by hilzoy
Elizabeth Warren at TPMCafe reports that last week, Senators Jim Talent (R-MO) and Bill Nelson (D-FL) finally dealt with the problem of predatory lending aimed at the military. Payday lenders charge, on average, 400%APR; their rates can go over 800%APR. People often start out borrowing when they need an advance on their paycheck in order to meet some unforeseen expense, but since the fees are so high, it’s easy to get caught in a cycle of repeated borrowing. Talent and Nelson’s amendment would restrict loans to servicemembers to 36% interest.
Moreover, as I noted a while back, there are payday lenders who deliberately target military families. And they seem to be succeeding: according to the Center for Responsible Lending (pdf), “active-duty military personnel are three times more likely than civilians to have taken out a payday loan”, and these loans cost military families over $80billion a year.
Personally, I think that it should be illegal to charge 400%APR on a loan, no matter who you lend the money to. But making it illegal for payday lenders to prey on military families is a very good start. Good for Senators Talent and Nelson.
Nothing banks or their many fronts (check cashing services included) do is ILLEGAL. Interest rates have no cap for the same reason bankruptcy laws, previously designed to protect YOU the debtor, have been redesigned to make you a debt slave. It’s also the same reason there are no serious efforts to reign in data mining and identity theft — it’s all designed to get you and keep you in eternal debt so that you can continue to perform menial labor in exchange for room board and utilities but no benefits in this, our NEW WORLD ORDER
didn’t exactly get launched as Hitler the II otherwise known as GHW Bush intended when he first announced the NWO on SEPTEMBER 11, 1991 however it is now on fully.
you=slave existing on $2/day
them=control over world resources including the food supply (ADM/Monsanto and GM crops) the military, etc
They are Nazis. Preston Bush supported and traded with the Nazis. They must be stopped before it’s too l…
Agreed. Except for the 36% number. That should be precisely “0%”. Meaning any figure above that number should be called treason, since that and the word “evil” have been reintroduced into the culture by the annointed.
It occurs to me that charging miltary families 400% interest is the contemporary version of folks greeting freshly returned Vietnam veterans disembarking at ports with gobs of spittle and “baby-killer” epithets, however much that occurred.
I do look forward to the (probable silence) rational libertarian criticisms of this legislation from various quarters. Ann Coulter’s take should be entertaining and comedic. Malkin will leave in a huff. Red State will point to unintended consequences, as in this is what happens when you levy taxes and pay people: you end up with excessive and unAmerican regulation of the free marketplace.
No doubt now that 400% in out of bounds, there will be excessive allocation of heathcare resources to the children of our soldiers. Much fake strep throat leading to distortion of the throat swab market leading to Jupiter being nudged from its orbit.
A savvy entrepreneur would rationalize this industry: consolidate the lending establishments by buying up the Mom and Pop outlets, cut costs by laying people off, and then charge the newly layed off 400% interest for their pre-unemployment check advances.
Then Malkin would re-enter in a huff and really let them (momandpop) have it.
When I wrote “Agreed.”, that was referring to Hilzoy’s post and not marblex’s invocation of Nazis.
I don’t know what they are. Colonel Klink meets Dagny Taggert, perhaps, but even then I agree they should be stopped before it is too late, or latte, or lugubrious to comprehend or whatever the “l…” stood for.
They lack the competence of, say, Himmler. And, unlike Hitler himself, they are too easily distracted from Ubersomething by short-term political considerations.
Von Hindenberg might be a better comparison. Keep the base worked up but only enough to win an election. Hitler had other fish to fry.
And I don’t mean lowering taxes forever.
“Preston Bush”
Is he related to Prescott Bush?
And on other fronts, welcome back, vacation guy!
Making it illegal (or capping the interest rate) just increases mafia profits as the need for cash still exists for these families living hand-to-mouth. Given the social structure of the US military, their personal or family credit risk will be high.
Some part of the spectacularly high interest rate is due to the fact that the debt amounts probably are small, so administrative charges make up a very large part of the total interest paid. Overall, however, the rates charged have nothing to do with either refinancing costs or default risks but smell of collusion.
Getting decent and responsible credit is one of the mainstays of escaping poverty – both in the developing countries (see microfinance) as well as the forgotten parts of the developed world (which includes the US grunts). As Barbara Ehrenreich wrote in Nickel and Dimed, getting money for a rent deposit (or a bank account) is a major challenge. The less needed the money the easier and cheaper it is to get. The poor remain trapped (and invisible).
