Tuesday, August 22, 2006

As the Pentagon and the Department of Defense fight for military payday loan restrictions across the nation, Georgia can at least take solace in its reforms.

The state has already protected consumers by passing what could be considered the nation's toughest prohibition on bad credit payday loans. Nevertheless, the state Legislature refuses to bar other abusive practices, including title pawns.

Title pawn lenders offer instant loans - at annual interest rates that can reach 300 percent - to those who put up their car titles as collateral. If the borrower defaults, the lender takes the car. Such a business is so profitable that title pawn companies are now major donors to Georgia politicians, giving $328,310 to 75 Georgia politicians and three political committees last year.

The Atlanta Journal-Constitution states this industry - similar to the past instant payday loan world - gives to both Republicans and Democrats, believing it needs friends everywhere. Therefore, while Georgia politicians leap to their feet to applaud returning Iraq veterans, they ignore a practice that the Pentagon says "traps borrowers in repeated loan renewals in order to keep from losing essential transportation and key family assets."

Virtually all financial products aimed at low-income earners and unsophisticated consumers - the check-cashing outlets, expedited tax refunds, payday advance operations, title pawn shops, rent-to-own deals and subprime mortgage companies - work the same way:

• They lock borrowers into a cycle of renewals, fattened by fees and high interest rates. Because of their youth and financial naiveté, soldiers are an easy and reliable mark for these netherland lenders, which is why they cluster their businesses around military bases.

"You can tell you're approaching a military base when you see flags hanging from the homes and businesses and you see a lot more title pawn lenders and tax-preparation businesses and payday lending stores," says Allie Wall, executive director of Georgia Watch, a nonprofit consumer group fighting for reforms of the title pawn industry.

The Pentagon report also cites the proliferation of quick cash loan outlets around bases and the vulnerabilities of the young soldiers living on base.

"Forty-eight percent of enlisted service members are less than 25 years old, typically without a lot of experience in managing finances, and without a cushion of savings to help them through emergencies," says the report. "They are on their own without the guidance or assistance of family, with perhaps their first significant paycheck. They are paid regularly and are not likely to be downsized, outsourced or to quit their employment."

Lenders argue that they are merely providing a service to their military customers who couldn't get cash anywhere else. But who is really served by a quickie $100 faxless payday loan that mushrooms into a $400 debt?

This summer, South Georgia Judicial Circuit District Attorney Joe Mulholland won the state's first felony convictions against payday loan lenders, wielding the 2004 state law against two Bainbridge area businesses. At one point, says Mulholland, Bainbridge had more payday lenders than banks.

"I don't think people realize how these loans mess up their economic livelihoods," says Mulholland. "Maybe you will be able to pay your light bill, but what is going to happen when you can't pay your house bill?"

On the federal level, Sen. Jim Talent (R-Mo.) and Sen. Bill Nelson (D-Fla.) have proposed a congressional amendment to protect military personnel and their families from cash loan sharks. The amendment would limit the annual percentage rate paid by military members and dependents to 36 percent.

"Our military families deserve better," said Nelson. "This report once again shows us the need to protect our servicemen and women from being preyed upon by unscrupulous lenders."

The report supports the senators' demand for a federal ceiling on the cost of credit to service members and their families. It also calls for prohibiting personal loans to service personnel "without due regard for the service member's ability to repay" and recommends a ban on allowing lenders to take car titles as security for loans.

The Georgia General Assembly loves to wave the flag in support of the Georgians in our armed forces. If lawmakers want to help those soldiers and sailors, it ought to push predatory lenders out of the state.

This entry was posted on Tuesday, August 22nd, 2006 at 5:49 am and is filed under Georgia.