Standing with predatory lenders instead of U.S. troops

September 20, 2006

Just a few weeks ago, USA Today ran a very disconcerting story about predatory lenders who target our nation’s military servicemembers, and which have “sprung up by the thousands around military bases.” The results have been awful — one in five servicemembers have become victims of ridiculous interest rates (sometimes higher than 400%) and many suffer from “bankruptcies, divorces and ruined careers.” It’s become such a widespread problem, the Pentagon listed predatory lending as “one of the top 10 threats to members of the military.”

The USAT story caught the attention of several lawmakers, and despite limited time on the calendar, Congress appeared ready to address the problem: Sens. Bill Nelson (D-Fla.) and Jim Talent (R-Mo.) co-sponsored a measure that would cap interest rates for short-term payday loans to military members at 36%. The Pentagon endorsed it; the proposal drew raves from consumer and veterans groups; and the measure had strong bi-partisan support.

Problem solved, right? Wrong.

[O]ne conservative congressman, Rep. Geoff Davis (R-KY), is trying to gut the amendment. Davis has proposed his own language — praised by the payday lending industry — that sets no real limits on predatory lenders.

One of Davis’s aides admitted last week that he consulted on the legislation with “CNG Financial of Mason, Ohio, one of his top campaign donors and owner of national payday lender Check ‘n Go.”

Seriously, don’t congressional Republicans have any shame left?

Nico at TP is trying to rally some interest in this today because it may be the last day to save the bill. He has some contact info if you want to try and help out.

Um yeah predatory lending is bad and I cannot believe someone would take the lender’s side but that is a side issue. The important question is why do our service members need to take out payday loans? This is shameful!

  • 36% is a predatory lending rate. Maybe someone on the Hill ought to consider chopping that number—by at least one-half, if not more.

    And MNP is onto something—why do our service members need to take out these loans in the first place?

    I’d start taking a closer look at the Davis/CNG connection….

  • Each state has usury rates. How about enforcing them? Be assured that if you see a neighborhood with a check cashing outfit, it’s a goner.

  • Maybe we could get green car magnets that say “Support Our Troops – Pay Them a Living Wage.”

  • mr. ed–
    Actually, not all states have usury rates. Credit card companies set up shop in Nevada, South Dakota, or Delaware because they have no limit.

    To all–
    I’m going to have to be open and honest here in the interest of full disclosure: I’m actually pretty close to this whole situation due to my job. I work for a lender that serves the military. In fact, I could get in trouble for posting this, and will be posting about it on my site tonight — I’m using this comment as a kind of test run … sorry CB :-).

    This is, quite honestly, a very important issue for the men and women who serve our country and one that is too important to not have all the facts.

    First, let me just state on thing:

    PAYDAY AND TITLE LENDERS ARE A F***ING RIPOFF!

    I’ve studied them for three years now, and they should be banned. Period.

    Now that that’s out of the way, a few things to consider:

    1. Whether or not 36% is fair is up for debate — if you have stellar credit, sure it’s a ripoff. But if your credit is between 500 – 600, the fact is you really don’t have that many options. Banks and credit unions simply won’t take on that kind of risk. Add in the fact that banks make a freaking killing off of bounced check fees (which equate to about 3,000% APR) and there is little – if any – incentive for them to do so. Some (i.e. the Pentagon Federal Credit Union) are offering payday loan alternatives. But some civilian CUs and banks are hesitant because they don’t want to, in turn, be labeled as payday lenders.

    2. The main issue I have with the Talent-Nelson bill is that there is a loophole for add-on products like credit insurance. This is something the recent DoD report on predatory lending (found here in PDF format) said should NOT be allowed. Let’s be honest – service members have $400,000 in life insurance through SGLI. Why the hell would they need to finance insurance premiums on a loan that, at most, is $10,000? This is something I’ve brought up to my company more than once … which is probably why they’ve tried to fire me (my blog hasn’t helped either). Thank god I’m good at what I do. 😉

    3. To go back to the 36% issue – just like auto insurance, pricing is based on assumed risk. Most of the people who serve in the military are young, grossly underpaid, and make clinically stupid decisions with their money. Lenders have to cover their ass. On a personal note, I’d prefer the limit to be around 20 – 24%, which is the same as many credit cards given to those with iffy credit.

    There has to be a cap on interest rates (I’d prefer for it to apply to everyone, not just the military), and for any Congresscritter to block such a measure says a lot about the make up of his or her character.

    And lenders have to serve the subprime lending market. It’s a sad fact that the average American spends $1.22 for every $1 he or she earns (PDF report here with other good stuff) but until we realize that we don’t need to just keep buying all kinds of crap all the time, that trend will continue. The key, however, is for it to be responsible debt, and not the revolving debt credit cards offer, nor the debt trap payday lenders offer — all of those take advantage of middle and lower income Americans, and makes it nearly impossible for millions to get their heads above financial water.

