Ask any North Carolina legislator whether he or she fully supports Americaís armed forces, and no doubt youíll get a quick affirmation, perhaps with hand over heart and misty gaze fixed on the flag.
Why, then, would state lawmakers support legislation that military leaders have roundly condemned as detrimental to troops stationed here?
The legislation, which has passed the House and is likely to sail through the Senate as the session winds down, would permit lenders to double the interest rates they charge on small loans. Currently, the interest on these short-term ó or ěpay dayî ó loans is capped at 15 percent for amounts between $600 and $1,500. That rate could double, while lenders could levy up to 36 percent interest on loans of up to $5,000. The interest cap would rise to 24 percent on loans up to $10,000.
Why has this legislation drawn strong opposition from military base commanders across the state, as well as Defense Secretary Robert Gates? Because these lenders often set up shop near military outposts like Fort Bragg or Pope Air Force Base, drawn by a ready supply of young and financially inexperienced clientele. According to the Center for Responsible Lending, active-duty military personnel are three times more likely than civilians to take out a ěpay dayî loan. Itís estimated that predatory pay-day lending costs military families more than $80 million in abusive fees every year. The Department of Defense has listed pay-day lending as one of its top areas of concern for military families.
The billís supporters have argued that the existing interest rates were set in 1983, and these lenders are struggling to make a profit. Yet the industry was bustling in 2009, accounting for almost 400,000 loans totaling more than $1 billion. If the loans arenít profitable, why are they making them? Why arenít we seeing a collapse in the short-term lending industry in North Carolina? And donít assume these are necessarily small, mom-and-pop operations struggling to stay afloat. CitiFinancial and AIG are among those whoíll benefit.
The bill suggests thereís more loyalty to the short-term lending industry than concern for soldiers being trapped in cycles of debt. But even if this measure affected only civilians, it would still be an onerous bill. It will pad lendersí profits at the expense of those living paycheck to paycheck and already struggling to stay a step ahead of bill collectors.