Have you heard about the military lending cap?

[Firethorn]

It took effect recently, as I actually have credit enough to get single digit interest rates, I hadn't paid much attention to this coming up.

http://www.consumeraffairs.com/news04/2007/06/pentagon_predatory.html

Basically, the rule is that no business can charge more than 36% apr, or 0.1% per day, inclusive of all fees.  Previously 'payday loan' places loved military because it was easy to get our pay, which was also very certain.

IE I borrow $500 for 30 days, they'd only be able to charge ~$15.

This isn't enough money to be worth it for payday loan places.  The moment this took effect, the ads stopped in our base papers, and I've noticed fewer places downtown.

My thought, as a military member, is that it's good, there's services than can help for much less than these predatory places(some charged the equivalent of 400+%).

My second thought was 'if they're going to do that, they need to do it for everybody, not just military members and their dependents'.

Third thought:  Shouldn't limit interest rates, this is government interference, but on the other hand - this is like ARM home loans - more likely to get people into trouble rather than out of it.

[DustinD]

Why do so many service memebers need loan sharking in the first place? It's sad that no one teaches most people how to manage their money.

Pentagon documented the devastating impact predatory lending is having on troop morale and combat readiness.

Military officers pushed for the law, saying the loans saddled low-paid enlisted men and women with debts that ruined their finances, jeopardized security clearances and left them unable to deploy to Iraq or other assignments.

How does it hurt deployment schedules and security clearances?

[Firethorn]

How does it hurt deployment schedules and security clearances?

Being in excessive debt is a security risk.  There have been cases of military members who sold stuff to the Soviets to get out of debt; Ergo, you fall behind in your payments and jack up your credit and you can lose your clearance.

As for deployment - they probably end up in court, and the relief act doesn't help if you're in the middle of a court case.  The military can't just go 'place this service member's trial on hold for a year'.

If they have a family and can't show how they'll do while you're away, you don't go.

As for financial management - there are numerous classes and assistance avenues available.  Each unit has at least one representative that can help with a budget.  There's the family support center, etc...  They just have to ask.  However, these places, along with the rent to own shops, place big ads all over the place with *get money fast* and *low low monthly payments*.   After all, we're mostly talking about a bunch of young men 18-20 years old.  Even with sound advice they don't always make the best decision.

I always counseled my airmen that such places are ripoffs, and come to me before going there - I could most likely save them a boatload of money.

The rent to loan places - For a 50" HDTV, the loan places wanted $44/week, for 75 weeks.  Walmart, for a 50" HDTV of the same specs, $1800, almost 50% off what the rental place wanted.

[Leatherneck]

"Why do so many service memebers need loan sharking in the first place? It's sad that no one teaches most people how to manage their money."

Kinda hard to make ends meet when you make <$24,000 a year.

TC

[Fly320s]

Kinda hard to make ends meet when you make <$24,000 a year.

Not if you are single and living on base, which is what most enlisted personel should do.

[Firethorn]

Kinda hard to make ends meet when you make <$24,000 a year.

Not if you are single and living on base, which is what most enlisted personel should do.

The pay of a an enlisted member, E3<2 years in is only $18,410.40 a year.  An E4>3 makes $22,597.20

On the other hand, Enlisted have the following advantages over somebody on the outside making $18k:

Free Housing(extra money paid if living off base)
Free Healthcare(cheap for those with dependents)
Free Food at the dining hall(or extra money is paid).
Free college tuition.
Paid for uniforms, equipment is issued.
Darn near the best job security in the world

Hot cars, accidents and traffic fines are some of the biggest expenses airmen around here get into financial trouble over.  That and many of them have a bigger HDTV than my 8yr old 32" traditional boob tube, extensive video libraries, music, alienware computers, etc...

[Jamisjockey]

"Why do so many service memebers need loan sharking in the first place? It's sad that no one teaches most people how to manage their money."

Kinda hard to make ends meet when you make <$24,000 a year.

TC

Hey that's like E6 pay.
When I was a married E4 on BAQ I pulled in something like 20k a year.  Good thing I could have died for my country and all.


I just read Firethorn's post....I guess pay's gone up a skosh. 

[mtnbkr]

I don't dispute soldiers needing more pay.  They're woefully underpaid, even considering the "freebies" they get (housing, med care, etc).  That said, when I was in college near Ft Bragg and Pope AFB, I saw plenty young enlisted men spending stupid amounts of money on toys of various sorts.  If they're dumb enough to spend money like that AND get themselves in debt with these check cashing businesses, I don't feel sorry for them at all.  An 18-20yo soldier should not be buying new cars, expensive electronics, knocking up young ladies, etc.  Sorry, but they need to put some of that military discipline to good use.