    Okay … sorry for the thesis. But I’ve worked in the industry for three years now and, as a writer, have penned (or, rather, typed) thousands upon thousands of words on this subject.

    I’m done …

  • What a twilight zone this country is in. Jingoistic propaganda and platitudes rain down extoling the virtues and value of our military and their families while those very same families are drained of their vitality by the bloodsucking predatory lending industry.

    The chasm between the B.S. and reality strains comprehension.

  • Thanks for the inside view, Unholy. Those payday loans are a trap few low income people can escape unless they really work at it because it’s so easy to just go back and get another loan on the next paycheck. So it becomes a vicious and neverending cycle.

    And heaven help someone who’s stuck in that rut who suddenly loses their job or has a health emergency or something else unexpected. Then those smiling helpful people at the loan shop become not so helpful anymore and tend to get downright cranky.

  • What they should be talking about is how to make it an even deal. Sure, a lot of people who join the military arent doing too well economically to begin with, and they see this as an economic opportunity. But once you leave and your family is left behind, one person take care of home tends to be much more costly than two. So, it wouldnt be surprising to see this opportunity of earning military pay be a bit of a liability in the end.

    But back to my point – Unholy, you talked about risk, and having had clients in the banking industry, I know where you are coming from, and from a business sense, that’s just how it works. But hey, we are talking about risk here, right? Yeh, their credit might suck, so they are risky to the bank, but hell, look at the risk they are taking, and after taking that risk, they are still needing a payday loan – obviously the issue here is that the wages the military pay must stink, and they sure as heck arent being compensated for the real risk of dying.

    Youd think they could come up with a way of compensating for hazard pay risk, as a way of saying thank you for doing a job nobody should have to do (fight an unwinnable “war”). But, hell, dont even go there, since the government only subsidizes super rich folks, to the tune of billions, when they cant even keep the people in their military from bankruptcy.

    This truly disgusts me.

  • Those payday loans are a trap few low income people can escape unless they really work at it because it’s so easy to just go back and get another loan on the next paycheck.

    Actually, most payday lenders REQUIRE you to take out another loan if you can’t pay the first. It’s called “flipping” and happens all the time. In fact, it’s where they make a majority of the $40 BILLION the industry make last year.

    There are some states that either prevent flipping or have put in a cap — Washington, Georgia, Ohio, NC, Oregon, and I think Virginia has as well (although I could be wrong on Va.).

    The weird thing about this issue is how some states are handling it. In California, for example, a judge recently ruled that lenders who do business with a Calif. resident have to abide by Calif. law. This applies to military personnel stationed in another state, and Internet transactions. Quite frankly, the ruling is insane on two levels:

    1. It violates the commerce clause of the Consitution — last I checked, a state can’t tell a business in another state how to operate.

    2. California doesn’t have any cap on payday lenders — so how in the holy hell can that be good for consumers?

    A federal cap is the right move. As much as I detest Talent (I will, obviously, be voting for his opponent McCaskill) he’s right on this issue.

  • If I read the article correctly, the bill prohits these predatory practices on military folks.

    Do I correctly read that the rest of the population is still fair game ?

  • – obviously the issue here is that the wages the military pay must stink, and they sure as heck arent being compensated for the real risk of dying.

    You’ve actually touched on a much larger issue — one that should be addressed. To pay these men and women in the neighborhood of $20K a year (you can see a 2006 pay chart here) is a sick, perverse joke. In addition, they have to buy a good deal of their own gear. You’d think the richest freaking country in the damn world could afford to buy their military insignias for their uniforms, and the uniforms themselves. You’d think that, but you’d be tragically wrong.

    Youd think they could come up with a way of compensating for hazard pay risk

    Actually, they do get all kinds of specialty pay, including hazard duty pay. The problem is that there is essentially ZERO financial education for these folks (or for the public at large, for that matter).

    Because of this lack of financial education, they use the extra money they earn to buy a new TV, or a motorcylce, or whatever, instead of paying off bills or saving it for future emergencies. I know, because I’ve seen horror stories about it all the time through my work.

    Granted, not all of them do this, but many do because they’re young and they’re trained to have no fear. The problem is that immaturity and devil-may-care attitude, when applied to one’s finances, adds up to huge financial disasters.

  • Maple Street–
    Yep.

    But as much as I (and everyone else not collecting $$ from the payday lending industry) would like to see it apply to everyone, the loan sharks have way, way, way, way too much money to let that happen.

