If Military Payday Loan Regulations Pass, Where Will Cash-Strapped Soldiers Turn?
By J.J. CameronPayday Loan Writer
In all the fervor about getting military payday loan legislation passed, those that support the initiative may have overlooked one tiny detail:
- What happens if the law actually is passed?
The Army Times quoted Sen. Tim Johnson, whose son is an Army enlisted man, as raising that issue during a Sept. 14 Senate hearing on the Pentagon’s calls for new federal laws to protect service members.
“If we are to eliminate payday lending altogether or make it unusable, the question is, who fills the void?” Johnson said. “We need to make sure we don’t have unintended consequences that are worse than what we have now … What do you say to that young soldier who wants to go to his mother’s funeral?”
However, David S.C. Chu, undersecretary of defense for personnel and readiness, said this isn't about airline tickets. He said the Pentagon’s main goal is to educate service members so they live within their means, and that if they do borrow money, they do so at reasonable rates from reputable sources; this may or may not include no faxing payday loan providers.
For those reasons, the Defense Department supports a 36 percent cap on interest and loan fees to service members that would apply to all types of loans, including those over the Internet, Chu said.
“The issue is predatory lending, about people getting in over their heads,” he elaborated. “Nobody is saying they shouldn’t borrow.”
Military payday advance alternatives: Someone needing a short-term loan can go to a military aid society for help, or may get a small loan from a credit union, he added. The 36 percent interest and fee cap recommended by the Defense Department was included by the Senate in the 2007 defense authorization bill, and is now being negotiated with the House.
Sen. Elizabeth Dole, R-N.C., who pressed the Pentagon to investigate regular and faxless payday advance lenders, said that if the authorization bill doesn’t include the interest cap, she will introduce separate legislation so the Pentagon’s recommendations don’t die.
Dole said the military has a responsibility not only to educate but also to protect service members.
“The Defense Department is the largest employer of young adults in the United States, with nearly half of its enlisted members under the age of 25,” she said. “In addition, service members have job security and steady incomes, and they are fashioned by a military culture that emphasizes financial responsibility and settling debts.
Borrowing can be an alluring option for a young soldier to get cash fast and easy, but exorbitant interest rates can quickly send an individual into a downward spiral of debt.”
Similar to Dole, Sen. Richard Shelby, the banking committee chairman, said education is part of the answer to preventing service members from falling into debt traps but “education can only do so much.” He still wants something done about dangerous bad credit payday loans.
“As long as certain unscrupulous lenders continue to employ predatory practices, our service men and women suffer,” Shelby said.
In defense of payday loans: The Community Financial Services Association of America, a payday loan industry group, said the Pentagon is being unfair.
“There are serious flaws in the Defense Department’s recent report,” said Hilary Miller, president of the Payday Loan Bar Association, who was representing the industry. "It is contrary to our interests to have service members get into trouble with their loans.
Chu said the military will launch a savings promotion program aimed at getting people to reduce their debt. But he said federal laws are needed to protect service members because payday advance businesses targeting service members often find various ways of avoiding state-imposed consumer interest caps.
In some states, caps don’t apply if money is loaned to a nonresident, such as a military person whose home of record is in a different state, he said. Also, some interstate loan operations that are accessible via toll-free numbers or the Internet escape state controls.
