SACRAMENTO -- Appealing to the Legislature's wartime patriotism and sympathy for soldiers trapped in a cycle of debt, Torrance Assemblyman Ted Lieu is pushing legislation to protect military families from being preyed upon by payday loan companies that often charge more than 400 percent annual interest.
"The military doesn't often come to the state Capitol to ask for help. They are doing that now in a time of war and I ask that we give them that help," said Lieu, a Democrat and former Air Force attorney who remains on reserve duty.
Those who fall behind in their payments risk losing security clearances and could even be demoted or discharged under military law, according to top-ranking officers joining Lieu at a Capitol news conference Wednesday.
The financial woes, exacerbated by aggressive debt collectors, can lead to poor job performance and create rifts at home that sometimes lead to divorce, officers said.
"Right outside our gates they market high-cost loans that trap our young men and women into a cycle of debt," said Rear Adm. Len Hering of San Diego, who commands bases throughout the Southwest. "Caught in these traps, these individuals can no longer do their jobs."
Camp Pendleton Marines don't have far to go before being lured by numerous loan companies offering quick cash, said Marine Maj. Gen. Mike Lehnert.
"They're clustered around every single base like flies on honey," he said.
Mark Thompson of the California Financial Service Providers said the industry is working with the armed forces to resolve some of the issues, but it is adamantly opposed to a proposed 36 percent cap because that revenue wouldn't cover losses when military personnel don't repay loans.
"The fees are supported by the risks we take," Thompson said.
Gov. Arnold Schwarzenegger has not taken a position on the bill, but spokesman Bill Maile said "the governor strongly supports efforts to increase protections for military personnel against predatory lenders."
Lieu has amended legislation at the request of the military to impose strict new controls on payday loan companies.
Assembly Bill 1965, which is expected to move to the Senate floor next week, would:
* Cap the annual interest rate at 36 percent.
* Bar payday loan companies from using military insignias in advertising and from implying in advertising that they are endorsed by the armed forces.
* Keep interest from accumulating when military personnel are deployed overseas, such as in Iraq or Afghanistan. The borrower also would have 30 days to start repaying the loan after returning to a U.S. base.
"We don't want these military families pulled into a vicious circle of debt where they're just struggling to make loan payments instead of moving their family ahead," said Assemblywoman Lori Saldana, a San Diego Democrat who co-authored the measure.
Lehnert explained that legislation is necessary because the military does not have the authority to impose restrictions independent of Congress or the state Legislature.
"We cannot pass an order telling them they cannot use payday lenders," he explained. "As the law exists now, it's legal."
Congress is considering an amendment to a federal military spending bill that would limit the annual interest rate to 36 percent nationwide. However, Congress does not appear prepared to go as far as Lieu's legislation does in further limiting payday loan practices.
Lieu said the measure's chances were boosted by the release of a comprehensive Department of Defense study exposing how predatory lenders target young, susceptible military personnel who receive regular paychecks but often have shaky credit histories.
The report cites more than a dozen case studies of military personnel borrowing and re-borrowing to pay off interest rates. Some circumstances traced how a $500 one-time loan ballooned to $15,000.
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