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Beware of 'payday predators'

By Irene Brown, Chief Command Information

WEST POINT, N.Y. (Pointer View, February 10, 2006) — The military is preparing to fight a new enemy surrounding its installations and drowning young servicemembers in a sea of debt.

Along suburban roads, in shopping centers and on downtown blocks, payday loan stores have a message that is hard to miss: CASH NOW!.

Since the first store opened in 1993, payday lenders have multiplied rapidly, nourished by the fact that many people need money fast.

In just 12 years, more than 22,000 payday loans stores have opened in 40 states. Their total estimated annual loan volume? More than $40 billion in 2003 alone.

Payday lenders get their name from the practice of giving small loans to people expected to repay them at their next payday. Typically, lenders charge $15 per $100 lent.

More and more of these establishments are cropping up around military posts nationwide. After all, when you can charge 391 percent interest on a two-week, $500 loan, what better place to open than near a base full of young enlistees often desperate for cash.

According to statistics from the Bureau of Financial Institutions, payday loans totaled close to $1 billion last year. What’s more, nearly a quarter of borrowers took out 13 or more such loans in one year. Those individuals live from week to week, using one paycheck to pay off the old loan and quickly acquiring another loan to meet a new month’s bills.

Meanwhile, the astronomical interest charges lessen whatever hope they have of ever getting ahead.

The Department of Defense launched a new effort in June to educate its servicemembers about the dangers of borrowing from “loan-shark” lending companies.

Defense department officials said they are taking steps, such as hosting fairs at military installations, to let military members know about the dangers of payday loans and familiarize them with ways to put themselves and their families on a sound financial footing.

Rear Adm. William French, the Navy’s northwest commander, has also taken up the cause. Many of his sailors, he said, are adrift in a sea of debt, often at the mercy of payday lenders. And they are consumed by their struggles to make ends meet.

“They are distracted and could put themselves and their shipmates in a potential position where they could be hurt or killed,” said French, who is urging lawmakers to institute harsher restrictions on the payday loan industry.

Congress is responding. Representative Darlene Fairley of Washington has sponsored a bill seeking to cap annual interest at 36 percent, limit borrowers to one $500 obligation at a time, and prohibit a lender from giving loans to a borrower’s spouse. In the state of Washington there are roughly 711 payday lending shops. Under the new restrictions, lenders that specialize in short-term, high-risk loans would only make 10 cents per day on a two-week loan of $100.

This lending practice has so adversely affected military members that the Department of Defense recently listed payday lending as one of the top 10 issues facing military families.

“Twenty percent of active-duty personnel used a payday loan last year,” DOD officials said. “This is a problem that hasn’t gone away and one we need more help with.”

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