Pentagon sees risk in troops' loan debt
The Payday Loans store is open for business in Springfield, Ill.
Thousands of such stores have popped up around military bases in the past
States that have outlawed predatory lending aimed at troops:
Source: Defense Department
By William M. Welch, USA TODAY
As many as one in five members of the armed services are being preyed on
by loan centers set up near military bases that can charge cash-strapped
military families interest of 400% or more, a new Pentagon report has
ON DEADLINE: Read the full report
Steep lending charges have long plagued servicemembers, but the problem
has become a more urgent concern to the military as it has struggled to
fill its ranks during the Iraq war. That's because debt troubles can keep
troops from going overseas.
"We're seeing a growing trend of folks who are not eligible to
deploy because of financial problems," says Capt. Mark Patton,
commander of Naval Base Point Loma in California. Patton says debt
problems can cost some servicemembers their security clearances.
The report says "payday loan" stores (so named because their
loans are often due on a borrower's next payday) have sprung up by the
thousands around military bases and elsewhere in the past
Lenders typically charge $15 to $25 per $100 loan for two weeks, and most
loans are extended for several weeks. The report says the average loan is
$350 and has an annual interest rate of 390% to 780%. The average
borrower, it says, pays back $834 for a $339 loan.
The report cites estimates 13% to 19% of servicemembers at least
175,000 people took out high-interest, short-term loans last year. It
said nine out of 10 loans go to borrowers who take out five or more over
Congress ordered the Pentagon to conduct the lending study. This year,
the Senate passed an amendment to its annual defense spending bill that
calls for a 36% cap on interest for loans to servicemembers. It would not
affect loans to civilians.
The House version of the defense bill doesn't include the amendment. A
joint committee will begin working out differences between the two
versions next month.
Such lending, the report says, hurts readiness and morale and "adds
to the cost of fielding an all-volunteer fighting force."
That's a misguided critique of a valuable service, says Darrin Andersen,
president of the Community Financial Services Association of America, the
payday lenders' trade group. The Pentagon, he says, "is in over its
heads when it comes to ... complex personal finance and lending
Master Sgt. Leah Caldwell, who manages training and deployment for a
squadron of the Missouri Air National Guard, says she has had several
airmen get so deep into debt with the loans that they lost their security
clearances, jeopardizing their deployment. One airman, she says, took out
a $500 loan and after refinancing it several times saw it grow to a
Troops with debt problems are often embarrassed and fear damage to their
careers if they tell their commanders, says retired Navy captain John
Irons, director of the San Diego office of the Navy-Marine Corps Relief
Society, which helps servicemembers in money jams.
The lending practices are illegal in 11 states, the Pentagon says. Patton
says the military is asking legislatures in California and other states
where the practice is legal to limit the interest that can be
Andersen says the industry does not target military personnel. He says
the trade group's members have more than 15,000 locations around the
The Pentagon report says those stores "are heavily concentrated
around military bases." It says they could be found in heavy numbers
around Camp Pendleton, Calif.; Fort Campbell, Ky.; naval installations at
Newport News and Norfolk, Va.; and McChord Air Force Base and Fort Lewis
Posted 8/30/2006 11:59 PM ET
Updated 8/31/2006 11:42 AM ET