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Military payday loan

Payday Loans for Military is a Debt-trap

Payday lending is a predatory form of lending that thrives on the unsuspecting and gullible section of the American population. For those who live from pay-check to pay-check, an unexpected financial emergency can become a cause for extreme cash-crunch. To tide over a short-term problem the most likely place of respite seems to be the bewitching neon-lighted neighborhood loan shop.

The fluttering signs reading "Instant Cash Advance", "Checks Cashed" or "easyMoney" are often too enticing to resist. The lure of easy money becomes the starting point of a seemingly innocuous loan that over time accumulates into an immitigable debt. The borrower unsuspectingly enters a loan pattern that wrenches an annual interest rate of 400% or more!

Unfortunately, the military forces of the nation are the worst sufferers of this form of abusive lending. An analysis by the New York Times revealed that at least one fourth of military households (26%) are caught up in payday lending. Officials at the Army Emergency Relief office in Fort Bliss, Texas, estimated 10% of its total of 10,000 military officials as having payday loans and related debt problems.

Vulnerability of the military personnel: easy target of payday lending

The military is the ideal target for payday lending operations. They have a steady income from the government but have little or nothing to spare for savings from their modest earnings. At times of unforeseen financial emergency they have nothing to fall back upon to tide over an exigent situation. Youth and inexperience in managing finances also plays its part. At deployment time in particular military families are faced with an added burden of expense, both home and abroad, which makes them more vulnerable to the promise of quick cash.

Soldiers make ideal targets for military payday loan lenders because their pay is regular and secure. They are not likely to quit, be downsized or outsourced. Besides the military culture emphasizes assuming financial responsibility and failure in repaying debts may lead to aggressive military punishment involving confinement, court-martial or even discharge from employment.

Geographic concentration puts the military at greater vulnerability and accessibility to payday lenders. Payday lending operations in expectation of brisk business set up their shops close to military bases. Outside the naval base in Norfolk, Virginia there are at least 37 payday shops. With regards to Oceanside, California a study revealed that 14 of the top 20 payday lending zip codes is within 5 miles proximity of an active military installation.

Efforts at targeting the military are often blatant. Use of business names implying a military connection (such as Armed Forces Loans and Military Financial, Inc.), recruitment of a former military personnel to solicit soldiers, and the mushrooming of military payday loan lending stores around military bases are few cases in point.

How it translates itself into a debt - trap its workings

In contrast to accepted lending practices, military payday loan are not issued on the basis of credit-soundness of the borrower. Borrowers need only a checking account and a pay stub verifying employment

to qualify for a loan. Traditionally there is a fee of $15 against every $100 borrowed. Thus for a loan of say, $300 the total cost of accumulated fees is $45, which is a whopping 400% APR (annual percentage rate) for a two-week term. The loan is secured against a signed personal check that reflects the borrowed amount and the resulting fees. The check is preserved with the lender to be cashed in case the borrower defaults on the loan.

Upon failing to repay the loan typically due on payday, the borrower is faced with tough options. He is either left at the lenders disposal who wields the check towards forceful extortion or still worse faces the indignation of missed check penalty; else renew the loan for another $45. This is technically known as "roll over" and it has the same entrapping effect as the original loan. Unfortunately the cycle of loan renewals is excruciating and unending for most borrowers. The fees pile on and the borrower is caught in the debt-trap which in most cases is beyond his means to escape.

The predatory practice of loan flipping collecting interest repeatedly on the same loan principal - is not a chance occurrence with a handful of hapless borrowers. It lies in the core of the payday industry's business model.

The costs of payday lending

The Center for Responsible Lending conservatively estimates that predatory payday lending costs American families at least $5.5 billion in abusive fees every year. The numbers show a significant rise from $3.4 billion in 2002. If 1.5% of payday borrowers are military personnel then military families are losing over $80 million in abusive fees every year to military payday loan lenders.

Alternatives to payday lending:

For the military, as for other individuals payday lending is not the only answer to unabated cash-crisis. There are several avenues for low-cost lending available to the army some of which are within the precincts of the military bases. They are as under:

Military relief societies: These provide low interest rate loans to retired and active duty military and to their family members who are found eligible for loan.

Military Credit Union Loans: These are offered by the Pentagon Federal Credit Union, the Fort Bragg Federal Credit Union and others. The Pentagon Federal Credit Union extends short term emergency loans through an Asset Recovery Kit (ARK) program to the military with the ostentatious purpose of cutting down abusive lending operations to the military. The ARK program provides a loan up to $500 against an APR of 32% which is 10-15 times lower than a typical payday loan. Besides lending services the ARK program is also designed to deliver counseling services to the military who wish to put their finances in order.

Other Credit Union Loans: These also offer small loans that range from prime to 18% annual interest which is around 1/30th the cost of payday loans. The North Carolina State Employees' Credit Union itself offers a cash advance at 12% annual interest which has proven to benefit its military brethren.

Casual Pay: This involves requests for pay advance with sanction from the unit commander which involves no fees and no interest.

Credit Card Advances: Taking credit card advances from even the highest priced credit card has been found to cost less (about 1/10th) than a payday loan.

Small consumer loans: Taking out a small consumer loan could also benefit the borrower from its significantly lower interest rates than payday loans.

Good Overdraft Protection: This protection, tied to a savings or line of credit, may work for the military. However they must avoid new overdraft loan programs that end up costing exorbitant fees.

Negotiating with creditors: Working out a payment schedule with creditors say, utility service providers and credit card companies - by requesting grace periods or extended time for late or defaulted payments can save money and anxiety evident in payday borrowing.

Fortunately there has been an uprising against payday lending activities in America that is being spearheaded by the initiative efforts of several states across the country. The war against Iraq has been an eye-opener of sorts. Thousands of U.S troops is being barred from overseas duty because they have been found neck-deep in debt which as the Pentagon contends can pose a threat to the nations security and as well make the army men vulnerable to bribery and treason. In an effort to throw a protective armor around the defenders of the nation the federal government passed a law in a response to payday advance stores that market short-term loans and in effect douses customers in debt. Efforts at introducing interest rate caps are on and this could give the payday lenders a run for their hefty profits.

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