Summer 2005
Consumers who use Internet payday lenders already take on financial risk from exorbitant fees and interest rates, but a recent report on Internet payday lending points out another important danger: security risk.
"Internet payday loans are dangerous for cash-strapped consumers," according to Jean Ann Fox, Director of Consumer Protection for the Consumer Federation of America, the non-profit group that conducted the study. "They combine the high costs and collection risks of check-based payday loans with security risks of sending bank account numbers and Social Security numbers over web links to unknown lenders."
In a typical payday loan, the borrower gives the lender a post-dated personal check as collateral and in turn receives cash, minus lender's fees. A $200 check might yield $170 in cash, for example. The lender holds the check until the borrower's next payday. Then the borrower can pay back the check amount in exchange for the check or allow the lender to cash the check.
Payday loan interest rates are extremely high ' with annual interest rates of as much as 650 percent or higher ' so many consumers must roll over their original loan to extend their payback time by another two weeks. Two more weeks pass, and another rollover may prove necessary. Soon, more is owed to pay off the interest than the original amount borrowed!
Military members desperate to pay bills sometimes fall prey to the apparent easy money offered by payday lenders, but the escalating debt created by high interest borrowing makes payday loans one of the riskiest financial vehicles for consumers.
Payday loans, especially those obtained via the Internet, also are particularly vulnerable to identity theft. With almost 10 million victims per year, identity theft clearly is a serious crime ' and military members are hardly immune. (Read "Military Takes Steps Against Identity Theft" on the Military Money website.)
Once a victim's identity is stolen, the thief maintains knowledge of personal details such as Social Security number, mother's maiden name, previous addresses and even work history. Victims can change bank accounts and credit card companies, but new Social Security numbers are issued only under certain circumstances; family names and personal history, of course, remain constant. Even if the thief is convicted of the crime and incarcerated, he or she can repeat the crime, and only extreme vigilance by the victim can lessen the impact of future damage.
Military members who apply for payday loans over the Internet often are asked to verify employment and income by faxing a copy of their military ID card and a recent Leave and Earnings Statement ' both contain your Social Security number ' to the loan company. The problem is that a few of these companies are outright scams trying to steal identities, and many others are located in foreign countries where United States laws do not apply.
Internet payday lenders advertise their websites as secure, but many are not. The person obtaining the loan must provide his or her banking account number and password, which means the payday loan company ' and perhaps others ' have open access to that account to deposit the loan and withdraw payments for the loan.
"Online payday lending is theft of identity waiting to happen," says Fox. "It is needlessly risky to send personal financial information granting access to a bank account over an unsecure web link to a company that cannot be located easily by the consumer."
The risks of ignoring the threat of identity theft, failing to check credit reports for errors or suspicious activity, and utilizing high-cost payday loans can be eliminated by making informed financial decisions. Furthermore, an actual financial emergency may be handled by establishing and using an emergency fund or turning to your military aid society for assistance through zero percent loans.
Internet payday loans are financial and identity theft risks to military members, but their use also poses a potential danger to homeland security. It is not a far leap to see that profits gained or identities stolen through online payday lending could be used by America's enemies to help fund their fight against our military.
If you are in the military or are a military family member, don't risk your personal financial safety ' not to mention the welfare of your country ' by making risky financial decisions.
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Anne M. Wight is an ICFE-certified family life educator and credit report reviewer serving as a family support program specialist with the Air Mobility Command at Scott Air Force Base, Illinois.