Predatory Payday Lenders Impacting War Effort & Getting Government’s Attention

Payday loans are a bad deal. The average interest rates for these loans typically range from 400% to 650%, and can run significantly higher than that. But when people need money to pay the rent or feed their children, the last thing that they are thinking about is what a loan is going to cost them. They are just happy to get their hands on some money. Unfortunately, payday loans can lead to a cycle of ever increasing debt, with no end in site with financial ruin as the end result. Until recently, the federal government had done little to regulate payday lenders. But surprisingly, they are now impacting America’s war effort and that is bringing some much needed regulatory attention to them.

 

Payday loans have become big business. The first Payday lenders opened up in 1993. Within ten years, the government estimated loan volume for the industry had grown to more than $40 Billion annually, and there are now more that 22,000 payday loan stores in the United States. Added to this are a wide range of internet payday loan providers. Many of these operate off-shore and will never be subject to government regulation.

 

A typical loan will charge anywhere from $15 to $20 for every $100 that is lent. The repayment term is normally ten to 15 days – the amount of time between normal pay checks. But lenders will often extend payments or allow a loan to roll over.

 

For example, let’s say that someone takes out a $500 loan for an initial 10 day period. That person would be required to pay back $575 at the end of the loan. But if instead of paying back the loan the person extends it for another two weeks, $661.25 will be the amount needed for repayment. If the loan gets extended out for another two week period, it will require $760.44 to repay the initial $500 loan.

 

It is easy to see how once someone falls into the payday loan trap, they may find it difficult to get out.

 

To make matters worse, not everyone who takes out a payday loan is using the money for food or to keep the roof over their head. The number of payday loans given out jumps dramatically during the Holiday season. In December of 2003 alone, there were more than 10 million new payday loans issued.

 

But as bad as the industry is, the federal government has failed to regulate it. Some states have stepped in and started issuing regulations of their own, but the federal government has not wanted to enter the fray. But that is changing, and for reasons that you may not expect. Payday loans are now affecting US military troop rotations overseas.

 

Although Congress has done a very poor job of passing laws to protect the general public from predatory lending practices, the military has its own rules and regulations. One of those rules that any service member who has short term debt in excess of 30% of his or her annual income can not be sent overseas. This type of debt includes credit cards, car loans and payday loans, but not home mortgages.

 

The reasons for the regulation are fairly simple. Nearly every case of military espionage that has taken place has involved people who are heavily in debt. Therefore the armed forces want to limit the exposure of any heavily indebted service members to overseas assignments that might provide illegal but tempting new income opportunities. Just as importantly, the Pentagon accurately believes that heavily indebted employees may be distracted employees. In a war zone distractions such as this can lead to injury, and even death.

 

Unfortunately, the military doesn’t pay its lower ranking members very well. New enlistees and lower ranking enlisted personnel are often the most vulnerable because they may be overextended and underpaid. They are perfect candidates for payday loans.

 

The statistics support this theory. Last year, 20% of active duty personnel used a payday loan provider at least once. And nearly 25% of those people took out payday loans 13 times or more during the year.

 

The problem for the military is compounded even further due to the country’s current war efforts in Iraq and Afghanistan. Many reservists and National Guard members have been place on active duty, leaving behind much better paying civilian jobs. Unfortunately for them, the bills that they accumulated in civilian life must still be paid. If they no longer make enough money to pay those bills, payday loans may look like a short term alternative. The reality is such loans are more likely to increase their long term debt burdens.

 

The end result is that the armed forces are now facing a crisis. Roughly 17% of those on active duty right now have too much debt to be eligible for overseas duty. This has led to a full scale investigation of payday loans by the Pentagon, and proposed legislation by Congress.

 

Unfortunately, the proposals currently being examined by Congress are only designed to help out the armed forces. They include capping annual interest rates for payday loans to military personnel at 36% and limiting the amount of money that can be lent to a maximum of $500.

 

The reality is that loan sharks often provide better lending terms that payday loan providers. These lenders do long term damage to the economy in general and to all people who fall into their trap. It is time for Congress to step up to the plate do what they are actually paid to do. They need to regulate this industry for everyone regardless where their campaign donations are coming from; not just for the military.