I heard a radio program on NPR over a year ago talking about this problem.  The excuse was these were young people who didn't have experience managing their money, budgeting, balancing a checking account, etc. WTF?  I had experience doing all this by the time I graduated HS.  I was neither spoiled nor was I living on my own and paying my own way.  Anything that wasn't a necessity was paid by me out of my earings at the local grocery store.  I didn't have my first checking account until college, but it wasn't exactly difficult to wrap my noodle around the importance of maintaining some sort of check register and subtracting checks written or ATM withdrawals from the total.

Chris

[JonnyB]

Underpaid?

My son, when active duty in Iraq, was taking home (tax-exempt) around $60k per year. That's as an E6 in the Mn Guard.

Don't cry to me about being underpaid in the military!

jb

[Thor]

Hey Jonny, coming through your hometown today.

As an E6 on active duty, I was making far less than that. Of course, that was 13 years ago. I think my TOTAL military compensation was at $36-38K (that was not just pay, housing, and subsistence, there were other things factored into that)

[mtnbkr]

I was referring more to the ones making less than $30k.  Still, $60k is low considering the risks.  That's about $100k stateside before taxes, which isn't all that much depending on where you live (and you get to live in the suburbs without people trying to kill you).

Chris

[French G.]

I'm E-6, I've taken home, as in net $44k this year. I have to make at least $27 an hour outside to equal that. Back in my E-2 days I cleared $331 a paycheck. Woo-hoo! I bought a house on E-4 pay as the only income. Servicemen I do not think are underpaid. Too many people with zero life skills come to the military and there are plenty of folks willing to separate them from their money. Lots of people didn't get raised by their parents, their parents are indignant the schools didn't raise the kids and now the military has to do it. I don't mind that part of the job and by and large we do a pretty good job. Junior troops don't need more money in their pocket, they need a better head on their shoulders.

Now for radical ideas. The service academies prohibit cadets with spouses, former spouses or kids. A while back a Marine General proposed the same thing for the enlisted force that unmarried recruits be contractually obligated to stay that way the first enlistment. I think it was waiverable for already married. I thought it was a great idea, by and large the General's idea was vilified in the press and in the military. I guess they've never had a 19yr old with two kids going through a divorce working for them.

[Firethorn]

Don't cry to me about being underpaid in the military!

There's a rather vast gulf between deployment pay(combat, hazardous duty pay, family seperation allowance, per diem, tax free) and garrison pay.  While it does lessen the sting of deployments, it can't be counted on by most troops.

Also, an E6 isn't 'junior enlisted'.

This was put in place to protect the junior enlisted - who'd be working a McJob or be in college if they weren't in the service.

[Balog]

I've always thought that being unmarried should be a requirement, at least through the first enlistment. Last I heard the divorce rate for guys who got marriede while on their first tour is close to %100.

[MillCreek]

My ex-wife was a Navy E-7 who often had the job of financial adviser at her duty stations.  She told many stories of junior enlisteds and junior officers who got into trouble by buying expensive cars, trucks, motorcycles and electronics with "nothing down and EZ loan payments!".  When the troops got behind on their bills, and the loan companies starting writing the XO of the unit, she would have to put them on a budget and repayment plan.  She always said that she was an E-6 before she felt she could afford some of the stuff that an E-2 or O-1 was buying and then had repossessed.

[mtnbkr]

Millcreek, I see kids making less than I make buying stuff I can't justify for myself even now.  Makes me wonder what bill paying time is like in their household.

Chris

[Len Budney]

The moment this took effect, the ads stopped in our base papers, and I've noticed fewer places downtown... Shouldn't limit interest rates, this is government interference, but on the other hand - this is like ARM home loans - more likely to get people into trouble rather than out of it.

You already figured out the downside: price controls, in the form of a rate ceiling, mean that less of the service will be offered. I don't use payday loans, so it's no skin off my back if they're banned outright--but the folks who feel they need it, are now potentially out of luck. The lenders are willing, and the borrowers are voluntarily accepting the terms, so have we really done them a favor? If they need a quick buck to keep the electricity from being shut off, or whatever, too bad for them.

--Len.

[Jamisjockey]

The problem with ARM's, Payday Loans, Title Loans and the ilk is that its typicaly predatory lending.  Buyer beware has to have some caveats.  However, when the Government has stepped in and sayeth you shall disclose all your terms and conditions....then I have little sympathy for the nitwits that fall for 400% interest rates so they can get beer money or make the car payment on the Camero they didn't need.

