There were many reasons why I enlisted to serve my country in the United States Navy, but making money was not one of them.
While the honor and skills gained from my service contributed to my civilian success later – mine with Microsoft, Amazon, and now CEO of QCash Financial – many of my fellow distinguished sailors came from economic backgrounds that never gave them the financial literacy and education opportunities to succeed right out of the gate. Some learned the hard way.
That reality is while it is unfortunate that after serving their country, those military members and servicemen often come home to face serious economic and costly barriers in the form of predatory payday lenders. Many of them are stationed right outside the gates of military bases or adjoining neighborhoods looking to take advantage of service members’ inexperience, vulnerability, and financial distress.
These so-called lenders attempt to entice or deceive young military members to take out payday loans that impose unfair or abusive terms, terms of which the owners know a business like theirs cannot survive without depending on devastating roll-over debt traps.
According to the American Forces Press Service, predatory payday lending has metastasized into a $40 billion industry and remains a prominent and stubborn presence. The Hill Air Force Base Airman and Family Readiness Center, which offers financial counseling services for military members, found that in the state of California alone, payday loan outfits actually outnumber McDonalds and Burger King locations, combined.
In a CNBC article I came across a while ago, Tara Falcone, a certified financial planner and wife to a U.S. Navy officer said, “Predatory lenders like to prey on young military members because they’re often inexperienced with money, have little to no credit and are usually very excited to spend that first paycheck.”
Payday lenders also make those unhealthy loans easy to get. Collectively, they typically target women, those who earn less than $25,000 a year, minorities – and again – military members. The customer writes a check or allows electronic access – an inexplicably intrusive condition – for the amount of the loan and a finance charge. Yet these payday loans by design are not long-term and become due on the consumer’s next payday. The interest compounds quickly on those loans and calculates to an average of 380 to 780 percent annual percentage rate, or APR. Adding insult to injury, there is no payback installment plan, so the consumer has to pay back the entire loan amount in order to dodge another finance charge related to re-upping – or rolling-over – the entire loan principle, aka the dreaded “debt trap.”
Dancing between raindrops – payday lenders revel in disregarding the Military Lending Act
You might be wondering how predatory payday lenders are still getting away with these sleazy practices when, in 2006, the government enacted the Military Lending Act. The law capped the interest rate on most consumer loans at 36 percent, except that military and veteran organizations have voiced criticism that the law has not, for a long time, been enforced to any noticeable or effective degree.
In 2019, the Consumer Financial Protection Bureau’s (CFPB) new director said the agency lacked the explicit supervisory authority on the matter and requested that Congress give CFPB that power. Tom Feltner, former Senior Advisor at the Center of Responsible Lending and current Policy Fellow at the CFPB, said, “What we are seeing is really a pattern of neglect around consumer protections for both consumers generally, who are targeted by payday lenders, but also disregard for fully implementing the Military Lending Act and making sure military members are not targeted by high-cost, abusive lenders.”
Featured in We Are the Mighty, a veteran-led publishing and media agency, the Consumer Federation of America, a nonprofit advocacy group, has researched the payday loan industry for a decade and believes the industry mirrors the criteria for lenders who practice abusive collection practices, balloon payments with unrealistic repayment terms, equity-stripping with repeated refinancing and excessive fees, and excessive interest rates that are inherently purposed to steer a consumer into a higher-cost loan.
In addition to the abhorrent APRs, CFA found payday lenders like to misrepresent themselves as “check-cashers” even though they are not even registered as such with the individual state. They will not, in fact, cash your check. Rather, they will hold on to your check until payday. Lenders have then been known to harass, badger, and even threaten the consumer until payment is made or a roll-over loan can be agreed upon, and then charge the fees again. This is where you may have guessed the debt trap commences!
Credit unions bring financial inclusion for military members through mobile accessibility
It is difficult to find a more financially healthy and inclusive counterpart to predatory payday lenders than credit unions, especially for young and inexperienced service members.
Credit unions that cater to the armed forces have for a long time benefited from a well-defined customer or member group, one mostly located around military bases. In the last decade, online innovations and mobile applications threaten to wear away at cooperatives’ effectiveness if the organizations themselves cannot level up and onboard financially-inclusive mobile and digital tools for their local military members.
In the effort to help service members survive and even prosper, credit unions are beginning to partner with responsible mobile products and services like QCash Life Event Lending while stressing their understanding, experience, and knowledge in navigating the challenges of military lifestyles. Michael J. Meese, chief operating officer of the American Armed Forces Mutual Aid Association, summed up credit unions’ value to military members nicely when he said, “A military-oriented credit union has features that support a military lifestyle which may include frequent moves, deployments, family separations, and other challenges. Different military credit unions address those needs in various ways, including extensive online banking, 24/7 phone support, mobile banking, rebates of ATM fees, deposits at home, and helpful educational programs or information on financial management, especially for younger military families.”
Here is a list of some of the benefits and services credit unions can offer service members:
Locations near military bases
Branches located on or near a military base are important for those serving on active duty, whose time off-base is limited, or someone who only has a limited window to prep for a move or deployment. For instance, one of the larger credit unions hosts dozens of military branches on bases and many international locations, while another credit union geared towards military members offers branches in a city in the middle of the country where several bases are located.
Robust online services
Access to reliable online services can help service members pay their bills on time, particularly larger monthly payments, and especially if they’re stationed away from home. Helpful options include automated bill pay, account spending limits, check deposit, and small dollar lending options help service members get a bridge to payday.
While all consumers appreciate institutions that cater to their financial and lifestyle needs, credit unions were literally created on the concept. Service members must rely more heavily on member care because the strains of military service put unique stress on the member being able to consistently deal with their finances.
ATM access, including overseas
Getting access to ATMs, especially when foreign currency is needed in another country, is pretty important when a service member needs to pay for food or other essentials at businesses that only take cash.
Ability to send money
The ability to send money home to family members or friends is also important since service members have strict work hours they tailor their entire days around, with minimal free time. Mobile apps and programs that enable them to pay bills or send money to dependents offer a crucial tool.
Coordinating deployments or reassignments
It is always better to work with a credit union that is familiar with the logistics and challenges of dealing with the hassle of deployments and reassignments. Some cooperatives will waive annual fees on credit cards for overseas members.
Working with federal military programs like VA loans
A credit union that is experienced in the rules of the Department of Veterans Affairs loans can make the process much easier for service members. The credit union can also waive origination fees.
As opposed to the corrupt priorities of predatory payday lenders, these services represent many of the dependable benefits and flexible lifestyle options credit unions can offer our service members, while also offering the mentorship and counseling those servicemen and women may require for a life of financial health, stability, and financial prosperity.