 

ACCESS advises its readers to avoid payday loans. This is especially true as the holiday season approaches. Not overspending on gifts is the best holiday present that you can give to yourself and your family.

 

Technorati Tags : payday+loans, interest+rates, predatory+lending, credit

Number of Households Living Below Poverty Line Stops Growing, While Number of People with Health Insurance Plummets

August 31, 2006 – A new survey released by the Census Bureau showed that the number of American households living below the poverty line stopped growing for the first time since George W. Bush took office. The Bush administration quickly stepped forward to say that the survey clearly shows that its economic policies are working. But critics of the administration were just as quick to point out that other economic indicators don’t paint a very rosy picture for either poor or middle-class American families.

 

The survey shows that 12.6%, or about 37 million Americans lived below the poverty line in 2005. This is approximately the same percentage of people living in poverty in 2004. Within these numbers, nearly 1 out of every 6 children lives in poverty.

 

Overall, median household income increased by a meager 1.1% in the same time period, to $46,326. Again, this is the first time since the President took office that household income has increased.

 

With elections looming in November, politicians in both parties were quick to try to spin the numbers in their favor. Many Republicans said that the numbers clearly showed that current economic policies were having a positive impact on the economy. But Democrats point out that for those living in poverty, income growth for 2005 average only $17.

 

But both political parties tried to steer clear of the survey’s results regarding health insurance. According to those results, roughly 900,000 fewer people were covered in 2005 than were covered in 2004. The number of people without any health coverage increased to an all time high of 46.6 million.

 

Diane Rowland said, "the most disturbing thing" is that the number of children without health coverage increased for the first time in years.” Rowland is the director of the Kaiser Commission on Medicaid and the Uninsured.

 

The key reason for the increase in number of people without insurance is cost. Many employers are finding it too expensive to offer insurance any more. Their choices are to increase the amount that employees are forced to pay if they want coverage or to drop their policies entirely. Employees of some companies have found that it is actually less expensive to purchase individual policies rather than pay for their share of insurance offered by their employers.

 

The health insurance issue is extremely important for families that want to remain financially sound. The two largest causes for bankruptcies in the United States are job loss and unanticipated major medical bills. In order to address this looming crisis, several states have passed health insurance reform acts. Some of these require citizens to purchase individual policies or face tax consequences. Others allow the state to provide inexpensive insurance to those who can’t get coverage from other sources.

 

It is clear that Congress needs to deal with the issue of health insurance affordability in the near future. If that does not happen, more and more families will be faced with financial crises or their own.

 

Technorati Tags : credit, health+insurance, bankruptcy, poverty, economic

Veteran’s Administration May Be Engineering Its Next Big Data Breach

In May, the Veterans Administration was forced to announce that a computer containing the names, Social Security Numbers, and other personal information of 26.5 million veterans was missing. The laptop computer had been stolen from the home of a VA data analyst. As bad as the breach was, the VA was able to announce that the computer was recovered last month. Even more important was word that came from the FBI that there was no evidence that the file containing veterans’ information had been accessed. But not so fast. The VA now apparently wants to turn over a copy of the stolen database to a private company, without the permission of impacted veterans.  Based upon this, the only logical conclusion is that FBI is not sure if the computer’s data was actually breached.

 

Shortly after the theft of the laptop, the VA fired the analyst who took it home for violating the department’s security policies. The department also requested $160 million in funding to pay for credit monitoring services for veterans over the course of the next year. But this request was mired in controversy almost from the beginning.

 

First, a federal court judge forbid the VA from actively promoting credit monitoring to veterans. He did this because of a class action suit file against the VA as a result of the data breach. Then once the computer was recovered and the FBI made the announcement that the data on it had not be tampered with, the VA quickly withdrew the credit monitoring offer along with the funding request.

 

Since the breach, there has been a push from within the VA to hire a company to provide “data breach analysis” to the department. The purpose of such a relationship would be to identify weaknesses in data security and to allow the department to know if the stolen data was being used for identity theft. Calls for such a relationship within the VA have not diminished, even with the FBI’s claims.

 

When ACCESS spoke with Matt Burns, a spokesman for the VA, in mid July we were told that a variety of companies would be bidding on the project when the government finally released its RFP (request for proposal). When asked if the company winning the governments bid would be given access to veterans’ data, or a copy of the VA’s database, Burns said that no determination about this had been made yet and that any comments “would be speculative at this point.”