A while back a Marine General proposed the same thing for the enlisted force that unmarried recruits be contractually obligated to stay that way the first enlistment. I think it was waiverable for already married. I thought it was a great idea, by and large the General's idea was vilified in the press and in the military. I guess they've never had a 19yr old with two kids going through a divorce working for them.

This is why nobody, not even the other Services, will ever understand the Marines.

[MillCreek]

Millcreek, I see kids making less than I make buying stuff I can't justify for myself even now.  Makes me wonder what bill paying time is like in their household.

Chris

Amen to that, sir!  I only use two credit cards, one for business and one for personal and pay them off in full each month.  My only long-term debt is the mortgage, since the 1986 Mazda pickup and 2005 Ford Escape are both paid for.  I have many friends, though, who make only minimum payments of $ 75 per month on $ 8,000 of credit card debt. 

[Firethorn]

You already figured out the downside: price controls, in the form of a rate ceiling, mean that less of the service will be offered. I don't use payday loans, so it's no skin off my back if they're banned outright--but the folks who feel they need it, are now potentially out of luck. The lenders are willing, and the borrowers are voluntarily accepting the terms, so have we really done them a favor? If they need a quick buck to keep the electricity from being shut off, or whatever, too bad for them.

--Len.

It's probably the fact that I am in the military, so have at least sipped from the 'take care of your wingmen/airmen' cup.  I have frank talks with any airmen under me, and frequently just around me.

Part of the problem is that these companies do everything they can to hide just how much they're going to charge you, and use high pressure tactics while the young enlisted member is in a panicked state because he has an expense that he didn't budget for(because he was running on a razor wire with his pay already).

There are ways that are orders of magnitude cheaper- it's not that difficult to get a credit card for example, and even for a junior enlisted, used right(IE no balance normally), can provide more funds than a payday loan place at a twentieth of the interest.  That's without going into organizations like the Air Force Aid Society - which can provide interest free loans for hardships.

I'd probably be happier with a full disclosure requirement - make the places tell you their effective interest rates including all fees - in their advertisements, as well as during loan applications.  They see that 400% APR figure - people might take a few minutes to find something better.

I dislike these places, because it causes people to be virtual slaves - the loan company gets their cut each month, possibly for years.  And an order of magnitude worse than credit cards.

There's relatively few situations where you need $500 right now.  Most places are willing to deal.  Not the nicest thing to do, but many utility companies will let you slide for a month or two*.  Heck, my autopay stopped working for my phone bill while I was TDY, and it was five months before they shut me off.  I felt a bit stupid, I hadn't noticed the deductions stopped.

*Don't make a habit of it.

[Len Budney]

Part of the problem is that these companies do everything they can to hide just how much they're going to charge you, and use high pressure tactics while the young enlisted member is in a panicked state because he has an expense that he didn't budget for(because he was running on a razor wire with his pay already).

You definitely have a point there. Fraud is always wrong, but fraud against the poor or unfortunate especially burns me up.

--Len.

[cassandra and sara's daddy]

heck one was adveertising on tv  in small print 92%interest

[K Frame]

400% is nothing.

Some of the predatory lending practices that used to be exist against members of the military, especially the young draftees from Bunglebump, Arkansas, are legendary.

In the 1960s San Diego apparently had a large car dealership that advertised itself as the military member's friend.

Loans payments were always due on military paydays, and they knew the exact hour when the sailor would receive his pay. If the sailor was as little as half an hour late with the payment, they'd repossess the car.

When some of the new laws went into effect in the 1960s that car dealership went out of business.

Oh, this really isn't politics, either...



"I heard a radio program on NPR over a year ago talking about this problem.  The excuse was these were young people who didn't have experience managing their money, budgeting, balancing a checking account, etc. WTF?  I had experience doing all this by the time I graduated HS."

I suspect that there was a significant difference in your upbringing vs. the upbringing of many of the young enlisted members of today's military.


What really infuriates me about a lot of this is that most, if not all, military credit unions, such as Pentagon and Navy Federal, have LOTS of programs and educational materials in place  to help young enlisted learn to manage their money.

I wrote a lot of that kind of stuff for Navy Federal when I worked there in the 1990s. One of the biggest challenges I faced was one of the jackass retired admirals who was in the review chain. Typical supply side moron. ALWAYS tried to stick in a bunch of rewrites and edits that would turn a conversational piece of educational material written at roughly a 6th to 8th grade level into a high level JCOS-style briefing using highly technical language that was, as often as not, wrong in the context he was using it. He and I had a little ex parte chat one day and I finally managed to get him to back off.

