Video: Payday loans targeting military members?

By Martin Savidge Correspondent
NBC News
updated 9/14/2006 7:48:02 PM ET 2006-09-14T23:48:02

Even as they serve overseas, America's military men and women face a growing threat at home: Predatory lenders. The problem is so bad the Department of Defense says it's weakening the military.

"We do need legislative assistance to curb this problem," says David Chu, undersecretary for personnel and readiness at the Pentagon.

Payday loans, as they're called, are legal and available to anyone. But they are more frequently used by service personnel short on money who borrow against their paychecks and are charged very high interest rates.

"I think this behavior, if it's targeted to exploit soldiers, is absolutely reprehensible," says Sen. Jack Reed, D-R.I.

At a Senate hearing today, critics claimed lenders specifically target the military, lining the streets of military towns and advertising online using military sounding names or logos.

The Defense Department estimates one in five military members use payday loans — on average borrowing $350 at interest rates of 390 to 780 percent.

Kim Czaja of San Diego remembers how a payday loan triggered a debt trap for her and her sailor husband. They borrowed $300, and when they couldn't pay it back on time the costs soared.

"So in that eight-month period, that $300 easily cost us $1,000," she says.

A Pentagon report concluded: "Predatory Lending undermines military readiness, harms the morale of troops and their families and adds to the cost of fielding an all-volunteer fighting force."

The Department of Defense wants to cap interest rates for military personnel at 36 percent. The industry is opposed, saying it provides a financial service to customers traditional banks might turn down.

"In short, [it] is contrary to our interests to have service members get in trouble with their loans," says Hilary Miller, president of the Payday Loan Bar Association.

That's one point on which military officials would agree: Troops worried about money aren't focused on their mission.

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