    It’s the same reason why cigarettes are legal, why cars don’t have to get 80 mpg, why cable companies have monopolies …

  • I work in the financial sector as well, in a risk capacity. Active duty members of the military should pose a much lower risk to these scumbag lenders than you everyday run of the mill poor person with poor decision making abilities. Think about it- a soldier signs a multi year contract that they cannot break. The government knows everything about them including where they are, what their bloodtype is, and that they are definately not gay. The risk to a paycheck lender is unemployment or skipping town from a borrower. There are not a lot of active duty soldiers getting fired or going AWOL.

    I still call bullshit on this whole deal. Which party supports the military again?

  • MN–
    You hit on another point — that military personnel often have incorrectly low credit scores. They move a lot and are often young (and, thus, really don’t have a credit history). Add in pay glitches (which happen way, way too often) and you get someone who should have a 675 credit score with a 575 score (the difference between getting a prime and subprime rate).

    The other thing you hit on was service member’s steady paychecks — one of the main reasons payday lenders love to do business with the military.

    It truly is sickening what some of these companies do to those who serve our country.

  • “one of the top 10 threats to members of the military.”
    (And were do Rumsfeld, Bush etc fall on this list?)

    Thanks for all of the inside info U.M.

    It really is amazing what this government expects of its soldiers. Not only must they listen to the same “Oh it’ll be easy-peasy,” lies soldiers have listened to since the dawn of time without making rude lip noises, but now they’re expected to buy their own body armor. Meanwhile the contractors hired to rebuild Iraq don’t seem to be suffering.

    Then, because their leaders couldn’t get it through their heads that real war is not like movie war, a lot of troops are stuck in the “Stop Loss” trap and can’t escape. If they are wouned they are tipped into the tender care of the VA system. And now Davis wants to help ensure that when/if they come home not a few find that their family is 10+ years in debt because some greedy bastards have taken advantage of a bad situation.

    Here’s my wish: Every time someone suggests legislation or votes in a way that will screw over people in the armed forces, they’re dropped off in the hottest conflict zone available and left to fend for themselves for a few hours.

    And here’s my question: Do guys like Davis realize that the soldiers and their families vote?

    No photo-ops with the troops for you Ge-off.

  • When I was at Fort Ord, the post commandant had essentialy black-listed several stores and businesses that had a reputation for ripping off soldiers. If you went to into one of those places, you couldn’t count on the 7th ID for support, and could also face an Article 15 for insubordination.

    How about making that military-wide? The Pentagon obviously sees this as a problem, and they can’t shut down these assholes, but they can tell every soldier, sailor, Marine, and airman that they aren’t allowed to take their business there, and if they do, they will face charges.

    Draconian? Hell yes, but if Congress doesn’t want to help, then DoD needs to take matters into their own hands, especially to protect its servicemembers.

  • I would think ripping off guys who have access to machine guns would be a little… risky?

    Of course the people running the show won’t be there when the PTSD affected victim comes in with a gun.

    I think the Dems should work to cap the interest rates, but also get together and push HARD for a payraise for all the troops. 25% across the board.

    Let’s see the Republicans block that.

  • Racerx, what world are you living in. Of course, the Republicans will block that. Here’s an example of a much smaller expense they are blocking.

    (From the NY Daily News of Sept. 20th)
    Politicians in Congress are on the verge of cutting funding for the treatment of a health problem that affects more than 100,000 Iraq war vets. Yes, you read that correctly.

    The condition is called traumatic brain injury (TBI). Here’s the typical way U.S. soldiers in Iraq – including friends of mine – come to suffer from TBI: by barely escaping a rocket-propelled grenade attack or being a little too close when an improvised explosive device goes off near a Humvee.

    In milder cases, this results in vision, hearing or speech problems, dizziness and memory loss. In more severe cases, TBI causes serious brain damage. It’s becoming known as the signature wound of this war.

    Why? Because one in 10 Iraq vets has sustained a concussion at some point during his or her tour of duty. This severe blow to the head jars the brain against the inside of the skull, and often leads to TBI.

    The injury doesn’t just affect the service member. Families bear the burden. One mother of a 23-year old Iraq vet diagnosed with TBI told me, “My son’s not the same person anymore. He’s got judgment problems, memory problems. I can’t leave him alone in the house.”

    So, how does Congress respond to this growing need? It’s preparing to slash funding for research and treatment of brain injuries caused by bomb blasts. The current House version of the 2007 defense appropriations bill contains just $7 million for the Defense and Veterans Brain Injury Center – half of what was allocated to the center last year.

    (The author is Paul Rieckhoff, the executive director of Iraq and Afghanistan Veterans of America and author of “Chasing Ghosts: A Soldier’s Fight from Baghdad to Washington.” )

    http://www.nydailynews.com/09-20-2006/news/ideas_opinions/story/453959p-382071c.html

    • Comments are closed.