Payday lenders come under scrutiny in Oceanside

By: DAVID STERRETT - Staff Writer

OCEANSIDE ---- The commander of all West Coast Marine Corps bases told the Oceanside City Council on Wednesday that many troops are falling into serious financial trouble because of payday loans with annual interest rates as much as 2,000 percent.

After hearing the presentation, the council voted unanimously to direct its staffers to study how Oceanside could limit the number of such lending businesses.

"We have to work to take some immediate action on this issue," said Mayor Jim Wood.

The council members said they want city staffers to consider requiring such businesses to have a special permit or creating a temporary moratorium on the lenders.

Twenty-one payday lenders operate in Oceanside, said Maj. Gen. Michael R. Lehnert, whose command includes Camp Pendleton, just north of Oceanside.

"Oceanside has the highest density of payday lending institutes in the state of California and possibly the country," said Lehnert, who noted that Pendleton is one of the more populated bases with more than 40,000 troops. "But this is not just in Oceanside, this is a national problem.

"We're not trying to shut down the payday lenders, we're trying to stop predatory lending practices," he said.

He said local payday lenders charge annual interest rates of between 450 percent and 2,000 percent.

The lenders, which often also provide check-cashing services, give customers cash for a check the business will cash later. For example, a customer would give the lender a check for $300 and would receive $255 in cash. The lender holds it for two weeks, usually until the customer gets a paycheck, and then cashes it. The $45 charge on a two-week loan equates to an annual interest rate of more than 450 percent.

Payday loan offices are usually located in poorer neighborhoods and near military bases. The businesses allow residents without savings to get access to cash that can be used for emergencies such as a doctor's visit, car trouble or an electricity bill.

The maximum check a customer can give a lender in California is $300, said Karl Higgins, a Vista lobbyist who said he was representing the payday lending industry. Higgins didn't address the council because he arrived after Lehnert concluded his presentation.

"The industry is not targeting military borrowing," Higgins said. "We have met with the Marine Corps and Navy twice explaining our position and offering to provide financial education and classes to customers.

"We are working with other local governments in San Diego (County) such as Chula Vista and National City. We look forward to working cooperatively with the military and city of Oceanside."

The military has seen more and more servicemen run into problems with payday lenders as regulations for such businesses have been loosened in the last several years, said Lehnert.

He said 84 Pendleton-based Marines reported having financial difficulties in 2003 because of payday loans. The number of such reports rose to 118 in 2004 and has been around 190 the last two years, said Lehnert.

He said the payday lenders have been a problem around both Navy and Marine bases.

The Associated Press reported in October that thousands of U.S. troops are barred from oversees duty because of financial troubles, and military officials attributed part of the problem to payday lenders.

"Marines in Afghanistan shouldn't be worried about making a car payment," said Lehnert before meeting with the council. "We want their heads in the game."

He said the Marine Corps has to continue to provide financial education and teach fiscal responsibility to its men and women, many of whom are young and working in the military as their first job.

In addition, the federal government enacted legislation last year to regulate loans to military officials.

Beginning Oct. 1, payday lenders will be prohibited from charging military personnel annual interest rates of more than 36 percent under a provision of a defense spending bill approved by Congress and the president.

But the law applies only to military personnel and not all residents.

"The payday lenders are a very big problem," Councilman Jerry Kern said after the meeting.

Councilwoman Esther Sanchez said the lenders are also a problem for the Latino community. Many of them are located in primarily Latino neighborhoods, and Sanchez said many Latinos use such businesses because they are apprehensive about banks and other institutions.

She said Oceanside needs to look at creating a community bank to provide affordable loans to Marines, Latinos and small businesses.

"It's an insult to residents to have these payday lenders," Sanchez said after the meeting. "It's irresponsible for us to allow these businesses to thrive in our city."

Councilman Rocky Chavez said payday lenders will oppose any limits on the businesses because "there is a lot of money involved."

He said payday lenders occupy several prime retail sites in Oceanside, where he would prefer to see other businesses.

Chavez, a retired Marine colonel, said payday lenders have been around bases for a long time, and Oceanside needs to set some regulations for them.

Councilman Jack Feller also said the city needs to assist the military.

"I don't know how we do this," Feller said. "But we must do something as a council to help these guys."

After hearing the comments from the council, Lehnert thanked the Oceanside officials for their support.

"I appreciate your hospitality tonight, and you are always welcome on base," Lehnert said. "We are not opposed to Marines spending money in Oceanside, we just don't want it to be at excessive interest rates."

-- Contact staff writer David Sterrett at (760) 901-4067 or dsterrett@nctimes.com.

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