The business model that has established the predatory lending practices of payday loan centers (“deferred deposit” loans or “cash advances”) has reached a new low, and is subject to scrutiny from consumer advocates all over the United States. They are now targeting military personnel and their families for short-term loans that can result in a hefty amount of debt.
Military families are especially vulnerable to payday loan centers because of their financial situations. Most new recruits are deployed to Basic Training (or the equivalent) an average rate of $1,200 per month, which is expected to support themselves and their families.
On such a low budget, military families don’t know what to do when faced with unexpected expenses. This is why the payday loan industry is often called a “debt trap”, and for good reason.
Although it is not only military personnel and their families who fall victim to payday loans, they are at a much higher risk, says the Center for Responsible Lending.
In one known circumstance, a Navy Petty Officer 2nd Class named Jason Withrow spent more than $7,000 in interest on a payday loan with a $1,900 principal. It took him five months to pay back the loan because the interest continued to accrue as he tried to raise the funds.
In an effort to further target military personnel, payday loan centers are taking the following measures:
Placing centers in close physical proximity to military bases;
Coming up with payday loan center names that imply a military association (i.e. Military Loans and Armed Forces Financial);
Advertising on the Internet specifically to prospective military customers (i.e. LoansForMilitary.com); and
Employing former military soldiers in order to solicit new recruits for business.
This is especially dangerous for military personnel because there are consequences initiated by the military for failure to repay payday loans. It is a violation of the Uniform Code of Military Justice (UCMJ) 123a and 134, which involves the “making, drawing, or uttering check, draft, or order without sufficient funds” and is punishable by:
- Dishonorable Discharge
- Loss of Security Clearance
- Court Martial
Also affected are the families that deployed military personnel leave behind. Adjusting to the military lifestyle takes time, and wives, husbands and children must learn how to live within the budget provided by the military. When unexpected bills crop up, it seems logical to turn to a payday loan center for temporary help.
The problem is that it is rarely temporary, and additional fees and interest rates are often not forthcoming when the paperwork is signed.
The spouses of military personnel are encouraged to look for other outlets for satisfying unexpected expenses. Rather than applying for a payday loan, they can:
- Apply for loans with a bank or credit union
- Set up overdraft protection for checking/savings accounts
- Contact emergency assistance programs
- Request an advance from an employer
- Obtain cash advances on credit cards
- Speak with a credit or debt counseling service
- Check out other loan providers such as Pioneer Services
These are all preferable to a payday loan, which can result in enormous fees and a quickly increasing debt.
The military itself is working to ban direct soliciting to military personnel from payday loan centers and to educate the military personnel and their families about expenses, budgeting and lines of credit.