The report says Âpayday loanÂ stores (so named because their loans are often due on a borrower's next payday) have sprung up by the thousands around military bases and elsewhere in the past decade.
Lenders typically charge $15 to $25 per $100 loan for two weeks, and most loans are extended for several weeks. The report says the average loan is $350 and has an annual interest rate of 390% to 780%. The average borrower, it says, pays back $834 for a $339 loan.
The report cites estimates that 13% to 19% oservicemenrs Â at least 175,000 people Â took out high-interest, short-term loans last year. It said nine out of 10 loans go to borrowers who get five or more over a year.
I haven't been on a military base in many years, but are there really no financial services provided to service members on base? Would not a credit union that provides financial services be appropriate here?
Congress ordered the Pentagon to conduct the lending study. This year, the Senate passed an amendment to its annual defense spending bill that calls for a 36% cap on interest for loans to service menbers. It would not affect loans to civilians. The House version of the defense bill doesn't include the amendment. A joint committee will begin working out differences between the two versions next month.
36% is still outrageous where credits unions and other financial entities can provide these services at more competitive rates. The industries response is a charming combination of spin and condescension:
Such lending, the report says, hurts readiness and morale and Âadds to the cost of fielding an all-volunteer fighting force.Â
That's a misguided critique of a valuable service, says Darrin Andersen, president of the Community Financial Services Association of America, the payday lenders' trade group. The Pentagon, he says, Âis in over its heads when it comes to Â complex personal finance and lending issues.Â
Ummm..The Pentagon manages a 400 billion dollar budget and a payroll of over a million people. I think they could figure out the loan shark business if they put their minds to it. Better yet, form service member credit union that has branches at every base that service people can use to provide these services. Put the offices right next to the sharks, errr, the payday lenders and let the glorious free market determine who is in over their head. I think it's time for some Creative Destruction.
Master Sgt. Leah Caldwell, who manages training and deployment for a squadron of the Missouri Air National Guard, says she has had several airmen get so deep into debt with the loans that they lost their security clearances, jeopardizing their deployment. One airman, she says, took out a $500 loan and after refinancing it several times saw it grow to a $2,600 debt.
The whole *alleged* deregulation of the financial industry was to allow consumers to reap the benefit of competition among financial entities. It's allegedly one of the reasons why Banks and S&L's were allowed to get into each others business, although that particular idea didn't live up to the hype.
Where is the American Legion? Veterans of Foreign Wars? College Republicans? You people are all into our shit when we protest the war. You get all assed up when someone burns a flag, (although wearing it as butt floss seems just peachy), yet service people are being ripped off and you people are silent as near as I can tell.
I have a particular hatred for payday lenders. I think it's exactly the business that gives markets a bad name and is a poster child for imposing strict regulations on companies that provide financial services. It's legal loan sharking, now backed up by a draconian bankruptcy law that gives these people more power to ruin lives than having their hired muscle break someones fingers. IF a constituency that gets as much attention as the military can get exploited in this way, what about the rest of us who aren't spoken of in such reverent terms? And yes, I know the reverence for the military is mostly talk. As Ezra Klein points out, this is what John Edwards and others mean when they state that being poor is expensive. Drive through an urban low income neighborhood and count the chain grocery stores. You won't find very many, if at all. What you will get is liquor stores and small stores that charge much higher prices. That is typical of many consumer services we take for granted. With the exception of WalMart that sometimes can be found in these places, but causes plenty of other kinds of economic havoc.
What really pisses me off is this is fixable. It doesn't take a huge program or a vast new bureaucracy to make services more accessible or other things to improve the quality of life for people who occupy lower rungs of the income ladder. It just takes some will and effort, and not placing the needs of shareholders and CEO's above everyone elses all the time without exception. Cut the little guy a break every now and again.
There I go again, talking that hippie Socialist talk...