Senators Urged to Cap Payday Loan APR to 36% for Military Personnel

Young men and women in the U.S. military have become prey to modern loan sharks — payday lenders who surround bases and trap service members in dangerous cycles of debt. California legislators have a chance to protect them in a hearing scheduled for Aug. 8.

Last month, the California Assembly passed with a vote of 71 to 1 AB 1965, a bill with limited protections for military personnel from payday lenders. In its current form, AB 1965 does not cap the interest rate on payday loans below the current State rate of 459%. In contrast, the U.S. Senate recently passed with strong bipartisan support an amendment to the Defense Authorization bill that would cap the interest rate for all forms of credit to active duty military personnel at 36 percent APR, including all fees and service charges.

The California Reinvestment Coalition (CRC), consumer advocates and military officials are concerned about payday lending and its negative effects on military personnel, low-income communities and communities of color. California senators have been urged to amend AB 1965 to include a 36 percent cap on payday loan interest rates. The California Senate Judiciary Committee is holding a hearing about AB 1965, where the amendment will be considered on August 8 at 1:30 p.m. in the John L. Burton Hearing Room. An amendment capping interest rates would help curb a practice the Defense Department has identified as one of 10 “key issues” affecting the quality of life of Service members and their families.

“Payday lenders take advantage that California has some of the weakest laws in the country,” said Maj. Gen. Michael R. Lehnert, commanding general of Marine Corps Installations-West. “In North Carolina, payday lenders are limited to 36% annual percentage rates of interest. Here in San Diego we regularly see rates of 460% and I have seen rates as high as 920% being charged legally against our service members. Ultimately because we expect our Marines to be financially responsible, their ability to reenlist, compete for good jobs and keep a security clearance is affected.”

The highest concentration of payday lenders in the state, 70 to be exact, surround Camp Pendleton in Southern California, where Maj. Gen. Lehnert’s offices are located and more than 60,000 military and civilian personnel work. In fact, Active-duty military personnel are three times more likely than civilians to take out payday loans for reasons including:

• Young service members have limited financial experience
• Personnel have families with young children
• Personnel are stationed in remote locations far from family support networks

“Predatory lending practices represent a real and growing threat to the military readiness of our Navy men and women stationed in California,” said Rear Admiral Len Hering, who represents all Navy bases in California as Commander, Navy Region Southwest. “Ultra-easy credit; no verification of ability to repay; single ballooning payments due in two weeks; triple digit interest rates and aggressive marketing trap our sailors into cycles of debt they cannot escape on their own. If a sailor has lost control of his financial health, he has lost the ability to deploy. If he cannot deploy, military readiness is impacted. The connection between military readiness at this time when our Nation is at war and the marketing of payday loans outside of our gates is well established.”

The California Reinvestment Coalition views the predatory targeting of military service men and women as part of a larger problem across lower-income communities and communities of color. “It is outrageous that the State of California allows payday lenders to prey on our men and women in military service,” said CRC Executive Director Alan Fisher. “CRC strongly opposes payday lenders being permitted to charge usurious rates to any Californian, and urges the California Legislature to impose the proposed 36% cap on payday lending.”

It is an unfortunate reality in this country that military personnel comprise a large and recognizable class of the working poor. The problem of payday lenders’ predatory clustering at military bases is compounded by the fact that these men and women will one day return to their neighborhoods and find the lenders are clustered there as well. Amending AB 1965 with an interest rate cap is the first step toward creating stronger regulations against predatory payday lenders that will protect all California residents.

The California Reinvestment Coalition advocates for the right of low-income communities and communities of color to have fair and equal access to banking and other financial services. CRC has a membership of more than 240 nonprofit organizations and public agencies across the State.