Payday Lending to Military Sharply Curtailed
Payday lenders, those businesses that lend money at an annual percentage rate of nearly 400 percent, lost a valuable group of clients last month. On October 1st, Congress capped the interest rate for military personnel at 36 percent. That caused these store-front lenders to stop lending to people in the armed forces.
At Wright Patterson Air Force Base near Dayton, Darrell Harper counsels military personnel on how to manage debt. He says the military has many reasons for discouraging service men and women from using pay day lenders which charge high interest rates. He says military commanders are afraid a soldier with a lot of debt might make desperate choices to pay it off.
"You might be approached by different folks along the lines of bribery knowing that you're in real bad debt," Sgt Harper says. "And we're privy to some things that other folks want to know."
If a solider goes too far into debt he or she can lose security clearance or even be prevented from reenlisting. But for the average Ohioan who's financially strapped, a payday loan might be the last resort. He or she can still get quick cash from more than a thousand store-front lenders across the state, often with very little identification and no credit check. The industry says it saves customers big money in overdraft fees and that the money borrowed keeps utilities from being shut off.
But when the 36 percent cap took effect six weeks ago, a lot of payday lenders in Ohio stopped making loans to military households. Now non-military borrowers must sign statements that they're not affiliated with the armed services. Darrell Deaver, an Ohio lobbyist for the payday industry told Open Line's Fred Andrle that the need to terminate military loans is obvious.
"36 percent would allow a company to make less than $2 per loan," he says. "We're not unlike any other business where you have overhead of rent, personnel benefits, and you know these are not minimum wage jobs, we have utilities, we're paying qualified people and 36 percent APR we wouldn't be able to be in business.
It took the Pentagon's lobbing Congress to bring about the changes governing pay day loans to military personnel a point underscored by Bill Faith of the Coalition of Homelessness and Housing during the same Open Line program.
"When the military examined the stress caused because of payday lending on military families, they said it was interfering with troop morale, combat readiness of the troops because of the distraction and stress," Faith says. "They went to the Congress and the president and asked them to establish a 36 percent rate cap for military families. If it's important enough for military families I think it's important enough for all our families."
That's an idea that state representative Tyrone Yates is working on. He says poor, minority and inner-city Ohioans face a tough challenge using payday lenders who he says are "fleecing" people with exorbitant interest rates. He's authored a bill that would cap loan rates in Ohio at a more severe 25 percent.
"We probably will see a decline in the number of payday loan businesses over time with the 25 percent limit. What I would encourage the businesses to do is to come up with a more responsible business plan and model that might benefit people who have a need for short term smaller loans. Otherwise the businesses should probably not survive.
"If Yates's legislation does pass, he says the state once again will have an established definition for the word "usury."
"The upshot of it is, in practical terms, a usurious loan is one that is a very high amount which takes advantage of a citizen or a consumer," said Rep. Yates.