Group: Pentagon Joins Forces With Fringe Activists on Payday Advance Report

A report delivered to Congress by the Pentagon is nothing but a re-hash of flawed data, biased analysis, and anti-business philosophy pushed by fringe activists, says the Community Financial Services Association of America (CFSA), the industry group representing responsible payday advance lenders.

In fact, according to CFSA, fringe activists worked so closely with the Pentagon that one group publicized the report the night of August 11th on its web site, even though Congress itself did not receive the report until Friday the 12th.

“This study is nothing more than a restatement of those groups’ unsubstantiated and discredited claims. In fact, certain conclusions in the study directly contradict research conducted by the current chair of the FDIC, government agencies, foundations and academicians involved in financial issues and study,” said Darrin Andersen, President of CFSA.

“The DOD’s recommendations to eliminate an affordable short-term loan option that is regulated in 37 states and the District of Columbia will hurt military personnel,” Andersen continued. “They will be driven into the arms of unregulated offshore Internet lenders or forced to choose between more expensive alternatives such as bounced check, overdraft protection, or late bill payment fees.”

Among Department of Defense recommendations is a rate cap so restrictive it would entirely prohibit the industry’s ability to make loans to military personnel. “At a 36 percent APR, the total fee charged on a $100, two-week loan would be $1.38, which is less than 10 cents per day. Payday advance lenders could not even cover the cost of originating such a loan, let alone meet employee payroll and other fixed business expenses,” Andersen said. A 2005 study by the FDIC’s Center for Financial Research confirms that the payday advance product would not be feasible under a 36% APR cap, concluding that payday lenders’ costs alone total $32 per loan, or $13.70 per hundred dollars advanced.

“The allegation that payday lenders target members of the military is simply false,” Andersen said. “In fact, the study demonstrates that less than 1.3 percent of total industry revenues comes from military customers.”

A June 2006 Consumer Credit Research Foundation survey of military enlisted personnel in and around the nation’s military bases found that 13 percent had used a payday loan in the last 12 months. “This means that 87 percent of military enlisted personnel in the immediate vicinity of military bases have not used payday loans,” said Andersen. “This is no surprise to those payday advance companies that open stores in these areas to serve the thriving civilian communities that grow up around military bases.” The Consumer Credit Research Foundation survey also found that military enlisted personnel who have had payday loans, repay them more quickly and are more likely to remain out of debt than their civilian counterparts: 79 percent of the military borrowers reported using a payday loan no more than four times in the last year.

As the head of the national trade association representing payday lenders who abide by best practices, Andersen condemned the abusive practices of some payday advance companies and any other type of lender who mistreats their customers, especially service men and women who defend our country.

Andersen added, “Even though military personnel represent a small percentage of our members’ customers, they deserve, like all our customers, strong consumer protections. They also deserve the right to choose credit products that best suit their needs in varying circumstances. Different credit needs require different credit products.” He noted, for example, “All our customers, including those in the military, are banking customers who know that payday advances are likely to be cheaper than a bounced-check or overdraft protection fee.”

Recognizing that military personnel have unique circumstances, CFSA developed extra protections for customers who are members of the military. CFSA’s Military Best Practices prohibit garnishment of military wages or salaries and engaging the military chain of command to collect payment. In addition, CFSA members defer collections against deployed military customers and take efforts to strengthen the financial knowledge of military members. CFSA’s general “Best Practices,” which apply to all borrowers, also prohibit excessive rollovers to help ensure customers do not fall into a cycle of debt.

The Community Financial Services Association of America (CFSA) is the national trade group of the payday advance industry.