 

But according to Aaron Titus, a data analyst specializing in security matters and head of PrivacyFreaks.org, the type of data breach analysis that the VA wants can only be accomplished if data access is granted to the company winning the bid.

 

Essentially, data breach analysis involves a comparison of data. In this case, the government wants to know if any of the 26.5 million veterans whose names were on the PC ever become victims of identity theft. The only way to find that out is by comparing their data to applications for credit. As Titus put it, “You can’t compare data unless you have something the compare it to.”

 

“They could use a dumbed-down list – shortening Social Security Numbers and using partial names – but this would be less accurate,” Titus said. This method would also provide little help to impacted veterans as it would not identify specific people who had their data stolen and used.

 

Companies that conduct data breach analysis maintain their own consumer databases. One such company which had one of its executives, Mike Cook, testify before Congress in recent hearings is ID Analytics. As it turns out, ID Analytics has now won the VA contract for data breach analysis according to a press release on the company’s website. Because the company has offered to provide its services to the VA for free, it may have contributed to the VA’s decision to withdraw its earlier offer of credit monitoring to veterans.

 

In an interview with ACCESS, Karen Stadelmeier who works for ID Analytics told us that the VA would be providing a copy of the database to the company. In a follow-up interview with Stadelmeier and Mike Cook, we were informed that prior to the data being turned over to the company, they would have to pass a VA security audit.

 

But such an audit may not mean much if it is actually administered by the VA. In the latest Congressional Scorecard on data security, the VA received a failing grade. This calls the legitimacy of any audit conducted by the VA into question.

 

When asked how long ID Analytics would be in possession of the data, Cook wouldn’t give details but he did say that the company’s services would be ongoing and over a long period of time. “Fraudsters are smart,” Cook said. “They know that when companies offer credit monitoring services for a year, then they need to hold onto the information that they have stolen for a year and a day. The key to stopping fraud is to maintain data for a long time and never let the fraudsters know how long you will be monitoring it.”

 

When asked if veterans would be given the opportunity to opt out of having their data included in the monitoring, Cook said that he thought the company would allow this. But he went on to say that it helped to have access to 100% of the data when attempting to find patterns of fraud. Stadelmeier said that the question of whether or not opt-out would be allowed should be directed to the VA.

 

But after our initial phone call with Matt Burns of the VA on July 20, and a follow-up e-mail message asking a number of pointed questions about the program, ACCESS is still waiting for answers. A call to the VA Inspector General’s office directed us back to Burns.

 

The contract with the VA raises a number of troubling issues. Data sharing is widely recognized as one of the primary weak spots in the protection of consumer privacy. Regardless of the security measures taken, any time copies of consumer data are made, there is an increased risk to the consumer. Risk that the data will be lost. Risk that it may be stolen. And risk that it will get mixed up with other data. Data sharing within banking and credit industries is one of the primary reasons that 79% of credit reports have errors in them.

 

The agreement may also violate the Privacy Act of 1974. According to the Department of Justice’s website, the act contains a “No Disclosure Without Consent” rule. This reads, "No agency shall disclose any record which is contained in a system of records by any means of communication to any person, or to another agency, except pursuant to a written request by, or with the prior written consent of, the individual to whom the record pertains [subject to 12 exceptions]." 5 U.S.C. § 552a(b).”

 

But the privacy act contains one huge loophole known as “routine uses”; a clause which has become a catch-all for the government and is routinely abused. If the VA declares that contract falls under “routine uses”, the database may be turned over without requiring the agency to obtain consent from affected veterans. But even under these conditions there are still requirements which must be met, including an announcement that must be placed in the Federal Register.

 

It should also be noted that ID Analytics is a registered lobbyist with both the House and the Senate. Eleven pages of written testimony from the company were entered with the Subcommittee on Financial Institutions and Consumer Credit in support of HR 3997. This bill has been referred to as the “Worst Data Bill Ever” by PIRG. If it ever becomes law, a very weak federal standard for consumer notification on data breaches would replace much stricter state laws in 34 states. The may also prevent consumer who have not already become identity theft victims from freezing their credit files; the only known way to prevent identity theft.

