Bert Caldwell: Payday lenders deserve discharge

The payday loan industry received its bad conduct discharge from the military Monday.

As of Oct. 1, stores selling expensive, short-term credit to the nation’s two million soldiers, sailors, airmen and Marines were forbidden to charge interest rates of more than 36 percent. The cap effectively separates the industry from a substantial number of customers, although the industry has downplayed its effect.

Congress included the limit in the 2007 Defense Authorization Act passed last fall. Many base commanders had complained that credit problems were compromising the readiness of units under their command. They fingered payday lenders, who in some areas were clustered along roads leading to the main gates.

The gantlet snagged many a serviceman or -woman. The Defense Department estimated 17 percent of military personnel used payday lenders, who imposed annual percentage rates upwards of 309 percent. Rolling over unpaid balances multiplied debt several-fold.

The industry said then, and continues to say, that the department exaggerated the problem. Most recently, the Community Financial Services Association of America pointed to an August report from the Government Accountability Office that faulted some of the methodology behind the DOD study, and said the results should be viewed cautiously.

The cap, says the industry trade group, should be reconsidered.

But spokesman Steven Schlein says payday lenders will bide their time before seeking any relief.

“We’re not making an attempt to do anything,” he says. “The law is what it is, and we’re going to implement it.”

As the cap takes effect and more members of the armed forces find themselves cut off from a credit product they used frequently, pressure for change will build, Schlein predicts. Members of Congress will get an earful.

“We think they’ll see the mistake they’ve made,” he says.

Schlein adds that stores will stay open because military personnel represented a maximum 15 percent of customers at locations closest to the bases.

That may be accurate. Todd Simmons, an employee at Cashexpress in Airway Heights, says the store has been advising customers from Fairchild Air Force Base for some time the cap was coming. Last week, he turned away only one would-be borrower who had forgotten Monday was the cutoff date.

There are only two payday shops in Airway Heights. Not much of a gantlet.

Fairchild offers several classes, as well as one-on-one counseling, for airmen who want more education on financial matters.

Linda Miles, director of the Airman and Family Readiness Center, say the classes cover everything from basics like budgeting to advice on investing. There is an accredited financial adviser on the staff.

New airmen are required to take a 3 1/2-hour course that includes a discussion of payday loans, she says. Many are surprised interest rates were so high.

Miles notes base representatives met occasionally with employees of the Airway Heights Moneytree office in order to better understand the payday loan process. She is not aware of any complaints regarding either Moneytree or Cashexpress.

The military has also sanctioned education outreach through the NASD Financial Education Foundation, which offers classes, brochures and saveandinvest.org, a Web site that offers a comprehensive menu of information.

Executive Director John Gannon was recently aboard the U.S.S. Ronald Reagan, on patrol in the Middle East, giving a class.

“Credit problems still exist in the military,” he says, and the need for solutions is no less urgent with payday loans off the table.

The Web site will soon launch a new product that will help armed forces personnel understand and improve credit scores, Gannon adds. Fellowships are available to military spouses who want to become accredited financial counselors.

Gannon says the problems with payday lenders were among the main reasons the foundation was brought in to help educate members of the military.

The industry’s separation from the service should stick.