Pentagon Declares War on Payday Lenders

Lenny Ignelzi/AP
"Scoundrels" and "scumbags" is what Sen. Jay Rockefeller (D-W.Va.) calls them.

Sen. Dick Durbin (D-Ill.) says they "exploit" military families.

But it's Holly Petraeus -- wife of Gen. David Petraeus and head of the Office of Servicemember Affairs at the Consumer Financial Protection Bureau -- who paints the most colorful picture of the payday lending industry and its relationship to America's military: Across the country, streets leading to military bases are lined with used car dealers, electronics and furniture rental shops and payday lenders. They congregate here "like bears on a trout stream," just waiting for the next fat fish to swim into their clutches.

And the Pentagon says it's got to stop.

Lessons From History

America's generals have known for some time that the payday lending industry abuses its relationship with our soldiers, sailors and airmen. One Department of Defense survey has noted that 9 percent of enlisted servicemen and 12 percent of noncommissioned officers admitted to taking out such loans. A 2005 study by the Center for Responsible Lending estimated that 20 percent of active duty military personnel took out a payday loan in 2004.

And so, in 2006, the generals convinced Congress to pass the Military Lending Act, which forbade payday lenders from charging more than 36 percent annual interest rates on loans to servicemen. But the industry just kept growing.

In 2012, payday lenders of all stripes (not just those focusing on loans to military borrowers) grew their revenues by 10 percent, to $18.6 billion as an industry. But how did a law that ostensibly reduced what money lenders could charge result in these lenders' revenues continuing to rise? The answer is simple: loopholes. The act is full of 'em. Loopholes for...
  • Loans for more than $2,000.
  • Payday loans for more than 91 days.
  • Auto-title loans (where a borrower hands over a car's pink slip as security for a loan) for more than 181 days.
  • Word games that convert what are essentially pawn agreements into ostensible sale-and-repurchase contracts.
According to the nonprofit public interest research organization ProPublica, loopholes like these are how some payday lenders can still get away with annual interest rates for servicemen that exceed 500 percent.

A Problem in Perpetuity?

Last month, the Pentagon urged Congress to close these loopholes, releasing a report urging Enhancement of Protections on Consumer Credit for Members of the Armed Forces and Their Dependents. Citing "evolving predatory lending practices" in the payday loan industry -- the explosion of workarounds to avoid the restrictions codified in the Military Lending Act -- the Pentagon observed that the prevalence of payday loans in today's military is essentially unchanged from levels a decade ago. And it continues to challenge military borrowers' finances.

According to Pentagon figures, about 11 percent of servicemen and servicewomen have taken out "payday loans, vehicle title loans, bank deposit advances, [pawned goods at] pawn shops and/or [taken out] installment loans with interest rates over 36 percent APR."

Seeing as 36 percent APR is the interest rate Congress told these lenders not to charge military borrowers, the Pentagon deadpans: "specific definitions of problematic credit no longer appear to function well."

A Growing Consensus

Consumer advocacy groups leaped to the support of the Pentagon report, with the Center for Responsible Lending, the Consumer Federation of America, the National Consumer Law Center and the National Association of Consumer Advocates all urging Congress to tighten restrictions on payday lending to the military. The Pentagon's own polling reveals "unanimous" agreement from 45 consumer advocacy groups who were asked whether it should tighten restrictions on high-interest loans to servicemen -- and backing from "all respondents from state governments and the U.S. Congress" asked the same question.

Payday lenders see no problem. Asked whether their ability to charge 36 percent-plus interest rates to the military should be curtailed, they say, not surprisingly, no.

But if the language chosen by U.S. senators is any indication, it's clear which way the political wind is blowing on this issue. Payday lending to the military will soon face additional restrictions. Maybe this time they'll even work.

Rich Smith is a Motley Fool contributor. Try any Motley Fool newsletter service free for 30 days.

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What does my ancestry have to do with The fact is Parker Wickham inherited alot of New York realstate. Had he not lost that realstate the Wickham Family would still own it.

June 16 2014 at 1:28 AM Report abuse -2 rate up rate down Reply
1 reply to Iselin007's comment

so? that and a buck will get a cup of Mini-mart coffee. other than that, this little "my family was.." is worth a bucket of warm pSS

July 12 2014 at 8:57 AM Report abuse rate up rate down Reply

The first President of the United States George Washingtion was a General during the Revolutionary War. General George Washington personally knew members of the Wickham family from which I am descended. My family had been split on the Revolutionary War so George Washington found a friend in Thomas Wickham a Patriot. Thomas Wickham was a Captain of the Sloop the Hampton Packet which he used to seize his brother Parker Wickham's cattle.