Solutions:
1. Government to the rescue. The US government as employer could easily offer a paycheck advance at a favorable rate (treasury rate + 4%?), as the soldiers are unlikely not to turn up next month.
2. A dedicated mutual association could offer low margin credit to soldiers as some do now for insurance. A private company could see this as a great and honest business opportunity. The large similar customer base could help spread the word and the risk.
Cheaper finance probably already exists for these soldiers. Their lack of education leads to decisions against their own interest (both in banking and at the ballot box).
jaywalker,
I´m a German so I don´t know that much about American banks and lending practises?
First of all, 400% and even 36% would be unlawful in Germany. Violating the “Gute Sitten und Gebraeuche” (roughly interpreted as:”good customs and common sense”)law in Germany. Simply put, German courts have taken the position that interest rates a lot higher than the average bank interest rate in Germany are unlawful.
Say, normal consumer credits have an interest rate of 7%, so a payday lender could (maybe) demand 15% or so. If he demands 30% for example, a “customer” could sue even after signing the contract because the interest rate would be a lot higher than the “normal” rate.
That would help a customer once he discovers that he can´t pay back the credit given his income.
(Note: I´m not a lawyer so I don´t know the exact percentage borders right now.)
Second, German banks like people employed by the state/federal government. Simply because that´s a steady income for a defined time.
Less risk for a bank. 🙂
So normally, interest rates for them are lower than for people with a less secure job or credit history.
Third, once you´ve established your credit history in Germany AND having a steady income, German banks will let you overdraw on your bank account. Normally 1-2 times of your monthly income.
At higher interest rates of course. Right now, “good” consumer interest rates are about 6.5%. Interest rates on your “minus” 🙂 bank account are around 10%.
Obviously, if you need a long term loan, getting a real loan at about 6.5% is the better choice. 🙂
If you just need to bridge 3-5 days the “overdraw” option might make sense.
It means simply that you don´t have to worry about bounced (?) cheques.
The electricity or telephone company wants to withdraw §50. You´ve only got §40 in your bank account? No problem as long as you´ve got a steady income.
Some part of the spectacularly high interest rate is due to the fact that the debt amounts probably are small, so administrative charges make up a very large part of the total interest paid.
See my points above.
A simple normal bank in German got some computers. If I overdraw my bank account $100-200 I don´t believe the bank computer will break into a sweat. 🙂
The computer simply has to give me x% points for every day my bank account is in the plus minus every day my bank account is in the minus. A simple desktop computer should be able to do that assuming your banks are willing to do it. 🙂
Yeah, other options definitely exist. My mother works with the Navy Marine Corps Relief Society, which provides loans and even grants to sailors (and jarheads) in need; for car repairs, medical bills, emergency travel, etc… The other services have equivalents agencies. The problem is that they usually have to go through their command, and NMCRS demands that they do a complete budget and goes through their finances pretty thoroughly and, if my mom is any guide, probably fairly ruthlessly. But the loans are low interest, and the payments are deducted directly from their pay. I’d imagine the appeal of the payday loans over services like this is that they don’t ask any embarrassing questions, don’t involve their command, and don’t give them perhaps unwanted advice on how to live within their means.
In the days of Regan we had usury laws. As the prime lending rate increased to more than the law allowed, rather than increase the usury cap, the several states got rid of the usury laws. This provided for credit card companies and other lenders to enjoy the fruits of capitalism unfettered by intrusive govt regulation. That was right about the same time that silly truth in advertising regulation was replaced by caveat emptor.
Information in the CRL link suggests to me that good part of this problem arises from the fact that our soldiers are poorly paid – privates make $17,000/yr and fewer than 3/4 of active duty personnel ever reach the $30,000 level.
This makes alternatives, such as credit cards, hard to get, and means that the soldiers are under serious financial pressure if anything out of the ordinary pops up.
My brother’s currently stationed in Lousianna, helping construct the next ship he’ll serve on. His stories of the damage the military does to its soldier’s finances is horrifying.
Right now, rent on a 1 bedroom apartment in the area is $1900, a 2 bedroom $2800. They weren’t allowed to bring their families, so most of the sailors are supporting two rent/house payments. Can you guess what checks were late, double deducted, or lost? A $3800 hit (rent+deposit, which the Navy wouldn’t help cover) before they get around to repaying you is a huge expense– one they just assume you’ll have on hand. It’s not an option– barracks room is short locally, so you must rent an apartment if you’re an E5 or above.
No wonder they have to turn to predatory lenders. I agree with Hilzoy: Good for Senators Talent and Nelson. Now if only they’d turn to getting the checks out on time and for the right amount…