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CRL, CRC Leaders: Honor Vets by Protecting Them from Payday Lending Scams

Monday, November 10, 2014

As the nation marks Veterans Day tomorrow, leaders from Center for Responsible Lending and the California Reinvestment Coalition are urging California state legislators and the state's members of Congress to follow the lead of the Department of Defense and honor veterans by passing legislation reining in abusive payday lending. The Department of Defense recently issued new proposed rules to update enforcement of the Military Lending Act. The proposed rules would enhance existing protections capping interest on loans to active duty members of the military at 36% annual interest. With more than 1.8 million veterans, California is home to the nation's largest number of veterans. California also has the nation's largest active duty military population—over 160,000 service members.

"With more than 2,000 payday stores, California has more payday lending outlets than McDonalds," said Paul Leonard, California Director of the Center for Responsible Lending. "While Congress has taken steps to protect our active duty military members and their families from predatory payday lending, the day that active duty members finish their service, they are at risk of being ensnared in the payday lending debt trap. Too many of our veterans live in or near poverty—the exact profile payday lenders are looking for in a customer. Our veterans deserve better. They deserve lawmakers who will fight to give them the same protections active service members have."

"Several California members of Congress have signed on to federal legislation that would cap all loan products nationwide at 36 percent interest," Liana Molina of the California Reinvestment Coalition said. "We hope all of California's elected officials will honor veterans today by committing to support this effort and committing to support the Consumer Financial Protection Bureau as it considers new rules to rein in payday lending."

Payday lenders are the modern day equivalent of loan sharks, aggressively marketing unaffordable loans as a way to meet a one-time need. In truth, payday lenders know that borrowers cannot both repay the loan and cover their living expenses. To do so, they will need another loan, which requires payment of another fee. This is the payday loan debt trap, where loans are continually rolled over and interest rates average 400 percent. The vicious cycle of debt is not a side effect of payday lending it is the business model. A Center for Responsible Lending analysis shows that California payday lenders, who advertise their products as a one-time quick fix for consumers facing a cash crunch, generate 76% of their revenue from borrowers who take out 7 or more loans per year. A map of California payday lending locations shows the lenders cluster in low-income communities.

The Department of Defense recently put forth strong new proposed rules to protect active duty military members from payday lending. The rules enforce the bipartisan Military Lending Act, which was passed by Congress and signed into law by President George W. Bush in 2007. The Military Lending Act came about after payday lenders had concentrated around military installations. So many troops had been lured into the debt trap that the Defense Department expressed concern that payday lending was a real threat to military readiness. Last month, DoD proposed strong new rules to enhance existing protections of a 36% rate cap.

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at or 919-313-8533.