Payday lenders will end loans to military
Payday lenders will end loans to military
New federal law caps rates troops pay at 36 percent
By Michael Gardner
COPLEY NEWS SERVICE
March 19, 2007
SACRAMENTO – Military personnel seeking quick cash may soon find one reliable source off limits. Large players in the payday loan industry are withdrawing from the military market nationwide, and many are planning to quit lending to soldiers and sailors in California starting Jan. 1, if not sooner. The moves are being driven by a new federal law that will impose a 36 percent cap on payday loans to troops effective Oct. 1. Payday lenders argue that processing applications would cost them far more than the less than $4 they would make from the average two-week, $255 loan at a 36 percent annualized rate.
However, the industry cannot unilaterally pull out of California's military market under state anti-discrimination law. Assembly Democrats Lori Saldaña of San Diego and Ted Lieu of Torrance have introduced legislation, AB 7, to grant the industry a narrow exemption so they can refuse to lend to the military. The federal law will apply only to the military, which accounts for an estimated 2 percent of payday loan customers nationally.
But even supporters of the new federal law – including military officials and some members of Congress – acknowledge that it could create an unintended financial dilemma for some troops. Loan industry officials have warned that military personnel are likely to bounce more checks and be billed higher fees for going over credit card limits once payday loans dry up. The more desperate could resort to unregulated loans over the Internet and other unscrupulous sources, Gwaltney said.
Payday loans, also called cash advances or deferred deposits, generally provide cash-strapped borrowers with quick money. A pay stub and proof of a bank account are usually the only collateral required. In most cases, the loans are for a few hundred dollars until borrowers get their next paycheck – usually in two weeks. For example, under existing rules, giving a $300 post-dated check to a lending company will return $255 in immediate cash. That $45 fee represents a 459 percent annual rate, according Paul Leonard, California director of the Center for Responsible Lending.
LinkHere
New federal law caps rates troops pay at 36 percent
By Michael Gardner
COPLEY NEWS SERVICE
March 19, 2007
SACRAMENTO – Military personnel seeking quick cash may soon find one reliable source off limits. Large players in the payday loan industry are withdrawing from the military market nationwide, and many are planning to quit lending to soldiers and sailors in California starting Jan. 1, if not sooner. The moves are being driven by a new federal law that will impose a 36 percent cap on payday loans to troops effective Oct. 1. Payday lenders argue that processing applications would cost them far more than the less than $4 they would make from the average two-week, $255 loan at a 36 percent annualized rate.
However, the industry cannot unilaterally pull out of California's military market under state anti-discrimination law. Assembly Democrats Lori Saldaña of San Diego and Ted Lieu of Torrance have introduced legislation, AB 7, to grant the industry a narrow exemption so they can refuse to lend to the military. The federal law will apply only to the military, which accounts for an estimated 2 percent of payday loan customers nationally.
But even supporters of the new federal law – including military officials and some members of Congress – acknowledge that it could create an unintended financial dilemma for some troops. Loan industry officials have warned that military personnel are likely to bounce more checks and be billed higher fees for going over credit card limits once payday loans dry up. The more desperate could resort to unregulated loans over the Internet and other unscrupulous sources, Gwaltney said.
Payday loans, also called cash advances or deferred deposits, generally provide cash-strapped borrowers with quick money. A pay stub and proof of a bank account are usually the only collateral required. In most cases, the loans are for a few hundred dollars until borrowers get their next paycheck – usually in two weeks. For example, under existing rules, giving a $300 post-dated check to a lending company will return $255 in immediate cash. That $45 fee represents a 459 percent annual rate, according Paul Leonard, California director of the Center for Responsible Lending.
LinkHere
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