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Time to Honor Veterans, By Reining in Payday Lenders

Date: 
11/10/2014

For immediate release

Time to Honor Veterans, By Reining in Payday Lenders

Military Deserves Protection from Loan Sharks

 Before, After Serving Their Country 

Chicago, IL] As our nation marks Veterans Day in honor of those who have served the country, Citizen Action/Illinois is calling on members of Congress to follow the lead of the Department of Defense and Congresswoman Tammy Duckworth by reining in abusive payday lending. 

“When service members take on high-cost debt with abusive terms, they are forced to make difficult choices between paying off a loan with rates as averaging 392%, forgoing other necessities, such as utilities or grocery bills, or taking out additional loans,” said Representative Tammy Duckworth. “This accumulation of debt is factored into eligibility for security clearance and advancement, putting their jobs at risk.”

Payday lenders are the modern day equivalent of loan sharks, aggressively marketing unaffordable loans as a way to meet a one-time need. In truth, payday lenders know that borrowers cannot both repay the loan and cover their living expenses. To do so, they will need another loan, which requires payment of another fee. This is the payday loan debt trap, where interest rates average 400 percent. The vicious cycle of debt is not a side effect of payday lending it is the business model of payday lending.  Three quarters of payday loan fees come from borrowers with 10 or more loans per year.

“Too many veterans are living in poverty and desperation – the exact profile of payday lenders look to capitalize on among vulnerable consumers,” said Citizen Action/Il Co-director Lynda DeLaforgue.  “A loan that traps veterans in an endless cycle of debt can be the final push over the edge of despair. Our veterans deserve better.”

The Department of Defense recently proposed smart new rules to protect active duty military members from payday lending. The rules enforce the Military Lending Act, a 2007 law that our representatives in Congress supported. The Military Lending Act came about after payday lenders sprung up like weeds around military installations and so many members of the military were lured into the debt trap that the Defense Department became concerned that payday lending was a real threat to military readiness. New rules to enforce the spirit of that law became necessary because the payday industry had exploited loopholes in the original rules in order to continue making 400 percent interest rate loans while still technically complying with the letter of the law.

“The proposed rules are clear and comprehensive and will protect against debt traps that undermine the financial security of service members and their families. They provide welcome relief for struggling military families.”

Given their past support for the Military Lending Act, it’s time for Congress to extend its protections to veterans, both by signing on to federal legislation that would cap all loan products nationwide at 36 percent interest and by supporting the Consumer Financial Protection Bureau as it considers new rules to rein in payday lending.