A sailor based at Naval Station Mayport, Fla. needed $300 for car repairs, and needed it fast. He did what a lot of servicemen and women do: he went to one of the "payday" lenders that crowd Mayport Road, and authorized the lender to electronically withdraw $350 from his account on his next payday. The sailor got out of his little car jam, but got himself into a much bigger one.

"When payday comes," said CAPT Bill Kennedy, USN (Ret.), director of the Navy-Marine Corps Relief Society (NMCRS) at Mayport, "he's a little short. He had $347 in his account. Before his check got into his account on that payday, the lending institution hit his account 10 times, and each time the bank charged him a $20 fee for insufficient funds. So when his pay did come, it was about $660. Two hundred went to the bank; $350 went to the lender. And he had about $110 left for two weeks."

Kennedy sees one or two sailors with similar problems every week. Many times, the sailors take one loan, find themselves unable to pay, and roll it over to another loan, doubling the fee. Or, they pay it off with a loan from another lender, and end up starting a vicious spiral of loan-upon-loan that is impossible to escape, with annual interest rates as high as 500 percent.

It's not just Mayport, or the Navy. Payday lenders target military bases all over the country, eager to access a customer base that's often young, financially inexperienced, and especially attractive because of their steady paycheck. Signs for "Fast Cash Loans" and "Advance 'Til Payday" are a common sight near military bases. Although some states--among them Georgia--have enacted new laws to try to protect military personnel, the problem continues.

And the problem appears to be growing. In 2002, the NMCRS issued $276,000 interest-free loans to 759 servicemembers. That grew to $514,000 to 1,280 people in 2003, and preliminary numbers show it jumped to between $900,000 and $1 million in 2004.

"It's a huge problem, and we only see the tip of the iceberg," says ADM Steve Abbot, USN (Ret.), president of NM CRS. "We do provide assistance, but we do so carefully, with the involvement of the command to which they're attached. We also work to bring pressure on payday lenders to reform their practices."

Payday loans, also known as cash advances or deferred deposit loans, offer cash in exchange for a post-dated check or debt authorization. Typically, borrowers put up $350 to get $300, with the loan due in two weeks. If the borrower cannot pay it off after two weeks, there is another $50 charge to extend the loan. These extensions can pile up over months, and force some borrowers to take out more loans from other payday lenders, a cycle that can snowball. Recent news reports tell of a soldier who spent $7,000 to pay off a $1,900 loan, without touching the principal; another borrowed $1,500 and paid $3,000 to clear it.

TARGETING THE TROOPS

Payday lenders' best customers are those with low incomes, people who need a $200 to $500 loan for an emergency or a splurge. Lower-level troops fit that category, and offer things most low-income people don't: They are easy to track, they have a steady, government paycheck that is always on schedule. Plus, the military's codes of conduct--and the fear of retribution, even court-martial, for piling up debt--make them susceptible. Many military personnel have a perception that financial trouble could mean career trouble, a part of the culture that inadvertently may help lenders near bases.

"These businesses are right outside the main gate," says Mayport's Kennedy. "They know when the servicemembers get paid, and they're easy prey. These people are 19 to 21 years old, it's their first time on their own, their first time managing their money, and they have very little spare money. So if they goof, that's where they go."

The payday lending industry claims it does not target the military. But a forthcoming study by University of Florida assistant professor Christopher Peterson and California State-Northridge professor Steven Graves, will clearly show that they do.

Graves and Peterson looked at 20 of the largest military bases in the country, comparing the density of payday lenders to the number of banks near bases, and the base area's zip code to other areas of the state. Marines from Camp Pendleton, Calif., do a lot of their off-base business in Oceanside, Calif. Within three miles of the base there are 24 payday lenders--22 in Oceanside--compared to 26 banks. Nearby Carlsbad, which is demographically similar but farther from the base, has eight payday lenders and 29 banks.

"The number-one zip code for payday lenders in more than a handful of states is directly adjacent to a military base," Graves says. "It's the same thing all over. The data say, are these people attracted to areas of poverty? Yes, sort of. Are they attracted to minorities? Yes, sort of. The military? Yes, definitely."

WHAT'S BEING DONE?

Troop education is one key to avoiding the payday loans. All of the services offer financial training to their members. At Naval Submarine Base King's Bay in Georgia, the Fleet & Family Service Center provides budgeting classes and services, debt management programs, as well as training on car- and home-buying, investments, and other topics. They try to steer sailors to the Navy Federal Credit Union and, if they are financially troubled, to the NMCRS.

"We try to get them to see how it snowballs," says Felipe Gonzalez, a civilian financial counselor at the Fleet & Family Service Center, Naval Submarine Base King's Bay. "We have sample contracts where we black out the person's name and show them how high the interest rate is, and how they get away with charging 360 percent. They just don't realize."

But clearly, education isn't enough. Steve Tripoli, a consumer advocate at the National Consumer Law Center (NCLC) and the primary author of the non-profit group's "In Harm's Way--At Home" study of consumer scams and their effects on the military, believes that educational efforts could be both expanded and improved.

In some states, legislation has helped mitigate the issue. In April 2004, Georgia enacted a law that was intended to rid the state of predatory lenders by making the practice akin to racketeering.

"It has gotten better," says Gonzalez, the financial counselor. "We had five or six of these places here, and we're down to one."

Still, payday lending remains legal in 36 states. Plus, lenders have found ways to get around the laws in numerous ways. Some set up across state lines, or funnel loans through out-of-state banks. Still more have turned to the Internet, which allows them to base their operations in areas--even offshore--where such loans are legal. Others market themselves as catalog sales companies, disguising fees as payment for merchandise coupons.

PAYDAY LENDERS VS. CREDIT UNIONS AND NHCRS

Why do servicemembers go to these lenders rather than borrow from the NMCRS or a base credit union? For the most part, the interest-free loans or grants from NMCRS are only for servicemembers in true financial crises. For the most part, those who access payday lenders are financially unsophisticated borrowers looking for a quick loan to tide them over to payday. The payday lenders are easier and faster to deal with--and take full advantage of the situation.

A typical short-term loan from a credit union or bank more than likely has an interest rate of 18 percent or less, and often allows a borrower who is unable to pay it back on time to roll the loan over without additional fees. But they also might take several days to process; by the time a servicemember walks into a payday lender, his or her problem could require instant access to cash. Finally, borrowing from a bank or credit union may be difficult for those with bad credt histories, whereas a payday lender requires little more than proof of employment.

Some credit unions, such as Pentagon Federal Credit Union (PFCU), have started new programs that offer emergency cash in 30 minutes or less, often through non-profit subsidiaries. At PFCU, borrowers pay a flat fee of $6 for any loan amount up to a maximum of $500, considerably less than most payday lenders charge. These programs often have limits, such as no more than five loans or rollovers in a 12-month period, and many, including PFCU, require borrowers to attend financial counseling sessions in order to qualify.

USING THE POLITICAL POWER OF THE MILITARY

What can military leaders do to combat this problem? Experts inside and outside the armed forces say it's important for leaders to speak out to legislative leaders, both locally and nationally. Those voices are all the louder in states where bases are economically important.