Payday lender plan could nix profit from military

September 13, 2006 - Washington, D.C.

Payday lenders, facing legislation they say could drive them out of business, offered the Pentagon a plan that would eliminate the profit they make in the military market but could keep Congress from setting a nationwide cap on loan rates to troops.

The Pentagon has targeted payday lenders and the triple-digit interest rates they charge in its push to stamp out predatory lending to U.S. service members.

Payday lenders, including publicly traded companies such as Cash America International Inc., and Advance America, Cash Advance Centers Inc., make short-term loans to consumers who need cash quickly.

According to the U.S. Federal Reserve, loans typically total $500 or less with fees ranging from $15 to $100. As the loans typically last for just two weeks, however, annualized interest rates could reach 1,000 percent.

The Defense Department has asked Congress to cap the rates charged on loans to American soldiers, sailors, Marines and airmen at 36 percent. That, according to defense officials, would stop its service members from falling deep into debt -- a situation the Pentagon says distracts troops and hurts their ability to concentrate on missions.

But the cap also would drive payday lenders out of military lending because their loans carry interest rates of more than 300 percent. Military borrowers account for about 2 percent of the payday business, according to industry representatives.

Payday lobbyists this week have pushed a proposal to delete the 36 percent cap from a defense spending bill now pending on Capitol Hill and replace it with a measure allowing service members to enter payment plans carrying a zero percent interest rate.

The payment plans would erase the industry's profits in the military lending market, lobbyists said.

But it also would keep Congress from setting a cap that could lead to a nationwide ceiling on rates charged of all borrowers, not just military personnel.

"It's the precedent the cap sets," said one lobbyist about the industry's worry.

The Pentagon did not respond to a request for comment on the payment plan proposal. A spokesman for a Republican senator pushing the 36 percent cap also did not return calls.

Payday lobbyists said they have not received a response to their payment plan proposal.

The rate cap measure, sponsored by Republican Sen. Jim Talent of Missouri and Democrat Sen. Bill Nelson of Florida, was approved by the Senate as part of a defense funding bill.

Lobbyists and congressional staffers said the provision still remains in the compromise legislation that House and Senate negotiators are now working to craft behind closed doors.

"The only language people are looking at is Talent-Nelson as is," said Yolanda McGill, senior policy counsel for the Center for Responsible Lending, a consumer protection group.

Mary Jackson, a board member of the Community Financial Services Association of America, which represents payday lenders, said the payment plan proposal should address the Pentagon's concerns about high-cost loans leading service members into a cycle of debt.

"We have given them proposals to have payment plans with a full range of protections for service members so that no service member could ever get into a cycle like that," Jackson said. "Service members are a very small percent of our business and we are trying to put our money where our mouth is."

News Source

Reuters, Kristin Roberts, Staff Writer

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