Predatory lending part one
Happy birthday to the United States Marine Corps! Thank you for serving us for these 231 years, and keep up the good work!
You've all heard of predatory lenders, aka payday lenders or title lenders, who provide short-term cash loans at exhorbitant interest rates. These lenders tend to cluster in areas of high military concentration and in areas of high poverty. Young and naive military personnel flock to these institutions to borrow money for short terms, and often are unwittingly tangled in the vicious cycle of these loans, usually spending hundreds or thousands of dollars before getting out.
The US Senate and Virginia Senate have each passed bills (humm, which I cannot find) that would cap the interest rate at 36% for payday loans for military personnel. While this is a good start, it's not really meaningful yet. If you remember from Schoolhouse Rock, a bill =/= a law. Also, if the bill did become a law, it does not apply to family members of military personnel or non-military personnel. This means that a military spouse could fall into the same lending trap as a servicemember, and it also provides no protection for civilian workers.
All of this raises the question: why do military personnel fall into the predatory lending trap in the first place? Two reasons I can think of. The first is due to a lack of understanding about personal finances and a lack of impulse control. While military personnel aren't the richest people on earth, they can survive if they're disciplined enough to wait until they can afford the lifestyle they want. However, many of them aren't aware of how much their desired lifestyle really costs and cannot manage from payday to payday without running short on cash.
The other reason military personnel fall victim to the payday loan trap is because they are ideal targets. They get a regular paycheck and the amount they earn is public information, and should they fall behind on their repayments to the lender, it's easy for the lender to get a garnishment against them. An irresponsible servicemember can be a lucrative target for a predatory lender.
Tomorrow I'll discuss more insidious types of predatory lenders, since they can also pose a serious risk to the finances of consumers, military or not.
You've all heard of predatory lenders, aka payday lenders or title lenders, who provide short-term cash loans at exhorbitant interest rates. These lenders tend to cluster in areas of high military concentration and in areas of high poverty. Young and naive military personnel flock to these institutions to borrow money for short terms, and often are unwittingly tangled in the vicious cycle of these loans, usually spending hundreds or thousands of dollars before getting out.
The US Senate and Virginia Senate have each passed bills (humm, which I cannot find) that would cap the interest rate at 36% for payday loans for military personnel. While this is a good start, it's not really meaningful yet. If you remember from Schoolhouse Rock, a bill =/= a law. Also, if the bill did become a law, it does not apply to family members of military personnel or non-military personnel. This means that a military spouse could fall into the same lending trap as a servicemember, and it also provides no protection for civilian workers.
All of this raises the question: why do military personnel fall into the predatory lending trap in the first place? Two reasons I can think of. The first is due to a lack of understanding about personal finances and a lack of impulse control. While military personnel aren't the richest people on earth, they can survive if they're disciplined enough to wait until they can afford the lifestyle they want. However, many of them aren't aware of how much their desired lifestyle really costs and cannot manage from payday to payday without running short on cash.
The other reason military personnel fall victim to the payday loan trap is because they are ideal targets. They get a regular paycheck and the amount they earn is public information, and should they fall behind on their repayments to the lender, it's easy for the lender to get a garnishment against them. An irresponsible servicemember can be a lucrative target for a predatory lender.
Tomorrow I'll discuss more insidious types of predatory lenders, since they can also pose a serious risk to the finances of consumers, military or not.
Labels: predatory lenders
3 Comments:
Could another reason be that people get used to spending their deployment allowance and don't cut back when they return?
I have been on international assignment and noticed that many people became used to a spending level that included all of the cost of living adjustments. Some of my colleagues continued to spend at the higher level even after they returned.
Lack of discipline doesn't happen to military personnel. It could happen to everybody and that causes all kinds of financial problems. If someone already gets used to spend every penny he/she makes, it's hard to all of the sudden live below his/her means.
Super: Yes, in lots of cases, especially when military personnel are married, the shift from deployment-level pay to at-home-level pay is substantial, and if a family has raised their spending during deployment, they're in for a rude awakening when the servicemember gets back.
I don't imagine it happens as much with single servicemembers because they don't generally have as many expenses as their married counterparts.
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