Published on: 2005-11-01

Consumer and military watchdogs applauded, then criticized, and now again support a payday lending amendment proposed by Sen. Elizabeth Dole.

In July, Dole proposed a 36 percent interest rate cap on payday loans given to military members and their spouses. The amendment is attached to the Defense Authorization Act for fiscal 2006.

An October revision to the amendment removed the interest rate cap, and consumer advocacy groups withdrew their support.

Last week, the amendment was revised again, asking the Department of Defense to file a report on predatory payday lending.

"The issue is not as simple as capping rates, so it needs something more comprehensive," said Marine Corps Maj. Alison Thompson, a member of the senator's military issues staff.

Lindsay Mabry, a spokeswoman for Dole, said the cap was removed from the amendment because of "several jurisdictional hurdles."

Mabry said Dole wanted more support from the Senate before submitting a plan to aggressively tighten rules on payday lenders.

"What we don't want it to insinuate is that she's backing down," Mabry said. "Senator Dole wants to get action now as opposed to not having any at all."

Peter Skillern is director of the Durham-based consumer group Community Reinvestment Association of North Carolina. He said the organization would support the bill as long it clearly benefits the military.

"Unique protection is needed for the military because they are uniquely vulnerable," Skillern said. Unlike most civilians, military members can get in trouble at work for financial matters, such as defaulting on a payday loan, he said.

For someone who is working to defend the country, predatory lending is "unfair and unpatriotic," Skillern said.

Lynn Olavarria, financial readiness program manager for Fort Bragg, said soldiers sometimes look for a quick fix to their financial problems to avoid punishment by superiors.

"They wander off post because they don't want commanders to know," Olavarria said.

The Army has started a program, Commander Referral, designed to protect its members and their families from payday lending traps, Olavarria said. Soldiers in a financial bind can get an interest-free loan up to $1,000 by asking his or her commander. The pilot for the program was at Fort Bragg, but it is now being implemented throughout the Army.

Olavarria said the program and financial education are bringing attention to the problems with payday loans. But further regulations would only help the cause.

"It can't hurt to put some things in place to protect the soldier and their families," she said.

Sharon Reuss, spokeswoman for the Center for Responsible Lending, said the Dole amendment is a good start in regard to addressing the impact of the predatory lending industry.

In September, the center released a study that found that 31 of 33 the payday loan shops in the roughly 1,000-square-mile area around Fort Bragg and Pope Air Force Base are within about five miles of the installations.

Reuss said the center would welcome further legislation to "stop rampant abuses" by payday lenders targeting the military.

Payday lending is illegal in North Carolina, but lenders have avoided the law by partnering with out-of-state banks.

The state's largest payday lender, Advance America, is being investigated by the state's commissioner of banks to determine whether it is violating the state's loan laws.

In September, Advance America and QC Holdings, which does business as Nationwide Budget Finance, announced it would suspend all payday operations in the state.

The Dole amendment is scheduled to go to the Senate floor as early as next week. If approved, the Defense Department will have 90 days to complete the payday lending report.

"The ultimate goal is an aggressive bill," Alison Thompson said. "You can't solve it in one day. You have to take the baby steps."

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What is payday lending?

Payday loans, or deferred deposit transactions, are loans of around $300 to $500. A borrower writes a postdated personal check in exchange for the loan. The check is not cashed until the borrower's next payday. The loans typically have interest rates of 400 percent or higher. If borrowers cannot pay back the loan, they often take out another loan to cover the original debt and incur more interest rates and fees.

Effects on the military

Active-duty military personnel are three times more likely than civilians to have taken out a payday loan.

One in five active-duty military personnel were payday borrowers last year.

Predatory payday lending costs military families more than $80 million in fees every year.

Source: Center for Responsible Lending

Staff writer Claire Parker can be reached at parkerc@fayettevillenc.com or 486-3582.