Military bases targeted by lenders

0 Comments | Deseret News (Salt Lake City), May 2, 2005 | by Gordon Trowbridge

They line the streets outside every military base with bright- colored signs advertising "E-Z Cash" "E-1 and up" and "Payday Loans." But the leaders of the $25 billion payday loan industry insist they don't target military members or communities.

Now new studies show clear evidence that that's not the case. Analysis of loan-shop locations by Military Times, among others, shows a distinct pattern: Where there are military bases, there are payday lenders.

A growing number of senior military leaders and advocates call the business a threat to military families that not only targets those in uniform, but also traps them in a cycle of debt built on small loans carrying enormous interest rates.

Lenders, in response, are increasingly active political contributors, lining up powerful politicians in Washington and state capitals -- and even the assistance of retired generals and admirals -- to stay in business.

"I've heard increasing concern among leadership about payday loans," said Master Chief Petty Officer of the Navy Terry Scott, who complained about payday lenders in testimony before Congress in February. "The only conclusion I can come to is they are preying on sailors."

Rep. Sam Graves, R-Mo., has introduced a bill that would cap the interest rate charged on loans to service members and their dependents at 36 percent.

"A lot of people are deployed. Spouses are left back home to take care of bills, and they are being targeted by predatory lenders," Graves said.

A $25 billion business

By any measure, payday loans are one of America's fastest- growing financial businesses. Unheard of until the late 1980s, there are now at least 15,000 payday lending outlets across the nation. The Center for Responsible Lending, a group that opposes the practice, estimates payday lenders handle an annual loan volume of $25 billion.

Once a business dominated by small mom and pop storefronts, payday lending now is dominated by a handful of giant multistate operations. One example: Fort Worth, Texas-based Cash America International. With 678 loan shops across the country, Cash America issued nearly 650,000 payday loans last year, totaling more than $1.9 billion. Cash America's net revenue on those loans: $72 million, a 238 percent increase over 2003.

The loan process is simple: The borrower applies for a cash loan, usually a few hundred dollars. The borrower hands over a postdated check, usually dated a couple of weeks or a month in the future. The check repays the principal, plus interest and fees, which can add up to annual percentage rates of 200 percent, 400 percent or more.

It's all legal in most parts of the country.

Young troops are attracted to payday loan shops because they are fast and don't require a credit history.

"That's their perfect customer," said John Caskey, an economist at Swarthmore College, Pa., who has studied the industry since its beginnings. "A moderate-income individual with a steady job and perhaps not good money management skills -- it's their perfect demographic profile."

Steven Schlein, a spokesman for the Community Financial Services Association, a payday lender trade group, said his members have no particular interest in military members. He said one lender close to Scott Air Force Base, Ill., told him only about 5 percent of his business was military.

It's not possible to place payday lenders off limits because they technically operate within the law, said Rear Adm. Stephen Turcotte, commander of Navy Region Mid-Atlantic, based in Norfolk, Va. However, military members are continually counseled on their responsibilities, which include paying debts on time.

"We are victims of our own success," Navy Capt. T.J. Dargan, commander of Bremerton Naval Station, Wash., told state lawmakers there in February. "Our people become targets for the predatory loan industry for exactly that reason."

Military aid societies have become increasingly vocal about the issue. In the past year, representatives of Navy-Marine Corps Relief Society chapters in Washington, California, Illinois, Maine, Georgia, Florida, Texas and Virginia have lobbied state legislatures for tougher laws, said retired Navy Adm. Charles Abbot, president and chief executive officer of the society.

A Military Times analysis found that in Lakewood, Wash., home to McChord Air Force Base and Fort Lewis, the number of lenders per 100,000 residents is more than four times as high as for the rest of the state. And nearly one-third of Virginia's 600-plus lenders are in the Norfolk-Virginia Beach area, one of the nation's biggest military population centers.

Military Times' findings match those of a wider-ranging analysis by Steven Graves of California State University-Northridge and Christopher Peterson of the University of Florida, who examined lender locations in 20 states and found evidence in each of significant clusters near military bases.

On the Internet, payday lenders such as Military Financial and Armed Forces Loans specifically target service members. They also advertise in the Military Times newspapers.