When Montana citizens go to the polls and vote for Initiative 164 this November, they’ll be following the fine example set by the U.S. military, which took action against predatory lending in 2006.
That year, the Pentagon determined that military families should be protected against the abusive schemes of payday and car title lenders who charge triple-digit interest rates. Congress responded by capping the interest rates on payday and car title loans made to military personnel.
I-164 will provide these same protections to all Montana families, not just those in the military. And I believe this is a very good thing.
Charging annual interest rates that can exceed 400 percent is harmful to consumers and to our state. Predatory lenders target people who are already struggling to get by and trap them in debt. Taking out $300 because you need to repair your car or address some other emergency can ultimately cost you $800. Most payday borrowers take out multiple loans just to keep up with expenses and their financial problems end up getting far worse instead of better.
People who are trapped by debt can’t afford to buy many goods and services, which puts a strain on our already fragile economy. Couple that with the fact that seven out of 10 Montana loan shops send their profits to out-of-state corporate headquarters and you can see how this industry is a drain on Montana’s communities.
The U.S. Department of Defense took a long, hard look at how predatory payday and car title loans harmed servicemen and women, which resulted in its rate cap. Its study on “Predatory Lending Practices Direct at Members of the Armed Forces and Their Dependent” showed how lenders targeted military families by clustering loan shops near military bases.
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The military found that these lending practices trapped military families in debt. Unable to pay back an initial loan within the allotted two to four weeks, many borrowers took out additional loans and ultimately found themselves in severe financial distress.
The department also determined that the stress and fear caused by this debt harmed morale and undermined our nation’s military readiness. In short, predatory lenders were putting us all at risk.
In the years since the military cap took place, far fewer servicemen and women are developing financial problems due to predatory lending, reports Col. Mike Hayden of the Military Officers Association of America, which supported the effort. Military personnel who were in need of emergency loans found that they could get loans under much better terms, and at far lower interest, via banks and credit unions.
As a veteran, I am pleased that the military took successful action to help those who serve our country. And, as Montanans, we are grateful that voters have the opportunity to help their friends and neighbors in the same way. I hope that you’ll join me in voting for I-164.
Ray Peck lives in Helena and is a World War II veteran with the U.S. Air Force. He also served as a former Montana state representative (D-Havre).