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'Payday' loans become target in Washington

August 3, 2006 - Washington, D.C.

Credit counselor Yolanda Dixon spends more and more time trying to help soldiers at Fort Leonard Wood who have taken out short-term, high-interest loans against their paychecks.

Many get trapped in mounting debt.

"Over the years, we've seen it growing worse," said Dixon, who works at the Consumer Credit Counseling Service in Springfield, Mo. Financial problems distract soldiers from their mission, compromise military readiness and cost some soldiers their security clearance for reasons of financial irresponsibility, she said.

Money lending by so-called "payday" stores, often found outside military bases, is drawing increasing national attention -- and appears headed for a showdown in Washington.

Citing "predatory" lending practices, Sen. Jim Talent, R-Mo., has guided a bill through the Senate that would cap the annual percentage rate of loans to military personnel at 36 percent. The payday industry vehemently opposes the legislation, saying it would deny military personnel an option for paying short-term bills or covering bank checks.

A typical case may involve a soldier, needing cash to fix a washing machine or pay a bill, who goes to a payday store and agrees to pay $230 when he gets his next paycheck of $200, in exchange for an advance on it. Later, unable to make the payment, he rolls it over for another couple of weeks, as interest accumulates.

For the past decade, Dale Buckingham has warned airmen about the payday spiral. A retired chief master sergeant at Whiteman Air Force Base, he teaches business at two nearby colleges.

"Young folks who come into the Air Force, sometimes they get a little tight, and they go out looking at these payday loan companies -- and they end up in trouble. It's a slippery slope," Buckingham said.

Talent, chairman of the Senate's naval panel, said he got involved after Navy officials told him that 5,400 sailors and Marines had lost security clearance, most of them as a result of financial problems that often begin with payday loans.

"There's a tremendous abuse of servicemen and women going on," Talent said. "It's unfair to them and their families, but it's also causing a huge military readiness problem."

But Steven Schlein, spokesman for the payday trade group, the Community Financial Services Association, said Talent's bill would jeopardize the $6 billion industry, which employs more than 100,000 people, and would also limit consumer options. On a $100 loan over two weeks, for example, he said an annual interest rate of 36 percent would allow payday shops to charge only $1.38 -- too low to allow for the loan.

"People want two-week, low-denomination loans," Schlein said. "That's very clear -- the market has spoken."

Rep. Sam Graves, R-Mo., earlier filed legislation identical to Talent's, but it is bottled up in a House committee, paving the way for a battle next month when Senate and House conferees meet to hammer out an agreement.

Other help exists

James C. Jones has managed a Quick-Cash store in St. Charles for three years, with 11 employees. The chain is based in Kansas City and has 97 of its 554 stores in Missouri. Its president also heads the payday trade association.

Given recent deployments, many military reservists seek loans, Jones said. One longtime customer from Creve Coeur recently fretted about repaying a loan because he was about to be sent to the Middle East. Jones said that he removed interest from the amount to be repaid and that he acted similarly when the wife of an Army reservist from St. Charles was "upset because her husband had been shipped out."

But that's not typical of payday stores, said Master Sgt. Leah Caldwell of the St. Joseph Missouri Air National Guard's 139th Air Wing.

"They're kind of a scourge," she said. "You can't drive off any decent-sized military installations without there being at least eight or 10 payday lenders, so obviously they're making a mint at the expense of our military members."

Financial emergencies do arise, she said, but she urged military personnel to seek out service associations for aid.

"When the airmen are deployed, there's a loss of pay, and if the dishwasher breaks or the kid breaks his arm, if families are too embarrassed to call and say, 'Hey, Leah, this is what's going on,' so we can get them some help -- they go to these lenders."

The problem is a longstanding one, said former Chief Master Sgt. Ray Hickok, who retired last year from the 139th Air Wing after counseling many young military members. In 1964, at age 18, he borrowed $50 from a payday store and ended up owing more than $300.

"They make it so easy for you to get in, and it's so hard to get out," Hickok said.

He said Talent's bill was "long overdue."

At Scott Air Force Base, with a wide array of payday stores dotting surrounding towns, Scott's Family Support Center has eight people who counsel military members. Counselor Amy Uptergrove said the use of payday loans as "a quick fix" left military personnel in a situation "very difficult to recover from."

Schlein said his trade group, whose 200 members represent 60 percent of the industry, required ethical practices, including a limit of four rollovers for a given loan and not contacting a soldier's employer.

Political backlash

Talent's chief opponent in the fall's Senate race, Missouri Auditor Claire McCaskill, said the bills by Graves and Talent were crafted to avoid affecting Pioneer Financial Services, a firm based in Kansas City that makes longer-term loans to service members and that has contributed to Graves. Schlein's group said the bill would help Pioneer by killing its payday competitors.

Graves denies any special treatment for Pioneer, saying the 36 percent figure came from North Carolina and other states that had set caps at that amount.

The spokesman for a consumer group that supports Talent's bill said setting the rate at 36 made the measure vulnerable to political criticism -- and that lowering it even to 35 percent would strengthen the measure by including Pioneer and similar firms.

While applauding the aim of the bill, McCaskill spokeswoman Adrianne Marsh said: "It clearly protects a donor. This is just another example that money is running Washington."

Talent dismisses calls to alter his or Graves' bills as attempts to divide the coalition of veterans and consumer groups supporting them.

News Source

St. Louis Post-Dispatch, Philip Dine, Washington Bureau Staff Writer

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