Payday Loan Times

News About the Ever Changing Payday Advance Industry

Military Payday Loan Act to Take Effect

Filed under: Military Payday Loans — Paul Rizzo at 9:26 am on Sunday, September 30, 2007

As U.S. soldiers face continuing demands in the call to protect their country, starting October 1 they gain an extra measure of protection from a lingering financial threat to their own families.

The federal Military Lending Act will take effect Monday, and will bar predatory lenders from gouging military families with no faxing payday loans that trap borrowers in debt and typically carry 400 percent annual interest rates.

The new law caps interest at 36 percent for certain payday, auto title, and refund anticipation loans made to military families.

“The 36 percent cap will slow the predatory lenders down,” said Jean Ann Fox, director of consumer protection for the Consumer Federation of America (CFA). “And the law says they can’t hold onto the service member’s personal check or have electronic access to their bank account as collateral for this type of loan. The threat of the lender depositing the borrower’s check, which would often not clear the bank, has been a key way to trap borrowers in loans that they end up paying back many times over in interest.”

The law will not cover all high-cost products - predatory lenders have designed some loans to get around restrictions in states. For example, fast payday loan lenders in Illinois restructured 350 percent interest loans as 121-day installment loans to get around the 120-day minimum loan term established in that state.

Military would not be protected from this product under the new rules, which apply to only loans of 91 days or less.

“Still, as long as the [cash advance payday loan] lenders don’t contort their products to try to end-run the protections for military, this law will protect our soldiers and their families from the worst abuses,” said Fox.

Lawmakers passed the Military Lending Act after the Pentagon reported that predatory practices weaken the military, and that debt issues threaten the security clearances of military personnel.

Army Takes Issue with Payday Loans

Filed under: Military Payday Loans — Paul Rizzo at 5:49 am on Thursday, August 23, 2007

Everyone’s heard the familiar radio spots cajoling people to take out a cash loan, which is paid back when your paycheck arrives. It sounds easy enough.

In reality, these loans are dangerous and damaging, requiring sky-high interest rates and often sending people into a downward financial spiral.

money.jpgThe Defense Department considers miltary payday loan lending one of the top 10 key issues impacting the quality of life of Soldiers, and a Pentagon report summary posted on the Center for Responsible Learning’s Web site estimates that about 17 percent of servicemembers use payday loans.

President Bush signed the 2007 National Defense Authorization Act in October 2006, which takes effect this October. The law caps interest rates for military personnel at 36 percent and prohibits the use of a personal check or other method to access a borrower’s bank account.

The law won’t stop soldiers from using payday loans, said Leonard Toyer, a financial counselor with Army Community Service, but it will lessen the amount of debt servicemembers carry as a result.

Payday loan requirements are simple: a bank account and steady source of income. The loan recipient writes a post-dated check to the lender for cash. Interest rates are extremely high, usually around 300 percent or more. Repayment is usually required within two weeks.

If the recipient cannot pay the loan off when it’s due, he or she must deal with late and bounced check fees and possible legal action. To avoid default, the borrower must roll the debt into a new loan with the same high rates.

“Unfortunately, 75 to 90 percent of people can’t pay it back in the prescribed time,” said Mr. Toyer. “They’re constantly rolling over two or three times trying to get out of the hole. Generally, unless they come into some kind of windfall where they can plunk a good chunk of money down, they’re stuck.

“When everything shakes out, you’re talking about people paying anywhere from 400 to 600 percent in interest for those [payday advances], and that’s ridiculous.”

According to Mr. Toyer, the reasons Soldiers use these loans, or even how many are using them, are hard to pin down.

“Since finances are so tied to careers nowadays, a lot of Soldiers are reluctant to come forward and say they used a payday loan,” said Mr. Toyer. “They know a lot of times, units don’t look favorably on that and might consider it irresponsible.”

The director of the Financial Readiness Program here, Mr. Toyer helps teach Soldiers how to handle their money, and the Army offers alternatives to no fax payday loan lending to help Soldiers in financial need.

According to Trina Reliford, the Army Emergency Relief officer for ACS, Soldiers can fill out an application for an interest-free loan and receive a check the same day with a commander’s approval under the Commanders Referral program. Soldiers may receive up to $2,000 a year in two loans and the first loan must be repaid before seeking Commanders Referral again.

(Read on …)