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Save military, civilians from onslaught of predatory lenders

August 31, 2006 - Columbia, South Carolina

If you believe a recent Pentagon report -- and I do -- payday lenders, title lenders and other predatory loan businesses threaten our national defense.

"Predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force," the report said.

The report says unsavory lenders market their products to "young and financially inexperienced borrowers" and "to the military through their ubiquitous presence around military installations." Military men and women have characteristics that make them targets: a little less than 50 percent are younger than 25 years old and have limited experience managing finances. They're not likely to have significant savings.

The Pentagon report, which cites one study that says military personnel are three times more likely to get a payday loan than a civilian, estimates that 17 percent -- or 225,000 -- of the active force uses payday loans.

Understandably, the Department of Defense doesn't intend to stand by and watch. It wants Congress and state legislatures to pass strict regulations, including a 36 percent cap on annual interest rates for loans made to service members and their families. Congress just might do that: A House-Senate conference committee is considering a 36 percent annual percentage rate ceiling for small, short-term loans to service personnel.

The Pentagon report purposely doesn't take a position on whether the law should apply to civilians. But, in this case, what's good for the military is good for civilians. Congress and the states, South Carolina included, definitely should put the clamps on predatory lending, payday and otherwise. They must protect everyone, not just the military. Unscrupulous payday lenders and others don't discriminate when it comes to ripping people off: Hispanic or white, civilian or military, educated or uneducated, young or old, they don't care. They just want to lure some poor souls into a cycle of debt.

The Department of Defense has programs to educate military men and women on finances, wealth building and escaping the debt cycle. The military also has relief agencies for each branch that provides funding -- through loans or grants -- to help members and families when they are in financial crises.

One such program is called the Navy-Marine Corps Relief Society. Since 2001, the relief society has tracked loans and grants given to service members who needed help as a result of payday loans. The number of clients, total dollars and amount per client have increased nearly every year. In 2002, there were 697 cases that required $275,546 in aid; that's an average of $395 a case. Last year, there were 1,509 cases that required a total of $987,077 in aid; that's $654 per case.

The Pentagon report said that while it can make some improvements through education and regulations governing military personnel, it can't prevent predatory lending without help from Congress and the states.

While the Pentagon is concerned about title lending, tax refund anticipation loans, certain installment loans and rent-to-own programs, it put a lot of emphasis on payday lenders and how they congregate around military bases.

"Most notably, payday lenders and military installment lenders situate themselves in close proximity to the front gates of military installations," it said, adding that payday lenders outnumber military installment loan companies by as much as 137 to 1.

The report cited a previous study conducted by Steve M. Graves, California State University, Northridge, and Christopher L. Peterson, University of Florida. The two professors took a look at how payday lending targets the military. The study surveyed 20 states, 1,516 counties, 13,253 ZIP codes, 15,000 payday lenders and 109 military bases. It found that ZIP codes near military bases consistently had higher numbers of payday lenders than nonmilitary ZIP codes of similar population and demographic makeup. Also, in nearly every state, military towns ranked high in the number of payday lenders per capita. "With just over 4 million people, but with over 900 payday lenders, South Carolina has one of the heaviest densities of payday lenders in the country at over 22 per 100,000 people," the study said.

In 2004, the Department of Defense asked states to support 10 key issues that would improve the quality of life for service members. One of the 10 was to prohibit predatory payday lending. So far, 11 states have made changes that outlaw triple-digit interest rates for payday loans: Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia. "These states have been successful in maintaining strong usury laws and aggressively enforcing those laws," the Pentagon report said.

That's certainly true in North Carolina and Georgia. North Carolina has a 36 percent annual percentage rate usury cap for small loans. In Georgia, lenders can't exceed a 60 percent annual percentage rate. Both those states have shut payday lending down.

Unfortunately, payday lenders are bolting to South Carolina, where they can still legally reap obscene profits from unsuspecting borrowers, including the thousands of military personnel at installations across the state. In the Palmetto State, payday lenders collect 391 percent on a loan on an annualized basis.

Let's hope our Legislature won't let the abuse continue.

News Source

The State, Editorial by Warren Bolton, Associate Editor

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