Good Info About Payday Loans

MoneyTrack, a public television series about investing, has partnered with MSN Money to presented an  interesting group of videos about financial issues and the military.  The first segment talks about Predatory Lending, specifically payday loans.  It is hosted by Pam Krueger and Jack Gallagher of MoneyTrack and features real stories about service members and their experiences with payday loans.

These same financial experts are also featured in an on-demand Scams and Predatory Lending webcast offered through the California Department of Corporation’s Troops Against Predatory Scams program.  About 30 minutes in length, this webcast includes video, text, links to resources and the opportunity to submit questions to the experts.  Also at the TAPS website are downloadable publications on a variety of personal finance topics of interest to military members and their families.

Payday loans and other predatory scams can look attractive when you’re in a cash crunch.  There are several problems with payday loans.  According to the Center for Responsible Lending, "the payday lending business model is designed to keep borrowers in debt."  Payday loans look easy because they don’t require good credit and it is easy to "roll over" your debt into a new loan when you can’t pay the first one.  The interest and fees can quickly dwarf the amount of the original loan, and combined with the short repayment schedule, it can be difficult to pay the balance in full.

However, there are almost always better options available.  Check with your service’s relief organization (Army Emergency Relief, Navy-Marine Corps Relief Society, or the Air Force Aid Society) about the possibility of no interest loans, or ask at your base’s credit union to see what options they offer.  Programs and offerings vary by location, but many major military credit unions offer alternatives to payday loans. For example, the Pentagon Federal Credit union offers Asset Recovery Kit loans at select branches in the U.S.

When money is tight, a payday loan may look like a quick and easy solution to your financial trouble.  I hope that the videos, webcast and articles linked here will help you find a way to avoid these troublesome and dangerous products.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • David S. Johnston

    The US economic woes have hit military families as hard as any. This is especially true for military families who purchased homes near military installations prior to the 2006 housing market decline. When change-in-duty-station orders arrive, these families do not have the option of waiting out the market for a return to pre-slump prices. Many military home owners have lost all their equity in the house and are now “upside down” in that they owe more for their home they it is worth. This situation has also led to a rise in home foreclosures among military families. In response, DOD has heightened awareness of its family financial assistance programs that focus on financial counseling and education. This does little to forestall the pressure of foreclosure or bankruptcy that was a result of a national economic downturn and not the personal mismanagement of those families. As national leaders consider what to do to help homeowners avoid foreclosure, DOD and Congress must not forget those families directly serving this nation.
    Consider my own story. I have a larger family that could not be accommodated with on-post housing in the Washington, DC market in 2004. No problem we thought, since we had just received a small inheritance that we could use for a down payment on a home. If we got orders to move, we thought to rent or sell since we had equity and the market was still climbing. We got the orders sooner than we thought in the Spring of 2006. So we put it on the market for rent or sale and moved away. Then it happened – that same summer the housing market began to collapse. To make a long story short, we did not finally sell the property for two years, lost all of our inheritance, lost all of our equity, and sold the house for 40% less than its market high. To make matters worse, the lending banks levied the difference against us after the house was sold. We are now making payments on a house we no longer own. If I declare bankruptcy, that jeopardizes my security clearances – so I am stuck. And I am not alone. I have heard this story or similar stories numerous times since sharing my own. Even though it was in the best interest of the government to move me, I have borne all the loss. There should be a safety net in the travel regulations for this situation not unlike the rules for base closure/reduction in force regulations.
    Here is a multi-pronged solution. First, provide immediate help to those military homeowners who are currently under financial duress due to the housing market collapse. DOD should support programs, potentially in conjunction with the VA, to re-finance homes of military members at 95% of the current market value and subsidize the difference. For those members who have already lost their homes in foreclosure or by ‘short sell,’ and whose banks did not forgive any portion of the loss in the home, the government should assume the remainder of the unsecured loan or require the banks to forgive them. Furthermore, the VA should re-consider its loan program qualifications that will still allow good loans to families with poor credit, if, and only if, that poor credit was deemed a result of the housing market collapse and not to personal financial mismanagement. Second, DOD should change the relocation assistance rules of the government travels regulations for military members. If DOD relocates a Service Member who is a home owner and the local housing market subsequently drops, a relocation assistance program ought to be available similar to DOD civilian relocation programs. Since it is in the best interest of the government to move that individual, the government should provide funds to cover the relocation, even if the housing market is declining. When all recourse has been exhausted and the home will not sell, the Service Member should have the option to sell the property to the government at the amount owed. Indeed, if DOD needs to move Service Member families during a significant housing market collapse, it is not in the government interest to drive those families into financial ruin.
    If the government acts soon, it can do much to help military families overcome these financial problems that were not of their own making. Certainly, these would be concrete steps for the home front in the War on Terror.
    David S. Johnston
    MAJ, MS
    US Army

  • As the world enters economic meltdown the rate at which many people are being declined for loan applications is on the increase. This is due to the banks tightening their belts and changing the criteria upon which they once so readily lent money. Although one can understand the reasoning behind this, it has made it harder to access instant loans.