New military target: payday loan operators near installations

Washington regulators and consumer groups have turned up the volume this year in challenging the practices of payday loan companies, which offer short-term cash advances at high interest rates.

Now another player is entering the fray: the military.

A soon-to-be-released study is shedding new light on the prevalence of payday lenders near military bases. At the same time, the Navy is expressing concern about the trouble that some service men and women are getting into with payday lenders.

Two professors, one from California State University, Northridge and the other from the University of Florida, have been mapping out clusters of payday lenders near 15 military bases across the country. Their preliminary findings for the area around the Puget Sound region's McChord Air Force Base and Fort Lewis are dramatic.

Within a 1-mile perimeter of the bases, the ratio of payday loan stores to bank branches is more than 2-to-1. That contrasts sharply with the rest of Washington, where the ratio is roughly four banks for every payday lender, said Steven Graves, geography professor at Cal State Northridge and one of the authors of the study.

Among other statistics in the study: One of the ZIP codes adjacent to the bases has the highest number of payday lenders in Washington. The study found that more than half of the payday-loan stores in Thurston and Pierce counties are located within three miles of McChord and Fort Lewis.

To be sure, there's no readily available data on just how many military personnel are taking out payday loans, which are legal and regulated in Washington. Some payday lenders say that they aren't targeting military communities, but rather are simply establishing outlets in highly trafficked areas where demand exists.

But military leaders in Washington are raising red flags about the impact of payday lenders on troops.
Navy officials in Washington called an unprecedented meeting Oct. 27 to hash over the payday issue with key government agencies including the governor's office, the Attorney General's Office, the state Department of Financial Institutions (DFI) and the Federal Trade Commission. Other branches of the armed forces and nonprofit groups that provide financial counseling to military families also attended.

The Navy declined to comment on the meeting, issuing only a brief statement that read, in part: "The Navy in the Puget Sound area is concerned about the prevalence of payday lending establishments and their impact on the financial health of military service members."

Payday loans have been legal in Washington for nearly a decade. In a typical scenario, a borrower will take out a cash advance of several hundred dollars, giving the lender a post-dated personal check or authorization for automatic withdrawal from a checking account. When the next payday comes around, the borrower can either pay the lender or roll over the loan into a new cash advance.

The problem, say consumer groups, is the fees involved. In Washington, a payday lender can charge 15 percent on the first $500 borrowed. Converted into an annualized percentage rate, or APR, that works out to be a sky-high 391 percent, according to the state DFI.

Financial counselors who work with the military say young soldiers and sailors are a particularly attractive target for payday-loan companies. Enlistees are often financially inexperienced, have low incomes and need additional cash, they say. At the same time, their government paychecks are a steady source of repayment for lenders.

"In far too many cases, those who have gotten themselves involved in payday loans have an extremely difficult time extricating themselves from that relationship," said Andy Leech, director of the Navy-Marine Corps Relief Society in Everett, a nonprofit group that provides financial counseling to military personnel and their families. "These people are in a financial death spiral."

Leech said some sailors have the false impression that certain payday lenders are somehow officially sanctioned by the military because they advertise in the Navy Times newspaper. But the newspaper is published by an outside company, the Gannett newspaper chain.

Mark Thomson, director of governmental relations for Moneytree Inc., one of Washington's largest payday lenders, said his company and other members of the payday trade group Community Financial Services Association of America (CFSA)  "try to be in high traffic areas so people who want our services have access" but said they don't target specific groups.

He said the military makes up a "relatively small number" of the payday industry's customers.
That said, he added, "We are in a problem-solving mode. We don't want anyone to misuse our product, whether they're in the military or not." Thomson touted the CFSA's "military best practices," which includes a wide range of guidelines, including deferment of collections if a military customer is deployed to a combat zone. In fact, Thomson said he met with members of the Navy-Marine Corps Relief Society last month to discuss best practices. The guidelines are not legally binding.

One manager of a payday-loan branch near McChord and Fort Lewis, who asked not to be identified, said the military makes up only 10 percent of her store's clientele. She said soldiers and airmen sometimes make bad customers because after taking out a loan they can retreat behind the walls of their bases and are difficult to contact.

"They think just because they're on the base, they can be protected. No regular civilian is allowed on the base unless you're authorized. We can't go in to see them," the manager said. "It's a lost cause. We lose that money."

But Leech said service men and women who get in trouble with payday loans have an "unspoken sword hanging over their head" -- fear that the lender will contact their commanding officers.

"There's a great deal of nervousness on the part of a military person about not paying their debt because of the implications for their career, for their clearances," he said. "Failure to pay debts demonstrates they are not financially responsible."

The military's growing interest in payday lenders comes as regulators at the state DFI are ratcheting up pressure on the payday-loan industry. In recent months, the agency has launched a public awareness campaign about the dangers of payday loans, tried to force more disclosure from payday lenders, and filed charges against two payday-loan companies for alleged violations.

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