News Summary

The following is an edited excerpt from a Defense Department report to Congress on predatory lending practices that affect armed services personnel and their families. A full copy of the report can be downloaded

at www.usa4militaryfamilies.dod.mil.

Military borrowers who search the Internet under typical loan terms are shown lenders that cater to the military and those that make loans uniformly to any borrower. The military loan sites use military names, display official-looking seals or action pictures of people in uniform.

Some sites disclaim official military endorsement in the fine print. Payday loan Web sites with little connection to military themes also pop up in searches for "military payday loans."

A small sample of Internet lenders visited for this report illustrates trends in loans to military borrowers.

All installment lenders with information on their location are in Nevada, a state with no rate cap for consumer loans. Online payday lenders that listed a location were either in Costa Rica or Delaware, a state that also does not cap rates for loans.

Loan size available from installment lenders ranged from $500 to $10,000. Payday loan sizes were as high as $1,500, or 40 percent of monthly take-home pay.

One surveyed site provides a four payday installment schedule, while other lenders set single-payment loan terms of 14 to 16 days. Installment lenders usually make loans payable in 12 months or more.

Loan sites with heavy military focus require the applicant to submit leave and earnings statements, require or encourage payment by allotment, and include graphics, links, or text designed to appeal to members of the armed forces. Most payday loan sites have little emphasis on "military" beyond pages headed "military payday loans."

Borrowers have a hard time finding out the cost of loans before submitting an application. Cost of loans was not disclosed on installment lender sites except for a calculator at one site that permits borrowers to enter loan amounts to see finance charges that do not include insurance premiums for credit insurance.

Installment lenders did not otherwise post annual percentage rates (APRs). All but one payday loan sites listed APR information somewhere on the Web site, which ranged from 391.07 percent to 782.14 percent APR for 14-day loans.