 

The testimony attempts to minimize the impact of data breaches. It stated that in an analysis conducted by ID Analytics of a data breach involving over 100,000 consumers, only .098% of the consumers involved had any type of “identity fraud”. This would mean that of the 26.5 million veterans and active duty personnel whose data was lost by the VA, nearly 26,000 of them could expect to become identity theft victims. It should be pointed out that in this event, it would make the VA breach the largest single source for cases of identity theft that ACCESS is aware of.

 

If the FBI is certain that the data which was contained on the computer was not breached, as the agency has publicly proclaimed, then there is no need to expose 26.5 million veterans who have already been victimized to further privacy intrusions. As previously mentioned, one of the largest privacy issues confronting consumers today is the sharing of their personal data without their consent. ACCESS is firmly opposed to any data sharing that does not include consumer consent, regardless of intent.

 

On the other hand, if the FBI is unsure about its original forensic analysis and now believes there to be a risk of identity theft to those whose names were included on the computer, then it is time for them to say so. In that event, there are a variety of options that Congress should consider. ACCESS is aware of at least one free credit monitoring service that is about to launch which would negate any need to request hundreds of millions of tax dollars for such a service. 

 

Technorati Tags : data+breach, VA, veterans+administration, privacy, identity+theft, id+analytics

AT&T Broadband Customers May Want to Change Companies to Protect Their Privacy

August 24, 2006 – AT&T, the long distance carrier and internet service provider (ISP), is embroiled in privacy law suits due to its sharing of information with the National Security Agency (NSA). The company has engaged in what a number of attorney’s have deemed "illegal activity" by providing the government access to customer voice traffic without a warrant. So in an attempt to avoid future law suits, you might think that the company would make some changes. Well, they have. They have changed their privacy policy to allow them to share data traffic with pretty much anyone they want to.

The one thing that AT&T customers can’t expect from the company is "privacy". The company reworked its privacy policy in June because of the law suits that were being filed against them.

The new policy is all inclusive. It says that AT&T owns just about everything that you transmit over the company’s network. This includes the e-mail addresses of people you send information to, credit card numbers, passwords, and even your Social Security Number if you provide it to anyone over the internet.

One portion of the policy that is particularly troubling is contained in the section of the policy titled "Legal Obligations/Fraud". It reads, "While your Account Information may be personal to you, these records constitute business records that are owned by AT&T. As such, AT&T may disclose such records to protect its legitimate business interests, safeguard others, or respond to legal process." This section goes on to say that the company may use your information as "required or permitted by law," meaning that unless what the company is doing is illegal, your information is fair game for them to use.

The company specifically states that your Social Security Number is a part of your account information. The statement makes AT&T customer’s SSNs business records of AT&T.

The problem with the new policy is that it provides the company with a blank check invade customer privacy. The company can get away with this because current federal telecommunications law doesn’t guards the privacy of voice traffic, but provides virtually no protection for data traffic. Contrast this with cable TV companies that offer internet services and there is a very big difference. Data traffic over cable TV networks is regulated and must be kept private.

The debate over AT&T and privacy began when it was revealed that the company had setup secret rooms in some of their major switching offices. The NSA installed equipment in these rooms that allowed the government to eavesdrop on the phone conversations of virtually all of the company’s customers.

An AT&T employee who stumbled onto one of these rooms became a whistle blower and informed the ACLU and the EFF. The ACLU file a law suit against the NSA wire taps and just last week a federal judge declared the NSA program unconstitutional in a scathing 45 page ruling. The Bush administration is in the process of appealing the ruling.

Because of AT&T’s participation in the NSA wiretapping program, the privacy policy change is very disturbing. It may very well be that the company is preparing to turn over the internet records of all of its customers to the federal government, without ever being served with a search warrant. The change impacts AT&T broadband customers.

Technorati Tags : privacy, private, privacy+law, AT&T

Another Weak Data Breach Notification Law Moving Through Congress

Yesterday, the House Energy and Commerce Committee voted 41 to 0 to move a new data breach notification bill to the full house for a vote. The bill, HR 4127, named the Data Accountability and Trust Act (DATA), would supposedly require companies that store consumer data in electronic form to notify consumers when their data is exposed without their permission. But once again, the special interests have managed to get the law written in such a way that it would usurp state laws. And among the 23 states with data breach notification laws on the books, at least eight of them set the bar significantly higher than DATA would.

