Payday advance lenders, who provide high-interest loans to people who need fast cash, have come under scrutiny by two college professors, including one from CSUN, for unfairly targeting soldiers.
CSUN Geography Professor Steven Graves and University of Florida Law Professor Christopher Peterson published a study that claims lenders intentionally open businesses as close as possible to U.S. military bases so they can easily target soldiers, who lenders may think are better candidates for their loans.
“(Soldiers are) the perfect customer for this kind of thing,” Graves said. “Soldiers are better to make loans to because they’re locked into their jobs, but they have low salaries. They’re young, not experienced, and don’t know a lot about finances.”
The way a payday advance loan works is that a borrower writes a check for the amount of money he or she wants, plus the finance charge, which normally runs from $15 or higher per every $100 loaned. The lender gives the borrower the money, but does not cash the check for several weeks.
Many borrowers unable to cover their loans extend them by repeatedly paying the finance charges, which puts them into deeper debt, according to Consumers Union reports.
Graves said another reason lenders like to target soldiers is because the military encourages them to pay off all of their loans, mainly because they “don’t want the debts in the back of the soldiers’ minds” while they are on duty.
Lyndsey Medsker, spokesperson for the Community Financial Services Association, a leading payday advance lender company, said she believes studies done on payday loans to the military are misleading.
“Less than 4 percent of military personnel have used payday loans, and less than 2 percent of them have loans outstanding,” Medsker said.
She said specialty payday lenders, check-cashers and pawnshops are all grouped together and are labeled as payday lenders.
According to CFSA documents, check-cashers locate near military bases “primarily because they cash government checks, sell money orders, wire money and exchange currency — services often used by military personnel.”
Graves’ specialization in geography has helped him conduct the research for the study, since the research is based on locations, he said. He constructed maps displaying the proximity of payday advance lenders to military bases throughout the country.
The maps show large clusters of payday lenders located close to military bases, with substantially fewer farther away, Graves said.
“They’re definitely targeting the military,” Graves said. “The map doesn’t lie on that account.”
Peterson, who has written a book about loan sharks and high-cost consumer credit, read work by Graves on a similar topic and contacted him about combining efforts for the study.
“(Peterson) doesn’t know how to make maps or do a stat analysis, so it made sense that we work together,” Graves said.
While high-interest loans are nothing new, Peterson said the problem has grown progressively worse, especially over the past 10 years. Peterson and Graves said that while high-interest payday lending is a problem, most politicians are not doing much to try to solve it.
“It’s still a big problem,” Peterson said. “State leaders haven’t come to terms with it. We need to return to 18-36 percent interest-rate caps used by previous generations.”