The lenders target junior enlisted members who draw pay twice a month and who need cash until payday. The borrower writes a post-dated check, and the lender forks over cash – minus fees and interest. In two weeks, the lender cashes the check if the borrower has the money in the bank. Otherwise the lender agrees to hold the check for another two weeks in exchange for more fees and interest charges. The lender is willing to continue rolling over the loan while adding more and more fees and interest charges. The lender might even offer to increase the amount of the loan. As interest rates and fees continue to build, annual percentage rates can reach 500 percent or more. Too often the borrower can find no escape from this trap without help. A Defense Department report (previous item) recommends that Congress do the following:
- Institute unambiguous and uniform price disclosures for all service members and family members seeking credit (excluding mortgage loans).
- Place a federal ceiling on the cost of credit to military borrowers, with an APR cap to prevent usurious rates.
- Prevent lenders from extending credit to service members and their families without due regard for the member’s ability to repay.
- Outlaw provisions in loan contracts that require service members and family members to waive their rights to take legal action.
- Disallow contract clauses that require service members to waive any special legal protections afforded to them.
- Prohibit states from discriminating against service members and family members stationed within their borders, and bar lenders from making loans to service members that violate consumer protections of the state where their base is located.
