Monday, July 24, 2006

U.S. Military Officials Concered Payday Loans Will Proliferate to Servicemen In South Korea, Japan

By Paul Rizzo
Payday Loan Writer

With regular paychecks, little financial experience, and the responsibility of having to deploy at a moment’s notice around the world, members of the military are perfect prey for predatory lending institutions offering high-interest payday loans.

Payday Loans to Servicemen and Women Overseas

“Lenders know they’re going to get a paycheck out of someone in the military. Plus, service members travel a lot and are away from their support networks. Overseas, they might not know their options,” Kelley Finch, the Navy-Marine Corps Relief Society’s outgoing director at Yokosuka Naval Base, said.

Although agencies offering faxless payday loans aren’t springing up around military bases in Japan and South Korea like they are in the lower 48, U.S. service members needing quick cash or lower monthly credit debt payments still get caught in the downward spiral of debt. In Japan, armed forces members simply find them online.

The Navy-Marine Corps Relief Society (NMCRS) is tracking the problem in Yokosuka and have seen about 10 cases in the region this year.

“It seems to keep increasing,” said Chuky Spivey, the group’s incoming director.

Other services in the region are finding similar effects. Only one physical payday loan company operates on Okinawa but several Marines on the island have used the Internet to get loans. Okinawa’s NMCRS offers interest-free loans to help service members avoid fiscal pitfalls that lead to high-interest, no faxing payday loans.

Last month, for instance, the society helped three servicemembers pay off $8,000 in payday loans using emergency relief loans and grants.

Army Community Services director Mardy Clark said he hasn’t encountered soldiers who’ve taken out loans online, and there are no predatory lenders off base at Camp Zama, Japan. But a few soldiers have come in with high-interest loans from the U.S. that they took out to help cover the cost of changing stations.

“PCS is a tough time and they’re short cash. That’s the perfect time for them to be targeted for this,” Clark said. “Even 30 percent for a lower enlisted soldier is almost too much to overcome.”

ACS is able to provide the soldiers other loans through the Army Emergency Relief program to help pay off their debts. For one payday loan, the rate of interest was 30 percent and quadrupled for every month a payment was late. Three months late meant almost 500 percent interest.

In South Korea, financial specialists also haven’t seen many cases. The legal office at Kunsan Air Base only has seen a single case of payday loan problems this year, the result of a stateside loan. Allison Blake, program manager of financial readiness and Army Emergency Relief section officer for Army Community Services in Area II, hasn’t seen a case in the three months she has been in country.

She saw plenty of it back in the U.S., though, and urges that servicemen and women, as well as retirees and civilians, ask for help before thinking about a payday loan.

“If you feel like you need a loan, first speak to a financial counselor and AER counselor. There may be something we can help them with,” Blake said.

The increasingly-popular military payday loans often start as a short-term advance on a future paycheck, sometimes from a company with “military” in its title. To keep customers in debt, such lenders often use triple-digit interest rates and loan flipping, a refinancing scheme that comes with high fees and little or no real benefit to the borrower.

“It’s legal loan sharking. Anything over 36 percent interest is predatory — and I’ve seen them up to 800 percent. It’s unreasonable to think that anyone can pay that back,” Finch said.

A recent Defense Manpower Data Center survey showed 13 percent of Navy sailors used a payday loan in 2005. The Center for Responsible Lending estimates that active-duty military personnel are three times more likely than civilians to have taken out a payday loan and that one of five active-duty military personnel were payday loan borrowers in 2004.

The Navy has responded by calling on leadership to educate sailors on the reality of payday loans and has created a task force to seek solutions.

The relief societies are shouldering some of the burden. The Armed Services Relief Society’s spent $2.5 million on the problem from 2001-2005, Finch said.

Confidential counseling about how to stop the spiral is guaranteed to all who ask for it, as officials believe financial education is the single greatest preventative measure.

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