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Report to the Honorable Richard J. Durbin, U.S. Senate: 

April 2005: 

Military Personnel: 

DOD's Tools for Curbing the Use and Effects of Predatory Lending Not 
Fully Utilized: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-349]: 

GAO Highlights: 

Highlights of GAO-05-349, a report to Senator Richard J. Durbin: 

Why GAO Did This Study: 

The Department of Defense (DOD) has expressed concerns about 
servicemembers use of predatory consumer loans as well as their 
overall financial conditions. Predatory lending has no precise 
definition but describes cases where a lender takes unfair advantage of 
a borrower, sometimes through deception, fraud, or terms such as very 
high interest or fees. Serious financial problems can adversely affect 
unit morale and readiness as well as servicemembers credit history and 
military career. DOD has tools such as off-limits lists to help curb 
the use and effects of predatory loans. 

GAO answered two questions: (1) To what extent do active duty 
servicemembers use consumer loans considered to be predatory in nature? 
and (2) Are DOD and active duty servicemembers fully utilizing the 
tools that DOD has to curb the use and effects of predatory lending 
practices?

What GAO Found: 

The extent to which active duty servicemembers use consumer loans 
considered to be predatory and the effects of that borrowing are 
unknown. The only DOD-wide data come from surveys. In a 2004 survey, 12 
percent of servicemembers said they or their spouse had used, during 
the last 12 months, at least one of four types of loans: payday, rent-
to-own, automobile title pawn, or tax refund, which DOD says can often 
be associated with predatory lending practices. DOD is unable to 
quantify the extent to which the loans have associated predatory 
practices, the frequency of such borrowing, the amounts borrowed, or 
the effects of the loans. Although not generalizable, participants in 
GAOs 60 focus groups at 13 bases in the United States and Germany 
identified problems resulting from the use of short-term consumer 
loans, but other participants described the loans as quick, easy, and 
obtainable by servicemembers with bad credit. Privacy concerns and the 
reluctance of servicemembers to reveal financial problems make it 
difficult to quantify the use and effects of predatory lending. 

DOD and active duty servicemembers are not fully utilizing DODs tools 
for curbing the use and effects of predatory lending practices. At some 
of the installations that we visited, the Armed Forces Disciplinary 
Control Boarda panel that can recommend to an installation commander 
that a business be placed off-limits to servicemembershad not met in 
over a year. Fort Drums board, for example, had not met in about 4 
years, even though the New York Attorney General had filed two lending-
related lawsuits against businesses on behalf of servicemembers and 
some of their family members at Fort Drum. DOD officials told us the 
reasons for boards not meeting or making recommendations include high 
deployment levels and the effort required to place a business on an off-
limits list. Other commanders effectively changed businesses predatory 
practices by using their boards recommendations to place or threaten 
to place the businesses off-limits. In addition, DOD is not always 
providing a clear message regarding advertising in installation 
publications. Participants in GAOs focus groups said they were 
confused because DOD-provided financial management training (described 
in our 2005 report, Military Personnel: More DOD Actions Needed to 
Address Servicemembers Personal Financial Management Issues) warned 
them against using payday lenders but some installation newspapers 
carried advertisements for such businesses. These problems occur even 
though a DOD instruction requires (1) a disclaimer indicating that the 
advertisement does not constitute endorsement by the U.S. government 
and (2) a review by public affairs staff to determine if the 
advertisement might be detrimental to servicemembers. Our review of 
some installation newspapers showed possible reasons for the confusion; 
the disclaimers were often not prominently displayed or were located 
away from the advertisements. DOD also offers servicemembers free legal 
review of contracts and other financial transactions, but 
servicemembers often do not use the reviews until problems result. 
Recently, DOD began exploring additional on-installation alternatives 
to payday loans. 

What GAO Recommends: 

GAO is making two recommendations for DOD to curb the use and effects 
of predatory lending practices on servicemembers: amend regulations to 
require at least semi-annual meetings of the Armed Forces Disciplinary 
Control Boards and clarify regulations pertaining to advertisements in 
official DOD publications. DOD concurred with GAOs recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-05-349. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Derek Stewart at (202) 
512-5559 or stewartd@gao.gov. 

