The Pentagon has just released a report that finally addresses a huge issue for military personnel and their families. The Report On Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents can be found in its entirety at (http://www.defenselink.mil/pubs/pdfs/Report_to_Congress_final.pdf)
Surely you’ve seen all those “Payday Loan” companies. They are everywhere but they are most concentrated just outside military bases. These companies will let you write a postdated check that they won’t deposit until your next payday and give you cash today in return. Certainly that can be very convenient for a young military person who is grossly underpaid and just learning how to manage their own finances but the big problem is in the fees! What these Payday Loan companies don’t advertise is that they may charge you $25 for a $100 “loan” a week before payday. That is 25% interest in one week! You could get better rates from a loan shark in Las Vegas!
So let’s say you take that “loan”. You have to make your military paycheck last two weeks. When payday comes around, you’re already $125 short. If you’re working on a tight budget, this just creates a never ending cycle of higher loans and fees until you are in serious financial trouble. For those of you who aren’t familiar with U.S. Military policies on financial responsibility, getting into uncontrollable debt can cause a soldier to be demoted or even be put on extra duty. If that soldier is demoted, they’ll receive a cut in pay and that isn’t likely to help their financial situation one whit. If that soldier has a family, extra duty can mean the need for additional child care which certainly doesn’t come cheap either!
The report states that 20% of service members are being preyed on by loan centers like this. (In one case, a military family was charged 400% interest!)
This is a terrible thing to happen to our military personnel who already sacrifice so much but, to add insult to injury, the financial problems experienced by military personnel who take out Payday Loans are causing serious problems with military readiness. Soldiers may be denied security clearances for “financial irresponsibility” and, in effect, rendered incapable of doing their jobs because of it. A soldier who can’t do his or her job jeopardizes the Mission. With so few soldiers and so many taskings and deployments, can we really afford to keep Payday Loan companies in business?