The real issue with DATA is that the notification provision of the law specifies that companies would have to notify consumers about data exposure when there is "reasonable risk" of identity theft. While this is a significant improvement over the bills original language (which specified "significant risk"), it sill leaves a considerable amount of wiggle room for the companies that are storing consumer data.

The bill does not define "reasonable risk", and leaves it to individual companies to do so. This does not compare favorably to some state laws that require consumer notification for virtually any data breach, such as in California and New Jersey.

Another real problem with the law is that it would exempt companies that use data encryption from having to make notification to consumers. The bill automatically assumes that encrypted data would be safe. ACCESS considers this to be a very large loophole in the law and a big mistake by Congress.

The bill would also remove any right for individuals to file law suits to recover damages caused by a data breach. Likewise for class action law suits.

To be fair, the bill does have some improvements over other proposed laws. It would allow each of the country’s State Attorneys General to enforce the law. A number of proposals currently under consideration in Congress would remove the right of state enforcement.

The bill would also force data brokers like ChoicePoint and Lexis-Nexis to allow consumers to examine their data files once a year. And just as with credit reports, consumers would have a right to correct erroneous data.

DATA does not address the issue of credit freezes, as some other proposed laws do. This omission may very well benefit consumers since most of the credit freeze bills being considered by Congress set a particularly weak standard.

The bill would offer new protections to people in 27 states that don’t have data breach laws, but these protections would come at the expense of laws in other states. Unfortunately DATA joins a growing list of proposed legislation that is being heavily influenced by money from the financial services industry and from data brokers. These laws are being proposed with one particular goal in mind: Set a weak federal standard and at the same time make it illegal for the states to set higher standards.

As this year’s legislative drags on, it is becoming less likely that any federal bills will be passed into law for data breaches or credit freezes. And because next year is an election year, it may be more difficult for Congress to pass any law that is seen as weak on identity theft or non-consumer friendly.

There are currently seven bills in Congress that deal with various aspects of identity theft and which have passed out of committee for a vote. None of these bills are currently scheduled for a full floor vote. If any of them are passed by both houses, a compromise committee of Senators and House members would have to work out the differences in proposed legislation.

Technorati Tags : Congress, identity+theft, credit+freeze, consumer+credit, data+brokers, privacy

Danger! Credit-Card Payment!

by Paul Jacob

It's easy to get INTO credit-card debt. Getting out of it can hurt, but is simple enough: pay it off. Problem solved.

But wait. It's not so simple. Not any more.

Retired schoolteacher Walter Soehnge and his wife, formerly of Texas, recently decided to clear their Platinum MasterCard account. The balance had risen to more than $6,500. So they paid it off.

Good, but -- wait. Isn't this just the sort of thing that, er, a terrorist would do, you may be asking?

Oh, that wasn't your first thought?

Apparently the couple's payment did cross some magic line drawn by their bank at the behest of the Department of Homeland Security. Slide past that line, and your transaction gets marked "suspicious," and until the red flag is removed, the payment will not be credited.

Walter says he's "madder than a panther with kerosene on his tail," and he's been raising a fuss. He says the government should stay out of his private financial business. Says Walter, "It's scary how easily someone in Homeland Security can get permission to spy."

It all has to do with the latest version of the Bank Secrecy Act, which, as you probably now know, is all about depriving you of your financial privacy, not ensuring it. Allegedly "suspicious" credit-card payments are just the latest tightening of the screw.

Things have gotten really bad, though, if the government thinks that only terrorists pay off their debts.

ACCESS would like to thank Paul Jacob and Americans for Limited Government for permission to reprint this article. Paul Jacob is the senior fellow of Americans for Limited Government. The blog Common Sense is also published by Americans for Limited Government. Their website can be visited at www.limitedgov.org.

Technorati Tags : terrorism, Department+of+Homeland+Security, DHS, Bank+Secrecy+Act, financial+privacy, privacy, national+security

Could Immigration Reform Gut Social Security or Cost You Your Job?