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

Use of Consumer Loans That Are Considered Predatory Is Unknown, but 
Sources Say Predatory Lenders May Be Targeting Servicemembers: 

DOD's Tools for Curbing the Use and Effects of Predatory Lending 
Underutilized: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: Predatory Lending Findings from GAO-Led Focus Groups Held 
at 13 Installations: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Appendix V: Related GAO Products: 

Table: 

Table 1: Installations in the United States and Germany Where GAO 
Conducted Site Visits from May to October 2004: 

Figure: 

Figure 1: The Number of Servicemembers in Each State and Whether or Not 
the State Has Payday Lending Laws with Interest Caps or Other 
Prohibitions: 

Abbreviations: 

DOD: Department of Defense: 

PFM: personal financial management: 

Letter April 26, 2005: 

The Honorable Richard J. Durbin: 
United States Senate: 

Dear Senator Durbin: 

The Department of Defense (DOD) has expressed continuing concerns about 
servicemembers' use of predatory consumer loans. These loans can result 
in financial problems that may lead to severe negative consequences for 
the military as a whole (e.g., decreases in unit readiness and morale) 
as well as for the servicemembers themselves (e.g., criminal and 
adverse personnel actions, including possible discharge from the 
military). "Predatory lending" has no precise definition, but is 
generally used to describe cases in which a lender takes unfair 
advantage of a borrower, sometimes through deception, fraud, or 
manipulation, to make a loan that contains terms that are 
disadvantageous to the borrower.[Footnote 1] DOD policy officials have 
expressed concerns over certain types of high-cost, short-term consumer 
loans that are typically provided by lenders who lie outside the system 
of federally insured financial institutions. These include payday 
loans, rent-to-own loans, automobile title pawn loans, and tax refund 
loans. 

DOD has a number of tools to address the use and effects of loans that 
it considers predatory. These tools include: (1) the Armed Forces 
Disciplinary Control Boards,[Footnote 2] which can make recommendations 
to installation commanders who can then use or threaten to use their 
"off-limits" authority to prohibit servicemembers from using a business 
that engages in predatory lending practices; (2) free legal assistance 
with contracts and other financial transactions; and (3) personal 
financial management (PFM) programs that offer servicemembers 
assistance, such as financial management training and counseling. In 
addition, DOD has encouraged servicemembers to seek, for example, 
payday loan alternatives available from on-installation banks, on- 
installation credit unions, and service-affiliated relief/aid 
societies.[Footnote 3]

This report supplements the information we provided to you in our 
February 2004 report on bankruptcies among active duty servicemembers, 
and our April 2005 report on the financial conditions of deployed 
servicemembers and the financial management assistance and training 
provided to servicemembers.[Footnote 4] For this report, we agreed with 
your staff to answer two questions: (1) To what extent do active duty 
servicemembers use consumer loans considered to be predatory in nature? 
and (2) Are DOD and active duty servicemembers fully utilizing the 
tools that DOD has to curb the use and effects of predatory lending 
practices?

In addressing these two questions, we limited the scope of our work to 
active duty personnel and emphasized junior enlisted servicemembers 
(i.e., pay grades E1 to E4) because DOD and service officials have 
indicated that this subgroup--whose basic pay currently ranges from 
about $1,200 to $1,900 per month--is most likely to encounter financial 
problems. Numerous methods were used to gather and assess information 
for this work.[Footnote 5] We examined DOD and service policies and 
tools for assisting servicemembers with their financial management, 
establishing and using Armed Forces Disciplinary Control Boards, and 
advertising in installation publications. In addition, we reviewed 
reports by GAO, other congressional research offices, DOD, and other 
organizations. We contacted the Federal Trade Commission to ascertain 
what data were available through Military Sentinel regarding the types 
of consumer complaints servicemembers filed against businesses. We 
interviewed DOD and service policy officials and officials from 
organizations such as the Consumer Federation of America--a consumer 
advocacy group--and the Community Financial Services Association of 
America--a payday lending association--to understand the different 
perspectives about servicemembers' use of short-term consumer loans. 
During site visits to 13 military installations in the United States 
and Germany, we requested documents pertaining to predatory lending 
such as guidance or instructions regarding predatory lending activities 
at the installations and training materials; used structured 
questionnaires to gather data from a variety of personnel on the 13 
installations: command leaders, PFM program managers, command financial 
counselors, legal assistance attorneys, senior noncommissioned officers 
(pay grades E8 to E9), chaplains, and staff from the military 
relief/aid societies; and conducted 60 focus groups composed of over 
400 junior (pay grades E1 to E4) and senior (pay grades E5 to E9) 
enlisted servicemembers, company grade officers (pay grade O1 to O3), 
and servicemembers' spouses. In addition, we administered a 
questionnaire to participants in the focus groups to collect 
supplemental information. While data from these four types of 
homogeneously composed focus groups are not generalizable to the entire 
DOD population of active duty servicemembers, the data provide context 
for understanding lending/borrowing and PFM issues. In addition, we 
conducted group interviews of personnel affiliated with the PFM 
programs while they attended a November 2004 conference. We reviewed 14 
installation newspapers and examined the disclaimers and advertisements 
in these newspapers during the course of our review. We reviewed 
information in DOD's August 2004 active duty survey related to findings 
for four types of loans: payday, rent-to-own, automobile title pawn, 
and tax refund, which DOD says may include predatory practices. The 
August 2004 survey had a response rate of 40 percent. DOD has conducted 
and reported on research to assess the impact of this response rate on 
overall estimates. They found that, among other characteristics, junior 
enlisted personnel (E1 to E4), servicemembers who do not have a college 
degree, and members in services other than the Air Force were more 
likely to be nonrespondents. We found the data sufficiently reliable to 
address our objectives. We performed our work from March 2004 through 
February 2005 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

