CCRF in the News


April 27, 2006 - Study Argues Soldiers Need Short-Term Credit Access

By Kristin Roberts/ Reuters ©


WASHINGTON, April 27 (Reuters) - U.S. soldiers should have the same access to short-term credit as civilians, including payday loans and high-rate credit cards, because they face similar cash needs and credit profiles, according to a study to be released on Thursday from a non-profit research group.

The Consumer Credit Research Foundation, whose work has focused on the payday lending industry, argues that military personnel, especially young service members, do not have strong enough credit backgrounds to access prime credit alternatives.

Because of this, they need full access to short-term credit products, including payday loans, pawn loans and title loans against their personal automobiles, the study's authors state.

The report comes as Congress considers legislation to protect soldiers from abusive and misleading insurance sales practices and to keep personnel from falling into debt that expands over time. The Senate Banking Committee is now drafting a bill likely to be debated in June.

Legislation already approved by the U.S. House of Representatives would restrict lenders' loan collection practices and require mandatory disclosures to borrowers. It would apply to all lenders, not just payday shops.

Another measure proposed but not advanced in the House would cap the annual percentage rate (APR) on payday loans made to military personnel at 36 percent -- a move that could drive the payday lending industry out of business near bases.

Payday loans are short-term, typically two-week, extensions of credit that can carry interest rates of well over 300 percent.

The Senate has not decided how to address lending in its bill, but APR caps are on the table, according to a source.

The Consumer Credit Research Foundation study, however, says soldiers' credit options should not be limited. Instead, military personnel should be educated about their options and industry should be open about loan terms, the authors said.

"Rather than try and figure out where do I put the roadblocks to prevent them from making mistakes, let's arm them with the intelligence they need, the skills that they need and, from the industry, let's demand the information they need to make smart decisions," said Charles Cushman, one of the report's authors and associate dean of the George Washington University's Graduate School of Political Management.

"And that will keep us out of way more trouble than any kind of bill to limit what soldiers can and can't do," said Cushman, a former U.S. Army officer.

Other financial services providers say soldiers have access to credit with more favorable terms.

"Unfortunately, there are those who prey on the troops," said Fred Becker, president of the National Association of Federal Credit Unions.

Becker said payday lenders operating near bases thrive by getting military personnel to take out payday loans and then allowing them to keep rolling the debt over, creating a cycle that young soldiers and sailors have difficulty beating.

"There's an on-base bank and an on-base credit union virtually at every base," he said. "They have access to credit now and they have the right type of access to credit as a result of this."


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