Targeting ‘Predator Lenders’

In an unusual lobbying effort, military brass plan to visit Sacramento next week to plead with legislators to significantly amend a bill they fear could worsen the problem of “predator lenders” targeting military personnel.

Navy and Marine Corps officials say that, unless it is amended, AB1965 would make their troops even more vulnerable to high-interest, no-questions-asked loans from “payday loan” stores clustered outside military bases.

Such stores “represent a real threat to our military readiness” by saddling sailors and Marines with enormous debt, said Rear Adm. L.R. Hering, commander of the Navy Region Southwest.

The bill, introduced by Assemblyman Ted Lieu (D-Torrance), is tailored to help “citizen-soldiers” who are mobilized by National Guard units while they still owe money from payday loans.

But it does nothing for active-duty personnel and, worse, it could inhibit future legislative action by giving the impression that the military’s concerns have been addressed, officials said.

Adm. Robert Willard, vice chief of naval operations, recently ordered all senior officers to exercise “intrusive leadership” to steer sailors and Marines away from payday loans.

“We’re hearing more and more stories from sailors who get themselves in a cycle of debt,” said Capt. Mark Patton, who will lead a delegation to testify at a Wednesday meeting of the Senate Banking, Finance and Insurance Committee.

Lieu’s bill, as passed by the Assembly, would allow military personnel to defer repayment of their loans for up to 180 days during a deployment. Interest would continue to accrue, and the individual would have to agree to a repayment plan within a day of returning. Lieu said Friday that he would offer three amendments suggested by Hering in a June 9 letter: Payments would be deferred during the entire overseas deployment, interest would not accrue during a deployment, and individuals would have 30 days after returning to set a repayment plan.

Hering also would like the bill amended to cap interest at an annual rate of 36%; the current limit is 459%. The industry opposes a 36% cap, and Lieu said it is doubtful that such an amendment will be offered.

“We can’t do the product for that,” said Paul Gladfelty, lobbyist for the Virginia-based Community Financial Services Assn., a trade group for payday loan stores.

Lieu, a major in the Air Force Reserve, agrees that payday loans are hurting readiness. But the industry is legal in California and bound to remain so, he said.

Payday businesses and other branches of the financial services industry are significant power players in Sacramento, contributing to legislators from both parties. To get his bill out of an Assembly committee, Lieu had to drop certain provisions.

A typical payday loan -- the industry prefers the term “deferred deposit transaction” -- involves the customer providing a post-dated check to be cashed on his or her next payday within two weeks. For $100 in cash, the customer provides a check for $115. If by payday the customer can’t afford to have the check cashed, the loan can be “rolled over” into a new loan, with additional interest.

The nonprofit Center for Responsible Lending, based in North Carolina, found that the average person borrowing $325 ends up paying $800.

Military personnel, often young and unsophisticated about money, are attracted to the stores, which often stay open 24 hours. Two dozen are located just outside Camp Pendleton.

The number of sailors who have lost their security clearance because of high debts has increased 1,600% in just a few years, officials said. Some have been booted from the service.

“If you don’t have a clearance, you can’t deploy,” said Patton, commander of the naval base at Point Loma.

Payday officials say that their industry gets a bum rap and that the fees should be considered not like interest on a bank loan, but like a fee slapped on a late payment for a credit card or bounced check.

“Clearly, the last thing anybody wants to do is get in the way of military readiness,” said industry spokesman Greg Larsen.

To steer personnel away from payday loan stores, the military has begun an aggressive program of financial counseling, including advice on getting advances from authorized on-base agencies. Still, one survey says 21% of San Diego sailors have taken payday loans.

The military would like protection against interest buildup at all times, not just during deployment to war zones.

“The guys aren’t getting payday loans in Baghdad,” Patton said. “They’re getting them in California.”