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