From the New York Times, via Steve Clemons, comes an article on predatory lenders apparently targeting military bases:
“From Puget Sound in the Northwest to the Virginia coast, the landscape is the same: the main gate of a large military base opens onto a highway lined with shops eager to make small, fast and remarkably expensive loans, no questions asked.
There are more than 200 of these quick-loan outlets around the Navy bases of Norfolk and Hampton in Virginia; almost two dozen around the Marine Corps base at Camp Pendleton in California; and three dozen within three miles of the Army’s Fort Lewis in Washington State.
So the young Navy petty officer and her husband in the Puget Sound area had no trouble finding a willing lender when they wanted to borrow money between paychecks to show visiting relatives a good time.
Getting the loan was fast and convenient, too. To borrow $500, they wrote a $575 check to the lender, to be cashed on their next payday, less than two weeks away. But in accepting that instant loan, the couple, who would talk about their experience only if their identities were not disclosed, were also agreeing to pay a staggering annual interest rate of more than 390 percent. By contrast, a loan from a credit union would have taken several days or longer but cost no more than 18 percent.
Repaying their fast-money loan took a big bite out of the couple’s next paycheck, leaving them short when other bills fell due. So they borrowed again, and again, until they had raised about $4,000 through more instant loans, some of them with official-sounding names like Military Financial Network.
The cost of this new money also mounted, ranging as high as 650 percent when expressed as an annual percentage rate, as the law requires. And as the couple continued to fall behind, they borrowed even more, from other kinds of expensive lenders.
By October, just days before the petty officer had to ship out for duty in the Persian Gulf, the debts had grown so large that the couple and their young children were about to lose their home to foreclosure.”
And for those who prefer figures to anecdotes:
“At least 26 percent of military households have done business with high-cost instant lenders, an analysis of credit industry studies by The New York Times shows.”
“Preliminary research by Christopher L. Peterson, a law professor at the University of Florida, and Steven M. Graves, a geography professor at California State University, Northridge, suggests that payday lenders are deliberately setting up shop close to military bases. The researchers are looking at the density of payday lenders around bases in 15 states and are finding that in most places there are far more payday lenders within five miles of the base than would be statistically likely.
“Their locational strategy suggests very, very strongly that they target military families,” Professor Graves said.
He pointed to Oceanside, Calif., the home of Camp Pendleton. “That ZIP code has more payday lenders than any other ZIP code in California,” he said.”
If the military is a particularly inviting target for loan sharks, that suggests very strongly that our troops aren’t being paid enough. Even I, hilzoy the deficit hawk, think we should do something about that. (It would have been a much better use of some of the money we don’t have than our last tax cut, with its special tax exemptions for importers of Chinese ceiling fans.) In the meantime, I propose shunning those who prey on other people’s desperation, especially when those other people are about to go off and risk their lives, supposedly on our behalf; as well as anyone who is convicted as a result of the twenty seven criminal investigations now underway as a result of misspent funds in Iraq. Honestly. I don’t know why we no longer tar and feather war profiteers; social ostracism seems the least we can do.
This is a sad story, but not, unfortunately uncommon. It’s my impression that credit agencies target vulnerable populations wherever they can find them. They set up booths outside college campuses, for example. Personal credit-debt is a nation-wide phenomenon, and while I agree with you that it shouldn’t afflict military folk, I also think it shouldn’t afflict as many other Americans as it does.
Tangent: I was talking to a non-US-citizen colleague this evening about credit-debt, and he made the point that credit cards were the only real available means for non-US-citizens to take out loans. Your post suggested to me that we put together the non-citizens unable to take out personal loans and the non-citizens who see the military as a means of naturalizing. I don’t even know how one would go about doing such an analysis, where it would go, or what it would prove; these are just the cross-firings of an over-stimulated brain.
(On the positive side, though, the American Armed Forces Radio Network does feature “The Motley Fool,” among whose advice is that the best investment to make is to buy oneself out of debt.)
“In Washington State, for example, the annual rates on a two-week payday loan are capped by law at just above 391 percent, but the effective annual rate on shorter-term loans is even higher, and Internet lenders are not subject to those limits.”
If I remember correctly the Bible has a lot more to say about usury than it does about gays and boobs on TV. Oh, if only there were some moral values voters who could put pressure on these companies – too bad they’re all too busy boycotting Disney because of an employment benefit package.
“Even I, hilzoy the deficit hawk, think we should do something about that.”