1 Thomas Wickham 1624-1688 is my Great etc Grand father.
2 Joseph Wickham 1662-1734
3 Joseph Wickham 1701-1749
4 Joseph Wickham 1728-1782
5 Daniel Hull Wickham 1771-1853
6 George Wickham 1801-1854
7 John Wickham 1826-1888
8 Charles Wickham 1859-1900
9 William H Wickham 1892-1940

Socking but true! Note # 3 this Joseph was the father of Thomas Wickham and Parker Wickham. Joseph # 4 was their brother and the line I am descended from.If your from LongIsland NY then you should know how important this Revolutionary War history is.

If number # 3 had lived you never know Robin's Island might have gone to me!

June 16 2014 at 1:15 AM Report abuse -2 rate up rate down Reply

Join service for paycheck, end up like Muhammed Ali, or NFL players, brain-rattled, or HIB, or drug-addicted, or amputated, or PTSD anxious/paralyzed..
The corporate media hypes "Marshall Patriotism""War! War! War!" so Northrup-Gruman, Lockheed Martin, Haliburton, Blackwater, arms mgctrs, can make MONEY MONEY MONEY off "Patriotism". Idiots... like Nazis, Greeks 'n Romans, Cave Men.

June 16 2014 at 12:51 AM Report abuse +2 rate up rate down Reply

Imagine how much money and resources are used to watch these boards. What ever the reason one had for outsourcing American jobs, it's hurt returning troops and civilians.

Are they allowing unknowns to walk freely into the US or use contract agencies to enter on visas? Payday loans are the least of your problems. If they had not outsourced all these jobs the country would be in a better way economically which would reduce a lot of the financial problems and deficits.

June 16 2014 at 12:45 AM Report abuse -2 rate up rate down Reply

Since the 'end' of THE GREAT RECESSION, numerous Payday lenders have sprung up here in Fairfax, Va. It's disgusting. The Military aren't the only ones who are being blindsided by these vultures. At least three of these lenders are within walking distance of my home.

June 16 2014 at 12:40 AM Report abuse +2 rate up rate down Reply
1 reply to ADAM ANTMAN's comment

The Great Recession might be have paused but really it hasn't ended.

June 16 2014 at 1:32 AM Report abuse -2 rate up rate down Reply

Why is it the businesses fault that the service men/women (consumers) are so stupid? How about instead the military EDUCATE the service men/women so that they better manage their finances... It boggles my mind that military members (many of which get free room and board) can't manage their own finances... Maybe it's time to add 6 weeks of home economics and 6 weeks of financial education into boot camp training... The reason these companies keep growing by leaps and bounds is because they have a stream of uneducated, financially irresponsible consumers feeding them... Educate the consumer and make them financially responsible and poof will go the payday lender...

June 15 2014 at 9:40 PM Report abuse rate up rate down Reply
2 replies to exoray's comment

I don't think it's stupidity. It's more desperation. The best laid financial plans can be destroyed by illness or unforeseen tragedy.

June 16 2014 at 12:44 AM Report abuse +3 rate up rate down Reply
1 reply to ADAM ANTMAN's comment

When the state governments ect was getting the revenue from better times they fattened their salaries, pensions, and benefits, but when the middle class declined thanks to outsourcing the governments kept feeding from the trough even though the revenue dried up.

June 16 2014 at 1:41 AM Report abuse rate up rate down

Glad "biz-nizz" men are your idolatry.. almighty dollar, filthy shekel. Families can rot and be maimed, including your "own". Hmmm...Sunis, Shiites, Somalia, Pakistan, American School Children (you remember if you're a citizen?) murdering each other.. atrociously, but "ARMS MANUFACTURERS" are "biz-nizz" men, and the testosterone twits should be "EDUCATED", RATHER THAN BUY ARMS!! RIGHT? dick.. Ever hear of the Mortgage Crisis that ruined the ENTIRE WORLD'S ECONOMY?

June 16 2014 at 1:11 AM Report abuse +2 rate up rate down Reply

Fake and Teddy, what are you two talking about? You have to get a new hobby.

June 15 2014 at 9:08 PM Report abuse -3 rate up rate down Reply

The pentagon and the Senate should spend more time incteasing the pay, allowances, and benefits of our servicemen. Meanwhile Generals in Germany live in mansions and fly around in private jets. Senators recieve full pay and benefits for serving one term in office.

June 15 2014 at 5:48 PM Report abuse +2 rate up rate down Reply

I would sooner eat red beans and rice than go to one of those establishments. And, I know how to make a good kettle of red beans and rice!

June 15 2014 at 5:29 PM Report abuse +1 rate up rate down Reply

This industry does need to be stopped. It is predatory and preys upon those at their weakest moments as well as praying upon those least able to borrow this way.

June 15 2014 at 5:13 PM Report abuse +4 rate up rate down Reply