By Bill Graves
The Oregonian
August 17, 2006
"Predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force," says a Department of Defense report.
The report urges Congress to pass strict, sweeping regulations on the consumer lending industry, including a 36 percent cap on annual interest rates for loans made to service members.
In June, the U.S. Senate approved a federal cap of 36 percent on loans to military borrowers. The proposal is pending in a House-Senate conference committee.
The report notes that Oregon’s new 36 percent cap on payday loans does not take effect for another year, yet payday lenders are already switching to a different consumer lending license that allows them to skirt the interest cap.
Our Oregon, a nonprofit group in Portland, says Oregon should follow the military’s lead.
"They came to a very clear conclusion that the only response is a comprehensive, strict cap on all consumer loans as the answer," said Angela Martin, director of the group’s economic fairness coalition.
Payday, car title and other lenders, which charge annual interest rates that commonly exceed 500 percent, cluster around military bases and seek out military personnel, who are three times more likely than civilians to take out a loan, the report says.
The Defense Department estimates one in five active-duty service members is a payday loan borrower and that "predatory payday lending costs military families over $80 million in abusive fees each year."
The number of payday lending stores has climbed nationwide from 8,000 in 1999 to 23,000 in 2005. Oregon has 362.
Payday lenders typically charge $60 for a $300 loan for two weeks. If the borrower cannot repay it in two weeks, the lender will extend or roll over the loan for another two weeks for another $60. Most borrowers roll over their loans repeatedly, the report said.
"Indeed, the industry relies on revenue from borrowers caught in a debt trap," the Defense Department writes. "Ninety-one percent of payday loans go to borrowers with five or more loan transactions per year. . . . The average borrower pays back $834 for a $339 loan."
In testimony to Congress attached to the report, Capt. Mark D. Patton, commanding officer at the Point Loma Naval Base in California, said that between 2000 and 2005, the number of sailors and Marines who had their security clearances denied or revoked because of financial problems increased by 1,600 percent.
"There is no enemy that our Navy is more passionate about defeating than one who targets our own sailors," he said.
Payday lenders in Oregon support the military, said Luanne Stoltz, a payday store owner and vice president of the Community Financial Services Association, which represents the industry.
"We would never want to put the military in any kind of jeopardy," she said. "We would support the military in any decision they made."
Oregon legislators and state officials say they are looking at ways to close loopholes in the new payday lending law and possibly to further regulate car title lenders, check-cashing stores and other consumer lenders.
The Oregon Department of Consumer and Business Services is also looking at more regulations, by either department rules or legislation, said Director Cory Streisinger. "Clearly, the payday lending law didn’t address all aspects of high interest lending."
Payday Loan Fairness: [x] Yes, [] No
©2006 Our Oregon. All rights reserved. Photos by Leah Nash.