[Phantom Warrior]

I'm going to chip into the military pay side of the conversation because this is a topic that never fails to annoy me.  Due disclosure, I'm an active duty E-4, currently deployed, and I've definitely wished for more money before.  But that's mostly because I'm saving for law school (no, the G.I. Bill isn't enough by itself) and because everyone always wants more money.  Here is why I don't support a radical increase in pay for junior enlisted soldiers...

Your average junior enlisted soldier (E-1 to E-4) is a year or two out of high school.  They have little or no college education.  They have no trade skills (plumbing, HVAC, etc).  They have little job experience (maybe McDonalds or some other high school job).  Frankly, they have no marketable skills.  In the civilian world they would probably be working a minimum wage job or going to school.

We'll use E-3 for the average pay, since most soldiers can bump up a pay grade or two coming in and you make E-3 pretty quickly.  An E-3 earns roughly $1500 a month.  Call it $18,000 a year before taxes.  They also get their housing provided for them on post or paid for off post.  They get their meals provided for them on post or money for groceries.  They get free medical care.  (Remember all those poor hard working civilians that have no medical insurance at all?)  They get $400,000 of life insurance for $25 a month.  They get $370.80 every year to pay for new uniforms.  For the nominal deduction of $1200 their first year they will get the Montgomery G.I. Bill to pay for school when they get out.  The G.I. Bill is now worth $39,636 over four years or almost a 3300% return on their investment.  Most soldiers right now will get at least several thousand dollars for an enlistment bonus.  Plus possibly additional college money or extra money each month for going to a unit that will deploy soon.  And finally, they are probably getting trained in a job skill and now they will always be able to put "Veteran" on any job application when they get out.

So basically, a single, 18-20 year old soldier with no education and no skills will get $18,000 a year in fun money.  All their major obligations (housing, food, medical care) are already taken care of.  And these are all benefits any soldier, regardless of deploying, will get.  No need to worry about married soldiers.  They'll get their housing off post paid for, extra money for food and other things, medical care for their spouse, higher COLA, etc. 

The reason military members are prey to predatory lending is they are not responsible with their money.  I knew a guy who got out of the Air Force after four years with all the benefits I just mentioned and he had nothing.  Not only did he have nothing, he owed $15,000 on the Grand Prix he just bought, he had a big screen TV he still owed $4,000 on, and he had several thousand dollars in credit card debt.  There are people I know now that are exactly the same way.

My parents raised six kids on maybe $30,000 a year tops.  I have no sympathy for soldiers that are making almost $20,000 by them self putting them self into debt by buying too many toys.  French G. summed it up well when he said soldiers don't need more money in their pocket, they need a better head on their shoulders.

[RevDisk]

If you're single, young and living in the barracks, then yea, mil pay is quite generous.  If you're half way intelligent, you can save up a decent amount of cash.  If you're rather sharp on the ball, you can clear a lot of cash.  The RevDisk Savings and Loan to Stupid E-4 and Below was always willing to make loans at 15% flat.  Which was actively encouraged by the NCO's over criminal payday advance scams.  There are a lot of avenues for continuing your education for free.  Every post has an education center with a staggering variety of free courses.  There's the GI Bill.  It doesn't cover everything, but it covers quite a bit.  Military health care is not great, but it'll typically keep you alive.

If you're married and coming up on middle age, eh...  pay isn't so great.  Housing near most posts tends to be a bit inflated.  I'd be leary of depending on Tricare for dependents, but I never had to use it so I'm not knowledgeable about it.  The government version of a 401k is the Thrift Saving Plan.  Only military personnel are not eligable for matching.  Ironically, government civilians are.  That leaves you with a 20 or nothing retirement system.  Breaking into the civilian job market at 40 can be dicey, depending on your skillset. 

You can't fix stupid.  Young kids first out on their own are going to do stupid things.  Whether it's college or an E-1.  My NCO's sat us down and gave us young stupid grunts basic econ lessons.  They told us a lot of the common scams to avoid, and not to go spending wild.  Not all NCO's were as sharp, honest and prone to good leadership.   

The worst thing an enlisted guy could do is get married.  My squad and I very much actively discouraged it whenever one of our numbers was going to pop the question.   Roughly 80% of the guys that got married got burned, badly.  Knew a guy that married as an E-3, did a quick 6 month tour OCONUS, came home to an empty apartment.  In the divorce proceeding, she got half of his retirement in addition to basically stealing everything he owned.  They spent MAYBE 2 months physically together.