, adjecant to Fort Hood, are inundated with these. It's lucrative, to say the least.

[Jay Howard Smith]

Living beyond their means...

Not sure how much a Chief Warrant Officer makes these days, but its more than Enlisted troops. Maybe one of our Active Duty freepers has a current pay schedule handy..??....to include BasePay and entitlements..??..! I'd be curious......

[dakine]

Add massage parlors and strip joints...

[cyborg]

LOL I don't think so. I just listen to his radio show and got the book from the library :-) Living on cash is hard at first, but not impossible. I'll never take a pay day loan. They're ghetto and will keep your poor. Note where payday loan places open up too.

[Dante3]

I know this is off the topic but I just want to mention www.soldierride.com sponsored by Fox News.

[Bostton1]

you left out crappy motels, bars and strip clubs.

[Bostton1]

LOL You beat me.

[dakine]

My take home as an E-7 is $4300.00 a month...WO make more...

[cyborg]

Sounds like my neighborhood! LOL

[Jay Howard Smith]

My take home as an E-7 is $4300.00 a month.

Good Lord......I was born tooooo soon and retired tooo early.......

Found current Pay Scales....What this guy got himself into, I dont know...??..!

ClickHere for Pay Tables

[TADSLOS]

Security clearances are hard to obtain when a serviceman owes a loan shark.

I wouldn't count on that as a discriminator. My experience shows that issueing security clearances and renewals are rarely linked to a soldier's debt balance. Security clearance denials are usually linked to prior criminal records and drug use. Also most soldiers obtain an initial confidential/secret clearance at or shortly after entry into the Army, before there is a debt issue in most cases. Commanders can and do, in some instances suspend or have clearances pulled for a variety of reasons, but the administrative process for doing so is lengthy.

[TADSLOS]

Add massage parlors and strip joints..

LOL! Yeah, how could I leave those out...?

[Tennessee_Bob]

I didn't see the classic "rent to own" stores on your list.

[TADSLOS]

I didn't see the classic "rent to own" stores on your list

You know, those aren't as predominate as they once were, at least not here at Ft Hood. That's probably due to better pay scales combined with a thriving "low(er) cost" furniture and appliance business at the Warrior Way PX on post.

[steveo]

W-1 2290.20 to 2900.40
W-4 3228.60 to 3840.30

[ErnBatavia]

My take home as an E-7 is $4300.00 a month...

Whoo, have things changed since I was an E-4 in 1968 ! I don't recall what I "earned", since it was so insignificant...no more than pocket cash.

[dts32041]

I think this basically going on for about 5000 years.

Nothing new here move along.

[dakine]

My take home as an E-3 in '82 was ~$600.00 a month, so yes, times change...

[Jay Howard Smith]

W-1 2290.20 to 2900.40
W-4 3228.60 to 3840.30

That would be base pay and the only monies taxable.....Tack on $1k p/mo for Housing and $180 for subsistance + any Incentive or Special Duty Pay...Living beyond means sounds about right..!

[FreePaul]

In the Middle Ages, lending with excessive interest was viewed as usury. The modern term for is loansharking.

As practiced by all of the credit card companies, banks and other lending institutions. When a business such as loansharking becomes large enough they are able to arrange for the government to protect them. In the old loansharking days the local cops were ususlly the ones paid off. Now, with the credit card companies, the payoff goes to politicians at the highest level.

[Jay Howard Smith]

My take home as an E-3 in '82 was ~$600.00 a month, so yes, times change..

Tell me about it....I remember the $17.50 paydays.....!!

[dakine]

Yeah, you had 10 cent beers and 25 cent smokes in those brown shoe days.....hahha

[TADSLOS]

Incidentally, the soldier mentioned in this story is a CW2, non-aviator (no flight pay), so his base pay less housing and subsistence should be in the range of $2593 - $4247 per month, depending on years of service (probably hovering around 6-8 years of service, so a base pay of $3200 month would be my guess. Housing would range between $604 - $770 per month(with/without dependents) and subsistence would be $184 per month in his case. Since he is now divorced, he is, in all likelihood, having a portion of his pay garnished to his ex-wife.

[dakine]

Yeah, the authors did choose a difficult situation to print, the divorce probably killin' his finances...

[Jay Howard Smith]

Yeah, you had 10 cent beers and 25 cent smokes in those brown shoe daysM.

Nine Cents a pack of smokes...But free in the KRats...Nickel Beers....Shot & a Beer Fifteen Cents....Put a dollar of gas in the car and get 11 gallons of gas.....Had some good times then..!

[politicalwit]

I remember my initial pay going into the USAF... $87.00/month.

[postaldave]

is going to be another thread where people defend predatory lending.

wake up america, pay off your debts and end outlaw predatory lenders.

knowing dave i bet he would give the military financial peace if they required it in boot camp.