On the brink: Payday loans
Dr. Check at 1819 Airline Drive in Bossier City.
Dr. Check at 1819 Airline Drive in Bossier City. less
There are 22 licensed short-term and payday loan companies within two to three miles of Barksdale Air Force Base.
This isn't unusual.
A 2005 report published in the Ohio State Law Journal found that payday lenders were likely to set up shop around military bases.
Shreveport attorney David Swzak, who chairs the Louisiana State Bar Association's consumer protection law section, said he's seen lenders, some operating in conjunction with pawn shops, target Barksdale military members.
"The reason why they are targeting them, again, is they have a strong armed collection method by contacting the military member's commander," Swzak said. "If they can pick at the military people and get them enticed into taking these small loans — which you know how it is — you've got a lot of guys in the military. It's not usually your officers."
Advocates and government watchdog groups say lenders are skirting the parameters of the federal Military Lending Act — which is designed to protect military members and their families from abusive predatory lending practices. Payday loans are short-term loans that borrowers can use to cover expenses until their next payday.
The act caps interest rates at 36 percent for payday loans of 91 or fewer days and that are $2,000 or less. But nearly eight years after its passage, advocates say the law is too narrow and doesn't go far enough to keep members of the armed forces out of debt traps.
Concern has grown so much about the act's limitations that the U.S. Defense Department is studying the existing law to see if it adequately applies to the range of available loan products directed at service members. Consumer advocate groups are asking the federal government to expand the definitions of payday loans.
Swzak has handled payday loan cases for military members in the past. Young, enlisted service members are more likely to apply for a loan than an officer receiving higher pay and better benefits, he said.
"It's your lower ranking military members— and those are the guys who are most susceptible," he said. "It's always poor people who are most susceptible to being the victims of predatory lending tactics. It's always that way. You never see rich people getting suckered into some scheme on predatory lending. It's always your poor people, your people least capable of sustaining a loss."
Tom Feltner, Consumer Federation of America's financial services director, said loan contracts from various states reveal lenders are now offering long-term, high-interest, open-ended or installment loans to military families struggling to pay their bills. The loans fall outside of the federal definition of a payday loan.
"What we've seen since the passage is a change in the marketplace," Feltner, said. "This has raised ongoing concern about how to best modify the Military Lending Act to best protect service members."
Consumer advocates say lenders engaging in predatory practices take advantage of a borrower's inability to pay the loan back in full. Troops make good customers because they have a guaranteed paycheck, Feltner said.
Still, applying for the loans is risky. Military members with high levels of unmanageable debt could lose their security clearance, Feltner said. Under the Uniform Code of Military Justice, troops can be punished if they knowingly write insufficient checks to cover the loans.
Tom Makamson, a personal financial readiness program and work life specialist for Barksdale's Airmen and Family Readiness Center, said payday loans have not been a significant issue since the Military Lending Act's implementation. "The predatory lenders don't like to target military members anymore."
But Makamson acknowledged that doesn't mean it isn't happening and doesn't mean some military members aren't using the loans to make ends meet.
Several storefront lenders located near the Barksdale Air Force Base declined to comment for this story. Some such as the Dr. Check located on Airline Drive in Bossier City display
signs that read "Military Welcome." The owner of Dr. Check could not be reached before this story went to press.
It's hard to determine how many troops, locally or nationally, are using the payday loans. Prior to the Military Lending Act, the Center for Responsible Lending found that active-duty servicemen were three times more likely than civilians to take out payday loans.
Back then, the industry earned $80 million fees each year from military families, according to 2005 Center for Responsible Lending data. Feltner said the narrow definitions of the law combined with broad state definitions for payday loans give lenders room to skirt the parameters of the federal law.
Legislation capping short-term loans at 36 percent died in the Louisiana Senate in April. According to the state Office of Financial Institutions, Louisiana law allows lenders to charge a $20 fee for every $100 borrowed. The maximum amount consumers can borrow is $350 under the state's Deferred Presentment and Small Loan Act. Lenders in Louisiana can charge triple-digit interest rates.
Despite the loopholes in the federal law, Feltner said, the act's 36 percent cap has been effective. Complaints have dropped significantly since the Military Lending Act passed. The Consumer Financial Protection Bureau received 100 complaints regarding payday loans between July 1, 2011, and Feb. 1, 2014.
Andy Fisher, president of the Shreveport Better Business Bureau, said his office received five complaints within the past 36 months from military members about payday loans. The complaints referenced the refinancing of loans and overcharging of interest, he said.
Makamson said the military offers services and alternative options to members who fall into financial emergencies.
Barksdale's Family and Readiness Center educates airmen on budgeting, financial planning, credit and debt management, car buying and identify thief, emergency savings and even talks to them about predatory lending and how to avoid it. "We establish early on the importance of the financial fitness," Makamson said.
MILITARY LENDING ACT
The Military Lending Act covers payday loans, vehicle title and tax refund anticipation loans. Under the act, lenders cannot charge military members or their families a military annual percentage rate of 36 percent.
Loans cannot be secured with service member paychecks or access to their bank accounts. The law also bans clauses in loan contracts that require service members to waive their rights to arbitration.
The law defines a payday loan as a closed credit loan that does not exceed $2,000 and has a term of 91 days or less.
The Air Force Aid Society is the official charity of the U.S. Air Force. If you are in the military and need financial help, call the society at (703) 972-2650 or visit its website at afas.org. Or, locally, call the Airman and Family Readiness Center at (318) 456-8400.
THE PAYDAY LOAN CYCLE
A breakdown of the payday loan cycle:
• A payday loan is a cash advance secured by a personal check or paid by electronic transfer is expensive credit. How expensive? Say you need to borrow $100 for two weeks. You write a personal check for $115, with $15 the fee to borrow the money. The check cashier or payday lender agrees to hold your check until your next payday.
• When that day comes around, either the lender deposits the check and you redeem it by paying the $115 in cash, or you roll over the loan and are charged $15 more to extend the financing for 14 more days.
• If you agree to electronic payments instead of a check, here's what would happen on your next payday: The company would debit the full amount of the loan from your checking account electronically or extend the loan for an additional $15. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent.
• If you roll over the loan three times, the finance charge would climb to $60 to borrow the $100.
Source: Federal Trade Commission/consumer.ftc.govSource: www.shreveporttimes.com
Category: Payday loans