Payday Lenders Say "No Thanks" to Military Customers

None by KCPW

(KCPW News) Military personnel in Utah will no longer be welcome at quick cash loan outlets. New federal laws are in effect this week capping the annual interest rate on payday loans at 36-percent for servicemembers. Utah Consumer Lending Alliance spokesman Cort Walker says they simply won't loan to members of the military, because they can't break even at that rate:

"The majority of these loans are for two weeks or less," says Walker. "So if I issue a loan for 100 dollars at 36% APR for two weeks, I recoup $1.40. That's not enough to make payroll, pay lights and other expenses. Not to mention making a profit."

Walker says military families make up less than one percent of payday loan business in Utah. But he says lenders worry that making loans at the 36-percent rate will open the floodgates to other rate restrictions from lawmakers. Without payday loans, Walker believes military families will be forced to use more expensive options like bouncing checks.

Low-income advocates hope they will turn, instead, to church groups, friends and family members with their short-term cash woes. United Way's Bill Crim says savings programs are the best option:

"Through our Utah Saves initiative we really encourage families to get 500 dollars, 250 dollars, 1000 if they are very lucky in an emergency fund to prevent the need for high-cost, short-term loans," says Crim.

Interest rates on payday loans work out to as much as 400-percent per year, though Utah law prohibits the loans from extending longer than 12 weeks. The new rate cap also applies to high-interest loans made on a vehicle title or in anticipation of a tax refund for servicemembers.

The Department of Defense says the regulation is part of a wide-ranging effort to increase financial literacy among members of the military.

Email to a friendPosted in KCPW Newsroom. Copyright 2009 KCPW