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US Troops Screwed By Loan Shark Companies
By Richard Sisk
WASHINGTON - More than 100,000 US troops have been saddled with long-term debt in return for short-term cash from "payday loan" stores charging interest rates that would make the mob blush. And the loan industry's powerful lobbyists, both Democratic and Republican, are fighting hard to keep the interest windfalls, which in at least one case topped 500%, the Daily News has learned.
"The troops get roped into it and they can't get out; it becomes a spiral," said Joyce Raezer of the National Military Families Association.
But spokesmen for the industry argue that stores with names such as Planet Cash offer a service "bridging the gaps between paydays" that banks, credit unions and the military can't or won't provide same-day loans to troops who are credit risks.
At a typical payday store, a borrower would show a pay stub and proof of a bank account to borrow $100 for a charge of $120. The borrower writes a check for $120 and postdates the check to his next payday.
After two weeks, if the borrower can't pay, the loan is rolled over for another $20, and Pentagon officials said most troops go through four or five rollovers.
Army Chief Warrant Officer Thomas Burden, who is now serving in Iraq, told Congress he paid back $1,400 on an original loan of $300. "It just kind of keeps snowballing if you don't have the money to cover it," said Burden, 35.
In a letter supporting congressional efforts to curb the payday business, David Chu, the undersecretary of defense for personnel, estimated that 7% of the active-duty military, or 100,000 troops, used the loans, but consumer groups said the number could be as high as 20%.
While complaining about "predatory lenders," the military also has failed to control the business, the Government Accountability Office, the investigative arm of Congress, found.
In a report last spring, the GAO urged commanders to consider declaring the payday stores off-limits to troops and stopping the stores from advertising in base newspapers.
The Community Financial Services Association, the trade group for the booming $40 billion payday business with 22,000 US outlets, rejected the charges of predatory lending.
"It's so easy to demagogue," said association spokesman Steve Schlein. "We provide a product people are begging for."
If the military objects to payday loans, Schlein added, "Then why don't military credit unions offer short-term loans?"
Several bills have been introduced in Congress to rein in payday loans to the military, but the financial group has marshaled platoons of former Republican and Democratic officials to lobby against the legislation.
The dispute has put old friends at odds. Sen. Hillary Clinton (D-N.Y.) has been pushing for limits and co-sponsored an amendment added to the defense spending bill to educate troops on personal finance.
Pushing back has been Maria Echavaste, a deputy chief of staff to former President Bill Clinton and now a lobbyist for the financial services group.
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