Most military installations across the country have a few local businesses in the area. Restaurants, hotels, dry cleaners and barber shops are just a few of the staple businesses that are usually found within walking distance of the gates. But there are other industries that have popped up over the years, just outside of military installations, that can be beneficial to military personnel, but also have the potential to harm service members. Among the biggest offenders are payday lenders.
It goes without saying that not every payday lender is out to swindle people. The more reputable establishments should appreciate this article, because it could increase their business from people who don’t want to be cheated by the less trustworthy lenders.
Payday loans can be a very useful service for when life happens, and it happens to us all. Payday and deposit advance loans do provide an important alternative to credit card debt and bank loans. But the truth of the matter is that payday lenders are frequently using new loan products to prey on service members and military families. Deposit advance loans typically offer service members the ability to cash their military paychecks a week or more before they typically would be able to access the funds. In exchange, companies take a fee when the paycheck arrives, and pile on other penalties if the check doesn’t cover the outstanding balance.
Researchers from the Consumer Financial Protection Bureau found that more than 12,000 military families used some form of deposit advance product from 2012 to 2013. Years ago, federal regulations were put in place to cap the annual interest payments on short-term loans to military members at 36%. But lenders have found ways over, around and under these regulations, and many of today’s loans are not covered under any previous regulations passed by Congress. Believe it or not, some of these loans can carry annual interest rates in excess of 300%! Under current rules, certain loans of more than $2,000, or ones with terms longer than 180 days, are not regulated.
These high rates and short loan timeframes often lead to compounding debt that can financially devastate a service member or military family. Poor credit, defaulted loans and other impacts often caused by payday loans can cause serious harm to a service member’s career. Security clearances can be revoked or denied due to defaults and low credit scores. Also, often times, when a loan is defaulted, the lender will contact the service member’s chain of command, which can also have a negative effect.
The DOD has already proposed broadening some of the military loan regulations, including extending the interest rate caps to any payday loan or auto title loan, regardless of their amount or duration.
It is a shame that anyone would target and prey on service members. But just like when in combat, service members need to do their part to not make themselves targets. This includes avoiding taking out any unnecessary loans or lines of credit. It is highly recommended that service members and military families use their earnings wisely. If you must use a payday loan, shop around and choose a lender that will work within the federally approved 36% annual interest rate.