Debt Consolidation and Credit Card Counseling

Cash advance loans still prey upon military personnel in California and elsewhere

The payday loan industry is a wildly profitable one, as any business that lends money at an average interest rate of 400% per year would be. Also known as cash advance loans, these lending instruments are short-term, high-interest loans that are designed to allow the borrowers to tide themselves over until their next payday. While the stores that offer them are located in nearly all neighborhoods nationwide, they tend to be predominantly located in two areas - lower middle class neighborhoods and in areas near military facilities.

Given that our soldiers are at war, it strikes many politicians as opportunistic for lenders to be taking advantage of poorly paid enlisted men and women. Not only is it bad for morale to have soldiers in financial trouble, as many borrowers of such loans are, but soldiers who are in financial trouble also pose a security risk.

Legislators in California recently attempted to address this issue. Assembly bill AB1965 was intended to put some curbs on lending practices to the military within the state. One of the proposals in the bill, removed before voting, was an interest rate cap of 36% per year. This amounts to 3% per month, but is still twice the interest rate charged by most credit card companies. Lenders have complained that such “low” interest rates impede their ability to turn a profit.

The bill was voted down by the Senate for a number of reasons, including strong opposition from the lending industry and opposition from legislators who were concerned that the bill had been watered down to the point of being ineffective.

Cash advances are short term loans, typically of no more than two weeks in duration, offered for sums that range from $100-500, depending on state law. Interest rates vary, but the loans include a “fee” that ranges from $10 to $30 per $100 borrowed. At the end of two weeks’ time, the borrower repays the borrowed amount and the fee. If he or she cannot repay, then it may be renewed for another two weeks by paying the fee a second time. In some states, these advances may be “rolled over” up to six times, which often results in borrowers owing more in fees than they originally owed in principal.

Because they tend to earn less than a lot of other people, military personnel tend to have financial problems. Because they have fixed, regular pay, the lending industry considers members of the military to be ideal customers. They aren’t likely to be laid off or quit their jobs, and their paydays are as regular as they come. As a result, areas around military bases are dotted with cash advance stores, and so far, Republican-leaning legislators have done little about it, in California or anywhere else.

Congress is pondering a bill that would address this issue on a national basis, but given the treatment that Congress has given the nation’s bankruptcy laws, it seems unlikely that anything will come of that bill.

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