Wednesday, May 17, 2006

An Open Letter Regarding Military Payday Loans

By J.J. Cameron
Payday Loan Writer

Those are ConsumerReports.org aren't pleased with military payday loans. To paraphrase a recent editorial: 

U.S. troops are not only under attack in Iraq and Afghanistan; they’re being ambushed at home by predatory cash advance lenders in communities near army, air force, and naval bases, according to a recent study.

“There’s an interesting divergence between the glowing pro-military rhetoric we hear about service to our country and the way our military men and women are being treated at home by these abusing businesses,” says Steve Tripoli, co-author of the National Consumer Law Center report on businesses that victimize members of the armed forces and veterans.

Military men and women are plagued by quick cash loan lenders who advance small sums until payday and levy exorbitant fees and interest rates as high as 900 percent per year; used-car dealers who sell and finance overpriced junkers; and “title pawn” lenders who use a borrower’s car title as collateral for high-priced short-term loans.

Some lenders require borrowers to postdate their checks, and if a check bounces, a lender may keep redepositing it electronically, piling on insufficient-funds fees, which could boost the cost of a payday loan by hundreds of dollars, says Capt. Dave Faraldo, director of the Navy-Marine Corps Relief Society serving the Naval Air Station in Jacksonville, Fla.

Shady military payday loan lenders prey on low-income consumers in general, but military personnel are prized targets: They’re generally young, are often unsophisticated about money matters, and are paid without fail by U.S. government check, Tripoli says. Faraldo notes that they’re also often strapped for cash: New recruits earn a base pay of only $12,700 per year. It’s easy for a borrower to fall behind.

When that happens, the lender approves a payday loan to pay off the old one, adding still more fees and interes. Because commanders routinely warn of such rip-offs, victims tend to remain quiet, so their exact numbers are unknown. But the Navy-Marine Corps Relief Society headquarters says it bailed out some 300 people last year to the tune of $275,000.

“That’s just the tip of the iceberg,” says retired Adm. Jerry Johnson, former president of the society.

Low-income consumers who need a loan should apply at legitimate banks and credit unions. Small, short-term signature payday loans (available in many states) and even pawnshops have much lower rates than payday loans, according to surveys by Consumers Union. For military personnel and retirees, relief societies will provide interest-free loans and grants in emergencies.

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