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Soldiers Pinned Down by Predatory Payday Loans Print

greenbackBy Martin H. Bosworth
ConsumerAffairs.Com - October 21, 2006

Adding to the many issues facing the American military today, thousands of soldiers are being denied overseas active duty because of severe debt and financial problems.

The chief culprit appears to be high-interest predatory lending, which will be at least partly reined in by new Congressional legislation.

The Navy, Marines, and Air Force have reported a steady increase in soldiers who have lost security clearances due to severe financial problems, according to an Associated Press report.

The numbers rose from 284 in 2002 to over 2,600 in 2006 between the three branches, with every indication that the trend is continuing.

The Army, responsible for the vast majority of forces currently engaged in Iraq and Afghanistan, refused to share its records of clearance loss with the AP.

Although reasons for soldiers' increasing indebtedness ranged from low pay to financial irresponsibility, high-interest "payday loans" were first on the list. Payday lenders entice borrowers into drawing advances on their next paycheck, at extremely high interest rates.

Some payday lenders charge interest of 15 percent on a two-week loan, which averages out to a yearly annual percentage rate (APR) of 390 percent.

Because of the generally low military pay and usurious interest rates, many military personnel fall deeply into debt with just a single payday loan.

Military members and their families are particular targets of predatory lenders, as they receive a steady income, but their pay is so low that any unexpected expense may require them to take out loans, according to the Center for Responsible Lending(http://www.responsiblelending.org/issues/payday/briefs/page.jsp?itemID=28546770).

A Skinflint Congress
Last year the Department of Defense issued a warning(http://www.consumeraffairs.com//news04/2005/fl_payday_loans.html) that predatory lending was keeping troops from being effective in the field, as they were distracted by their financial problems.

The military stepped up its financial counseling services to urge personnel not to spend any bonuses or advances exorbitantly, and to avoid payday loan centers.

The continuing problems with predatory lenders led President Bush to sign legislation on October 19 that would cap the APR of payday loans at 36 percent nationwide.

Congress also authorized a 2.2 percent pay raise for armed forces personnel before adjourning for the election season. The pay raise was criticized as minuscule, given the added costs soldiers and their families have to deal with in times of war.

States Take Action
States are also taking action against predatory lenders for both military and civilian residents.

California's Attorney General Bill Lockyer filed a $2 million lawsuit(http://www.consumeraffairs.com//news04/2006/08/ca_payday_loans.html) against local payday lender Fast Cash for suing borrowers for triple the amount of the loan if they had insufficient funds available when they wrote checks to pay it off.

North Carolina recently finalized a series of agreements(http://www.consumeraffairs.com//news04/2006/03/nc_payday.html) with lenders to change their practices, leading many of the companies to leave the state. State Attorney General Roy Cooper called it "the end of predatory lending" in North Carolina.

The Center for Responsible Lending estimated that payday loans cost American families upwards of $3.4 billion annually.

In congratulating Congress and President Bush for passing the new legislation for soldiers and their families, CRL President Michael Calhoun urged them to "extend these protections to all of America's working families."

 
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