Payday loan rate cap aims to help service members
August 6, 2006 - Kansas City, Missouri
An impressive alliance of 70 consumer and veterans groups is supporting a congressional amendment to protect military personnel and their families from potential predatory loans.
The groups say the proposal by Sen. Jim Talent, a Missouri Republican, and Sen. Bill Nelson, a Florida Democrat, will guard military personnel against 300 percent payday loans that can ensnare their families in webs of debt and create financial stress and reduce their military readiness.
Talent's amendment would cap interest rates on payday loans to military personnel at 36 percent a year. Some states, including Kansas, already place a similar cap on small, short-term loans. Consumer and veterans groups say payday lenders focus on young, low-paid and often financially naive service members by clustering around military bases.
But this is not an easy issue. It has become entangled in election year politics and controversy that hamper a pretty good first step toward reining in the growth of abusive loans.
Payday loans are usually two-week loans that many consumers, short on cash, use to get by from one payday to the next. They can be useful in a pinch to pay a gas bill. But they can be renewed over and over, and many unwary consumers get mired in mounds of debt carrying exorbitant interest rates.
Claire McCaskill, Talent's Democratic challenger, contends the 36 percent cap is too high to provide any serious protection. Her representatives claim Talent's intent is to give a competitive edge to a constituent company, Kansas City-based Pioneer Services, that influenced the amendment's language.
Pioneer is one of the nation's biggest short-term lenders to military personnel. It already caps its loans at 36 percent. But it's also been criticized for its practice of charging high fees for add-on products, such as credit insurance, which boosts the amount and interest paid on short-term loans.
Payday loan officials also grumble the bill favors Pioneer. They claim the bill will dry up the only source of short-term loans for consumers who don't qualify for normal bank loans.
Steven Schlein, a spokesman for the Community Financial Services Association, a payday trade group, said a 36 percent annual interest rate works out to a $1.35 charge on a $100, two-week loan -- far less, he said, than it costs to service the loan. "The industry couldn't stay in business," he said.
But Joe Freeman, chief lending officer for Pioneer, said in an e-mailed statement that the bill neither hurts nor helps his company. "It seems to me the only ones against this bill are the predatory lenders in the payday loan industry," he said.
Despite the controversy, it's hard to ignore the support for the bill from every major consumer and veterans group.
"The legislation is rational, it's well founded, and there is no language carving out special favor for any company," said Kimberly Warden, vice president of federal affairs for the Center for Responsible Lending in Washington, D.C., a nonpartisan research center on consumer finances.
Jean Ann Fox, director of consumer protection for the Consumer Federation of America, said service members are especially vulnerable to predatory lenders. They are often young, lack financial training, live far from home and make little pay to support their families. "They aren't going anywhere, and they have to pay their debts," she said.
Under the military code of justice, service members who don't manage their debts can also face serious disciplinary actions that include, in the worst cases, a court-martial.
Industry officials say only a small percentage of military personnel take out payday loans. But military officials say a Pentagon report, expected to be released any day, will suggest the potential that high-interest loans can distract service members from doing their jobs and affect their military readiness.
"I think the report will carry more credence on the issue," said Michael F. Hayden, a retired Air Force colonel and the deputy director of government relations for the Military Officers Association of America. "We think 36 percent is high. But it is a much better starting point for a cap than these 300 percent rates."
The Talent and Nelson proposal amends the defense authorization bill (Senate Bill 2766). It is in conference committee.
Kansas City Star, Paul Wenske, Staff Writer
Recent Related Stories - Military
Older Related Stories - Military
- South Dakota senator wants second look at payday loan cap [November 17, 2006]
- Professors' research sparks payday loan reforms [November 4, 2006]
- President caps payday loan rates to military personnel at 36 percent [October 18, 2006]
- Arkansas delegation supports payday loan interest cap [September 29, 2006]
- Advance America to stop providing payday loans to military personnel [September 25, 2006]
- Lawmakers agree on 36 percent payday loan cap [September 21, 2006]
- Senators consider payday loan limits, criticize industry [September 16, 2006]
- Credit unions offer payday loan alternative [September 15, 2006]
- Testimony: Defense Department report seriously flawed [September 14, 2006]
- Payday lender plan could nix profit from military [September 13, 2006]
- Military looks to change laws regarding payday loans [September 12, 2006]
- On payday, many GIs pay back [September 10, 2006]
- Talent renews push for cap on payday loan interest rates [September 7, 2006]
- Blagojevich calls for federal payday lending protections for military personnel [September 7, 2006]
- Utah lawmakers consider limiting payday loans to military [September 5, 2006]
- Payday lenders target young military families [September 5, 2006]
- Military wants to crack down on payday lenders [September 4, 2006]
- Weekend payday-loan measure fails [September 2, 2006]
- Pentagon sees risk in troops' loan debt [August 31, 2006]
- Save military, civilians from onslaught of predatory lenders [August 30, 2006]
- Pentagon backs effort to cap interest rate on 'payday loans' [August 15, 2006]
- Payday loan rate cap aims to help service members [August 6, 2006]
- Commander's Corner: Shipmates can prevent indebtedness, alcohol-related incidents [August 4, 2006]
- 'Payday' loans become target in Washington [August 3, 2006]
- Military payday loans [August 2, 2006]
- Payday loans aren't the answer to financial woes [July 23, 2006]
- Tale of Alabama man's payday lending schemes: Meet John Gill, Jr. [July 20, 2006]
- Military personnel prime targets for loans [July 9, 2006]
- Targeting predator lenders [June 17, 2006]
- The payday loan trap [June 16, 2006]
- Navy preying on predatory lenders [June 9, 2006]
- GAO: Military Disciplinary Board might have prevented payday loan ripoff [June 5, 2006]
- Payday loaning draws outrage at panel hearing [May 24, 2006]
- Service members called vulnerable [May 23, 2006]
- Military loses to payday lenders [February 20, 2006]
- Toll taken by payday loans gets attention from military [February 2, 2006]
- Military calls for more restrictions on payday lenders [February 2, 2006]
- US troops screwed by loan shark companies [February 1, 2006]
See: Fewer military-related stories
Related Stories - Missouri
See: Recent News | Archived News | RSS Newsfeeds | News by State
Go to PLIWatch.org home.