WASHINGTON — The Community Financial Services Association, the trade association for payday lenders, has denounced a recent Department of Defense report that asked Congress for laws that would regulate how payday lenders lend money to members of the U.S. military.
"This study is simply a rehash of unsubstantiated claims that have already been discredited. In fact, certain conclusions in the report directly contradict research conducted by the current chair of the FDIC, government agencies, foundations and academics involved in financial issues and study," said Darrin Andersen, president of CFSA.
"The Pentagon's recommendations to eliminate an affordable short-term loan option that is regulated in 37 states and the District of Columbia will hurt military personnel," Andersen continued. "They will be driven into the arms of unregulated offshore Internet lenders or forced to choose between more expensive alternatives such as bounced check or overdraft protection fees, or late bill payment fees."
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The DoD's report, released in August, recommended a variety of different new regulations for payday and other lenders when dealing with service members. These ranged from capping the APR on payday loans to service members at 36% to prohibiting the use of checks, auto titles and access to bank accounts as security for short-term loans.
The CFSA took issue with the APR cap.
"At a 36% APR, the total fee charged for a $100 payday advance would be $1.38, which is less than 10? per day. Payday advance lenders could not even meet employee payroll at that rate, let alone cover other fixed business expenses and make a profit," Andersen said. A 2005 study by the FDIC's Center for Financial Research reported that payday lenders' store operating costs per loan total $32, or $13.70 per hundred dollars advanced. "The allegation that payday lenders target members of the military is simply false," Andersen said. "In fact, their own report shows that less than 1.3% of total industry revenues comes from military customers." The association cited a June 2006 Consumer Credit Research Foundation survey of military enlisted personnel in and around the nation's military bases found that 13% had used a payday loan in the last 12 months.
"This means that 87% of military enlisted personnel in the immediate vicinity of military bases have not used payday loans," said Andersen. "This is no surprise to those payday advance companies that open stores in these areas to serve the thriving civilian communities that grow up around military bases."
The Consumer Credit Research Foundation survey also found that military enlisted personnel who have had payday loans repay them more quickly and are more likely to remain out of debt than their civilian counterparts: 79% of the military borrowers reported using a payday loan no more than four times in the last year, the association noted. Andersen added, "Even though military personnel represent a small percentage of our members' customers, they deserve, like all our customers, strong consumer protections. They also deserve the right to choose credit products that best suit their needs in varying circumstances. Different credit needs require different credit products." Credit unions that serve the military believe payday lending needs to be curtailed by Congress. The $711 million USA Federal Credit Union, headquartered in San Diego, includes service members in its field of membership and the CU maintains branches overseas in Japan and Korea. A recent segment of the CU's new Internet radio show, "Money and You," featured Mike Calhoun, president of the Center for Responsible Lending and Rear Admiral Len Hering, Commander of the Navy Region Southwest, discussing predatory payday lending and the service member and the Departments' recent report. "Payday lending is a one-way street to nowhere for young military families. We work hard to educate them how to achieve real financial security. We also believe it is time for legislation to put an end to these incredibly high fees," said USA FCU CEO Mary Cunningham. –[email protected]
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