Skip to main content

Search form

How the Payday Industry Sabotaged the Nation's Military in California

Wednesday, August 30, 2006

SACRAMENTO, Calif. -- Predatory payday lenders will continue to gouge soldiers, sailors and aviators in California with more than 400 percent interest on loans thanks to the payday-lending industry's intense lobbying of state legislators.

High-ranking Navy and Marine officers, consumer groups and their allies in the legislature tried to ban this sort of predatory lending, but it looks like they will fall short as the legislative session ends this week.

"We may have missed a chance to keep our service people out of the clutches of predators," said Paul Leonard, director of the California office of the Center for Responsible Lending, a nonprofit that goes after predatory lenders.

"Our legislators could give them some financial body armor, but it doesn't look like that will happen."

Payday lenders make borrowers sign a postdated check for, say, $300 to borrow $255 for two weeks. When borrowers can't repay the principal, they roll the loan over for another two weeks -- and another $45. In California, the average payday borrower winds up paying $660 on a $255 loan.

These predators cluster around the nation's military bases seeking to hook young, cash-strapped, financially inexperienced soldiers and sailors on this expensive kind of debt. Military people are three or four times more likely to be victims of payday lenders, the Pentagon says. And as the industry grows fat on loans to soldiers and sailors, the problem gets worse.

"We're hearing more and more stories from sailors who get themselves in a cycle of debt," says Navy Capt. Mark Patton, who testified for the military at a hearing of the Senate Banking, Finance and Insurance Committee.

Fed up with these predations, the Pentagon issued a report earlier this month saying these predators bankrupt and ruin young soldiers. And that wasn't all. Payday lenders are hurting the military's ability to defend the country.

"Predatory lending," the report said, "undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all volunteer fighting force."

It called for a 36-percent ceiling on interest on payday loans to members of the military -- the same cap many states impose in their usury laws to ban loan sharks.

Assemblyman Ted Lieu (D-Torrance) then added the 36-percent cap to a bill he introduced that had already passed the lower house of the legislature.

The bill was about to go to the floor of the Senate for a vote when the banking committee called it back. At this point the committee had a chance to help the people who protect this country. Instead they went AWOL: They stripped the 36-percent interest-rate cap.

The military, hoping to get at least some protection for service members, is supporting the watered-down bill, but still wants the 36-percent cap.

It may get that, instead, from Congress. U.S. Senators Jim Talent, a Missouri Republican, and Bill Nelson, a Florida Democrat, got the 36-percent cap passed in an amendment to a defense bill. While the payday lobbyists stalk Capitol Hill, the amendment awaits its fate in a House-Senate conference committee.

"We're hoping Congress will stand up to the payday industry if California legislators will not," said the Center for Responsible Lending's Paul Leonard. "Our service people deserve far better than financial ruin - or trying to survive in a war zone while they're fretting about how they'll pay next month's bills."

For more information: Michael Flagg, (202) 349-1862 or; or Sharon Reuss, (919) 313-8527,