When It's Good to Be in Uniform

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In general, much as I appreciate those who serve in our military, I don't envy them. Iraq is clearly a nasty place to serve right now, and even those serving outside combat zones don't always get the treatment they deserve. Those in certain military hospitals, for example, were living in rough conditions recently, as various news reports attested.

I read the other day, though, about one instance in which it's good to be in the military. It seems there's a new federal law that's designed to protect service members from being taken advantage of by so-called payday lenders. Payday lenders can be found all over America, making relatively small loans to those who need some money quickly. The borrowers plan to repay the loan soon upon receiving their paychecks, tax refunds, or some other expected income.

That arrangement may sound nice, but it's not. The lenders typically charge exorbitant interest rates -- ones which may not sound so awful when expressed in monthly terms, but which are eye-popping when annualized. And the borrowers aren't always able to pay the loans off quickly.

The new law caps the annual interest rate at 36% for people in the military and their families. That's good, because it saves them from getting ripped off. According to the Deseret News, payday loans in Utah had interest rates averaging a whopping 521%, and car title loans averaged 300%. Yowza!

The bad news
The downside to all of this is that too many Americans remain at risk from payday lenders. At 500% interest, a $500 loan will become $3,000 in a year, and $18,000 in just two years. I think you can see now just how treacherous this can be. Companies in this business, including Advance America (NYSE: AEA), Dollar Financial (Nasdaq: DLLR), Cash America (NYSE: CSH), and EZCORP (Nasdaq: EZPW), have made plenty of money -- but often at the expense of ordinary people who are struggling to make ends meet.

I encourage you to let your congressional representatives know what you think about this topic. Perhaps if they hear from enough of us, they'll consider extending this law to all Americans. In the meantime, you can read about why one of my colleagues believes this new legislation is a bad idea.