New law puts cap on payday loan interest

The new law also requires payday lenders to disclose certain loan information and limits lenders' ability to automatically rollover loans. All service charges, fees, renewal charges and premiums are included in the 36 percent rate.

''I am thrilled to see Congress take the lead in passing legislation aimed at lenders who were targeting members of the military with high cost loans that were deceptively and aggressively marketed,'' said Lynn Drysdale, a consumer attorney with Jacksonville Legal Aid. ''These lenders were providing loans that were impossible to repay and then engaging in illegal and oppressive practices in collecting these loans. Lenders were abusing the Uniform Code of Military Justice in effort to extort money from members of the military who have and are giving so much to their country and deserve to be treated better. I hope that this is just a start in looking into similar abusive products and practices.''

Drysdale has been instrumental in advocating against the outrageous interest rates payday loan companies charge local military members. She recently testified before the U.S. Senate Committee on Banking, Housing & Urban Affairs in Washington, DC a few weeks before Congress voted on the bill. She is a leading consumer advocate on this issue and has sued several local payday loan companies preying on military members.

Prior to the law being enacted, one payday lender changed their policy and no longer provides payday loans to military members.

''Advance America, Cash Advance Centers recently stopped offering loans to military members, but there are thousands more that haven't,'' said NAS Jax Navy-Marine Corps Relief Society (NMCRS) Director Dave Faraldo. ''The growth of payday lenders has been phenomenal. In 1994, one of my caseworkers came to me and said I have a client here who is telling me they are being charged 400 percent interest rate. We didn't think this could be possible, but when we looked into it, it was possible. At that time, if you went on the Internet you would get about 1,500 hits. Today, it's 13 million. Today payday lenders have more businesses than McDonalds and Burger King combined. I think there are about 2,000 in the State of Florida.''

''Payday lenders are easily assessable. They advertise in Navy Times, on TV and on the Internet. They make it look very attractive to get a loan - instant cash, no credit check, 99 percent approval rate. What they don't tell you is that the interest rate is 365 percent,'' added Faraldo.

''The core problem of the payday industry is that they require repayment of their loans in two to four weeks. It's costs them the same to process the loan whether the re-

payment period is two weeks or six months but 90 percent of their profit comes from roll-over loans so they have a quick payback period,'' continued Faraldo. ''If they want to fix the problem and provide the service they claim they provide, they need to change their repayment time and their interest rates would drop to below 40 percent. These companies are making huge profits. Their loss rate is very low because their clients have to prove they have a paycheck coming in and have to give them access to their bank accounts. Just take a look at Advance America's public stock and see how well they are doing. And, they are worried about losing money with this new law?''

Financial hardship can cause a detrimental effect on military readiness. ''Financial issues definitely affect our overall mission of providing national security. Many of our personnel have security clearances and there's been a renewed emphasis on financial issues pertaining to people's security clearances. Financial problems can preclude people from hold a security clearance that will affect how they can do their jobs,'' said NAS Jax Commanding Officer Capt. Chip Dobson.

''If you look at demographics, junior Sailors are more susceptible to take out a payday loan. They are young, away from home for the first time, many are married and trying to establish a household. The problem is that with the ease of credit and having a regular paycheck, people are falling into a trap with payday loans and they are marketed in such a way, that people are getting into a situation, that is very costly, that they can't get out of,'' continued Dobson.

''I think that the military needs to do a better job addressing the issue. The Navy offers 16 hours of classroom instruction on personal financial management during the initial training phase. So we know that our new younger Sailors are getting this but it's apparent to us here that it probably is not enough. So we're looking at different ways to get that information out,'' said Dobson.

According to AT1(AW) Matthew Hubbell of NAS Jax Air Operation's Department, he learned the hard way on how easy it is to get caught up in the payday loan schemes. ''I hope that by talking about what happened to me, maybe I can help other people before they get involved with payday loans like I did,'' said Hubbell.

''I joined the Navy in 1987 and got out four years later. I was married to my wife, who was also enlisted. In 1993, she was forced out of the Navy due to high-year tenure. We were finding it was hard to make ends meet so I came back in the Navy as an E3 in 1999 as an air traffic controller,'' he continued. ''Then my wife was diagnosed with breast cancer and couldn't work so I was supporting a family of six on E3 pay. She was going through treatment in San Antonio and I saw an ad in Navy Times for a payday loan so I went and applied.''

''When we transferred to Corpus Christi, Texas we lived in base housing but it was still very hard to make ends meet. I saw a payday loan place outside the base so I went there to help pay off the first loan I had taken out. It became a cycle. Because it was so short term it took most of my money to repay the loan so I had to keep taking out more. A $500 loan would cost me about $110 to pay off but I could never pay the full amount and pay our bills. I knew I shouldn't haven taken out these loans but it was so quick and convenient. The money was always used for bills - basic necessities,'' said Hubbell.

''I was always able to work things out and get caught up with income tax and Christmas gifts. I knew when I arrived on board USS Kennedy the payday lenders would probably be contacting my command so I told them what was going on first. I was sure my career was over. They sent me to NMCRS and they sent me to an attorney. I didn't know they would be so helpful,'' stated Hubbell. ''I think being military is easily targeted because if you don't pay these loans off, they go straight to your command. It was just so easy to get money through payday lenders and by the time your wrapped up in it, it's like quicksand and you sink.''

There are several alternatives for military members who need some financial help. ''The NMCRS has been around for more than 100 years. We provide interest-free loans for military members and their families, 24 hours a day, seven days a week for basic necessities and emergencies. And, we don't contact our client's command to let them know,'' said Faraldo. ''Another option is the new VyStar Credit Union Pay and Save Program which offers a six-month loan at a much lower percentage than a payday loan. There are lots of options for military members, they just need to be aware of them. Each command is required to have a command financial specialist and hold regular training. People need to realize that payday loans are not a good solution. We see about 2,000 cases a year and many of those are people in trouble from payday loans. I've never seen one person helped by taking out a payday loan.''

For more information about the services available at the NMCRS, call 542-3515.