The End of Military Payday Loans?
By Paul RizzoPayday Loan Writer
The provision imposing a 36 percent annual rate cap on military payday loans that Congress recently passes - set to begin on October 1, 2007 - was meant to control these resources.
It may do away with such cash loans instead.
The payday loan industry disputes figures that claim 17 percent of the military uses payday loans. Lenders cite their own 2005 poll showing just 3.7 percent of military personnel had taken out such loans in the past five years.
An industry trade group says just 1.3 percent of regular and no faxing payday loan customers are military - and that the new rules will cripple them.
“A payday loan at that rate would be unprofitable because it costs us $13 per $100 loaned, but we could only charge $1.38,” said Darrin Anderson, president of the Community Financial Services Association of America, a trade group.
The nation’s largest payday lender, Advance America Cash Advance Centers Inc., which operates eight outlets in El Paso County, said that beginning Sunday it will stop making loans to military personnel nationwide.
Anderson, president of QC Holdings Cos., said the Overland Park, Kan., company is evaluating its Quik Cash outlets near military bases, including one in Fountain, to determine whether they should be closed.
Express Cash LLC may consider closing its branch near Fort Carson, or at least stop making small cash advance loans because it would lose money, said Ken Carlson, regional manager for the company’s four outlets in Denver and Colorado Springs.
Active-duty military personnel are three times more likely than civilians to take out fast payday loans, according to a 2005 analysis by the Durham, N.C.-based Center for Responsible Lending. It used the payday loan industry’s statistics for its analysis.
In Colorado, military personnel made up 4.6 percent of instant cash loan customers, but only 1.1 percent of the state’s adult population, according to an analysis done last year by Paul Chessin, assistant Colorado attorney general, for the Denver University Law Review.
Service members can lose security clearance or face disciplinary action including court martial for failing to repay debts, including payday loans.
“We counsel soldiers that it starts a downward spiral when we start using payday loans and renew them, or take out new loans to pay off previous loans. It makes it difficult or next to impossible to get out of debt,” said Patricia Randle, financial readiness program manager for Army Community Service at Fort Carson.
About 30 percent of the soldiers who seek financial counseling from Randle’s program cite high-rate debt, including quick cash loans, as the primary reason for doing so, though she believes the percentage may be higher because soldiers are reluctant to admit debt problems for fear of damage to their careers.
“Payday loans are not banned, but they are discouraged,” Randle said. “If you don’t have money today, where will you get the money tomorrow to repay the loan plus the fee that goes along with it?”
A survey completed in March by the Defense Manpower and Data Center found service members used an average of 4.6 payday loans in 2005 and extended the loans an average of two times. The study, according to The Colorado Springs Gazette, estimated the average service member paid $744 in fees for $1,654 in loans.
Payday advance loan lending, meanwhile is booming in Colorado - 565 outlets made 1.47 million loans last year to 248,000 customers for nearly $500 million. The amount loaned was up 34.5 percent from 2004 and has more than doubled in three years.