If you think that immigration reform doesn’t impact you directly, you may be very wrong. This week, the Senate is picking up this contentious topic. Their move follows the passage of an immigration bill in the House of Representatives that would make illegal immigration a felony and which excludes a guest worker program. But any version of the bill considered by the Senate is likely to include a guest worker program. Although nobody has been talking about it, the passage of such a program is likely to cost Americans billions of dollars, lead to an increase in Social Security taxes, hasten the insolvency of the Social Security System and could cost you your job.

 

The truth is that illegal immigration impacts all Americans. For those at the lower end of the economic ladder the impact is the most negative, but people at all points on the economic ladder are feeling the pressure. According to a 2005 Bear Stearns study, millions of jobs have shifted from American citizens to illegal aliens over the past five years. The reason for this shift is simple. Illegal aliens will work for much less than Americans will.

 

The net effect of this is that illegal immigration is forcing down wages for everyone else. At the same time, it strains the resources of local communities, states and the federal government. Illegal aliens have their children educated in our schools, use our roadways, parks and other public facilities, and are even provided with free health care; a benefit which millions of uninsured Americans would love to have. They receive these benefits even though most of them pay absolutely no taxes.

 

Even so, the government has largely turned a blind eye toward the problem. The reasons why boil down to three things. Courting Hispanic voters, campaign contributions from employers who want access to cheap labor, and a limited amount taxes which the government collects from illegal workers (these act as a tax subsidy to governments).

 

Ignoring the law to court votes and shore up campaign contributions from business interests hurts everyone else in the country, including legal immigrants. It artificially forces down wages, increases unemployment, and creates conditions that can lead to poverty for Americans.

 

But implementing a guest worker program, or just shutting the door to illegal immigrants, will also hurt everyone from a tax perspective. Though many illegal aliens pay no taxes, a large number of them do get jobs with legitimate employers by using false documents. Under these circumstances, payroll and Social Security taxes are paid.

 

Note: The false documents that are used are often made using legitimate Social Security Numbers that are stolen. In other words, illegal immigration is also contributing to the issue of identity theft.

 

The most recent estimates are that illegal immigrants and the companies that employ them contribute about $7 billion each year to Social Security taxes. That money never gets paid out in the form of retirement benefits. In effect, it subsidizes Social Security for everyone else.

 

If Congress enacts a law that make hiring illegal aliens a felony, that $7 billion goes away. If they pass a law that includes a guest worker program, the money will likely be paid out in the form of benefits. In effect, this means that the money collected will not benefit the American people either. Either way, the money will have to be made up in the form of higher Social Security taxes. The only way to avoid this is to address the issue in any law passed.

 

There is little doubt that the United States needs some form of guest worker program. But any such program needs to be coupled with hard caps on the number of guest workers admitted, should not lead to amnesty for illegal immigrants, and should be coupled with strict and enforceable border controls. Employers who abuse the system by hiring from overseas when qualified Americans are available for the job, as many have done with other visa programs, should face stiff fines that can be enforced at either the federal or state levels of government.

 

Any new law should recognize that guest workers should not necessarily have all of the benefits of American citizens while living and working here. This may mean that guest workers are required to pay into the system without ever having a possibility of collecting benefits. It should definitely mean that guest workers should not be entitled to benefits that Americans are not, such as free or subsidized healthcare. And any benefits they do receive should have to be paid for, including the schooling of any children they may have. These costs should have to be picked up either by the guest workers themselves or by the companies that hire them, leveling the playing field for unemployed Americans.

 

Congress needs to keep in mind that allowing low wage labor into this country but not charging that labor enough to cover their cost to tax payers just adds insult to injury. It forces Americans to subsidize their own lower wages and the higher unemployment numbers that are directly attributable to cheap immigrant labor.

 

ACCESS urges Congress to proceed very carefully on immigration reform. The issue is emotionally charged for many, but the issue needs to be addressed with economics of American households in mind. If Congress is not cautious, any action taken could actually gut Social Security and threaten the jobs of millions of more American citizens.

 

If you would like to let your senators know how you feel about immigration reform, call them. You can get their phone numbers by typing your address and zip code into the boxes in right hand column of this page.

 

Technorati Tags : immigration, immigration+reform, Congress, Senate, Bush, house+of+representative, politics