By MC2 Alexis R. Brown Navy Compass Staff
Every Sailor's access to credit is going to change considerably within the next two weeks. The Navy wants to make sure you are ready for that change.
On Oct. 1, federal law will cap interest rates at 36 percent for military personnel. Payday loan, tax refund, car title loan and other "predatory" storefronts will be prohibited from extending services to anyone in uniform.
"The availability of credit products for our service members and their dependents is changing," said Capt. Mark Patton, the commanding officer of Naval Base Point Loma and head of the Joint Task Force on Financial Health.
The new regulations are outlined in the 2007 Defense Authorization Act, in an amendment known as the Military Lending Act, authored by Senator Jim Talent (R-MO) and Senator Bill Nelson (D-FL). Additionally, the California legislature recently approved Assembly Bill 7, authored by Assemblyman Ted Lieu of Torrance.
"Under AB 7, California authorities will regulate lenders and enforce those federal protections so we (the military) won't have to," Patton said.
"Sailors and Marines in the San Diego area need to be aware that access and laws are changing," he said. "If you are relying on short-term, high-cost products, you need to shift away from them."
The task force that Patton heads has been looking at the financial health of military personnel in the region since March 2006, particularly the ill effects of "predatory" lenders.
"Products are considered predatory when they market high cost debt," Patton said, "because as a Sailor or Marine, you have much better options out there."
The interest rate on a payday loan is is often 400 or 500 percent. Service members overwhelmed with debt and desperate for quick, easy cash to fix problems often disregard that high cost, thinking they can "catch up next payday".
That's not what happens in most cases, said Keith Kaufman, a financial management supervisor at the Fleet and Family Support Center. When a payday loan comes due the following payday, a customer often finds he can't afford to pay and ends up "rolling the loan", or taking another loan to pay the last one off. And a cycle of debt begins.
Everyone faces financial difficulties at times, Patton said. The solution is to be smart when looking for help. The Joint Task Force strongly urges Sailors to "stay inside the 'lifelines'."
"Start with your command financial specialist," Patton said. "The CFS is there for you. They have access to resources and recommendations to where you can go."
Patton also reminds Sailors they have a unique, often forgotten resources right on their bases.
The Fleet and Family Support Center hastrained counselors to help you find financial relief.
"Walk into any Navy Marine Corps Relief Society office and ask for help, or log onto MilitaryOneSource.com. They will refer you to better options and places that you can go to."
Other convenient sources of financial assistance and education are the on-base banks and credit unions. "It doesn't matter if you are a member or not," Patton said. "Tell them you need help."
Kaufman said many of these on-base financial institutions are replacing the high-cost products of unsavory lenders in town with better options. "They're not doing anything predatory," he explained, "they are doing the exact opposite. They're actually giving a benefit to the Sailors and military personnel."
Kaufman credited on-base institutions like USA Federal Credit Union and North Island Credit Union for creating their own versions of short-term payday loans,, but with realistic terms, including allotments.
He said the Navy Marine Corps Relief Society also has a payday loan. NMCRS ran a test model recently at two different military installations to see how the program would work.
"It was very successful and popular," said Kaufman. "Now they are offering that everywhere in San Diego. If service members see that their access to payday loans is going away in October, they have some very real alternatives with their on-base financial institutions and the Navy Marine Corps Relief Society, with no questions asked."
Kaufman is proud of the services FFSC now offers regarding financial health.
"We've developed a whole new consumer awareness class which talks not only about predatory lending practices, but also predatory retailing, frauds and scams, just to make all service members more savvy consumers," he said. "Predatory lenders only target you after you've already made a mess of your finances; you're in debt and now you need some quick cash. But how do you get in that mess? By not making good financial decisions on the way."
FFSC will host the consumer awareness class once a month, along with regularly scheduled classes on buying cars; managing credit; and budgeting and developing spending plans. The Center is also taking classes to the fleet, Kaufman said, including a day-long course called "Financial Fitness" that focuses on the entire financial landscape: basic budgeting; saving; investing; buying cars; and mortgages.
"It 's a very in-depth, one-day class that is suitable for all pay grades," Kaufman said. "It's been very very popular. If (a command will) make a classroom available and put students in it, we'll give them a full day of pretty hard-hitting financial training."
The Joint Task Force on Financial Health has set about to remind Sailors that these resources, among others, exist to serve you. They are one of the unique benefits you receive for your service to the country.
"Protect your financial health," said Patton. "It is vital to you, to your family, and to your career. There is a direct correlation between your financial health and your military readiness. Out-of-control problems may affect your ability to deploy or maintain a security clearance. Don't jeopardize your job. Your command is there to support you, as are the other resources we have available to us."
Mark your calendars for Oct. 1 for the Military Lending Act to go into effect, and contact your local FFSC for more assistance on financial matters.