Just as long as we don’t borrow the money to do it from the same places these poor people are.
Soldiers don’t get paid well enough to support a family very easily. I’d be happy to pay soldiers more, especially given we’re in the middle of a war.
People whose job it is to risk dying for us ought to be well compensated.
Speaking of compensating our soldiers, via contant reader wilfred comes this bit of holiday cheer:
Homeless Iraq vets showing up at shelters
The article indicates it’s too early to declare definitively that this is the tip of the iceberg or anything, but it does seem to suggest we learned very little about the transition from war back to civilian life after Vietnam:
“Soldiers don’t get paid well enough to support a family very easily. I’d be happy to pay soldiers more, especially given we’re in the middle of a war.
People whose job it is to risk dying for us ought to be well compensated.”
I’ll agree with that.
I don’t see any reason for a pay-day loan to a soldier to have a horrible interest rate. The loan has almost zero risk for the loaning bank–unlike most payday loans.
I don’t see any reason for a pay-day loan to a soldier to have a horrible interest rate.
Apparently the free market doesn’t agree…
There’s a statute that limits collections from service persons while deployed. I would say that changes the risk to some degree, if the statute applies to such loans. I also wouldn’t be surprised if the garnishment rules were different for service members.
The problem here is that the couple in the article were willing, beforehand, to spend $575 to give visiting relatives $500 worth of fun, only to find after the fact that they couldn’t afford to do so. Could they have afforded $525? $500? The article doesn’t say.
If you ban the loaning of money to such people, they’ll get it from “informal institutions” — which use less conventional collection methods, and which do not recognize a discharge in bankruptcy.
To take kneB’s side on this, if there was a viable way to make short term loans to these people for lower fees, someone would be doing it.
[Yes I know that in the law it’s called interest. Usually, though, what we’re talking about are flat fees — which makes sense because it costs as much to handle a $300 loan as a $500 loan, even if the exposure is marginally different. It costs as much to loan $300 payable in 2 weeks as it does to loan $300 payable in a single payment in 10 weeks. With flat fees, no one has to do any math.]
The problem isn’t low salaries; military personnel are generally compensated very fairly. Especially in comparison to private industry.
The problem is two-fold; first, you get young kids, 18, 19, or 20, who are making some money for probably the first time in their lives and they have no experience win personal finance. Second, if you’ve ever been near a military base, you’ll notice an awful lot of dealerships and retailers who offer easy credit to servicemen. And when I say ‘easy.’ I mean no credit check beyond photocopying the service ID. Retailers and merchants understand the military will serve as their collection agency if payments are delinquent.
“Second, if you’ve ever been near a military base, you’ll notice an awful lot of dealerships and retailers who offer easy credit to servicemen. And when I say ‘easy.’ I mean no credit check beyond photocopying the service ID. Retailers and merchants understand the military will serve as their collection agency if payments are delinquent.”
This is exactly right. That is why I said that there is far less risk than with your average paycheck loan. The military is very helpful about garnishing wages for debts and judgments.
OT, but… this soldier’s bravery and sacrifice really hits me:
“We knew everyone wasn’t going to get leave so I figured I was young with no girlfriend or real need to go home,” he explained. “So I volunteered not to go so someone else would have the opportunity.”
I’ve heard that sentiment from a number of military people and it breaks my heart each time.
At some point, there will be a tipping point for this senseless and obscene war; all but the most cynical LGF/Tacitus/Red State-types will come to recognize the mistakes made in Iraq.
Please note how this kid died. He died serving the same function canaries in mineshafts used to.
Then ask yourself if this appointed administration has prosecuted this war in a competent or effective manner.
The demand by the consumer for our payday loan product was $14 billion dollars last year (US). When I “worked the counters” a typical call was from a mother asking if we would loan her daughter $300 to fix the car so the daughter could continue to get to work. Mom felt we had a better chance of being repaid by the daughter than the mother! Millions live paycheck to paycheck.
The consumer protection people want to legislate our product out of existence. Are they then willing to make that $200-$300 loan to a stranger for a week with little collateral but a post-dated check? No, of course not. But the need is still present.
Specific, safe-harbor legislation is heartily welcomed by the more astute in our industry. It would protect our investment, secure the employment of the thousands of business persons and employees we provide paychecks to, continue to provide revenue to the regulators in the form of licensing and audits, and most importantly serve the needs our our clients.