The extent to which active duty servicemembers use consumer loans 
considered to be predatory in nature and the effects of such borrowing 
are unknown, but many sources suggest that providers of such loans may 
be targeting servicemembers. The only DOD-wide data come from surveys 
that have low response rates that make findings projected to the 
population of all active duty servicemembers or subgroups thereof 
tenuous. In a 2004 survey, 12 percent of servicemembers said they or 
their spouse had used, during the last 12 months, at least one of four 
types of loans: payday, rent-to-own, automobile title pawn, and tax 
return, which DOD says can often be associated with predatory lending 
practices. DOD is unable to quantify the extent to which the loans have 
associated predatory practices, the frequency of borrowing, the amounts 
borrowed, or the effects of the loans. Although not generalizable, 
participants in GAO's 60 focus groups at 13 bases in the United States 
and Germany identified problems such as high fees and debt collection 
methods resulting from the use of these types of short-term consumer 
loans, but other participants described the loans as quick, easy, and 
obtainable by servicemembers with bad credit. Privacy concerns and the 
reluctance of servicemembers to reveal financial problems make it 
difficult to quantify the use and effects of predatory lending. While 
DOD is unable to quantify usage and effects, consumer advocates, state 
government officials, DOD officials, and servicemembers in our focus 
groups indicated that military personnel are being targeted by some 
predatory lenders and are adversely affected when they use businesses 
that employ predatory lending practices. 

DOD and active duty servicemembers are not fully utilizing DOD's tools 
for curbing the use and effects of predatory lending practices. While 
commanders at some installations we visited have changed the illegal or 
unfair practices of some businesses by using recommendations from Armed 
Forces Disciplinary Control Boards to place or threaten to place 
businesses off-limits to servicemembers, boards at three installations 
we visited had not met in over a year. For example, Fort Drum's board 
had not met in about 4 years, even though the New York Attorney General 
had filed two lending-related lawsuits against businesses on behalf of 
servicemembers and some of their family members at Fort Drum. 
Installation officials told us the reasons for boards not meeting or 
making recommendations include high deployment levels and the effort 
required to place a business on the off-limits list. A second tool that 
DOD is underutilizing pertains to advertisements in installations' 
newspapers. Participants in GAO's focus groups said they were confused 
because DOD-provided financial management training warned them against 
using payday lenders but some installation newspapers carried 
advertisements for such businesses. These problems occur even though a 
DOD instruction requires (1) a disclaimer indicating that the 
advertisement does not constitute endorsement by the U.S. government 
and (2) a review by public affairs staff to determine if the 
advertisement might be detrimental to servicemembers. Our review of 
some installation newspapers showed that the confusion and incorrect 
assumptions may be, in part, the result of the disclaimers often being 
located away from the advertisement or not being prominently displayed. 
Third, servicemembers typically have not made full use of free DOD- 
provided legal assistance before signing contracts and other financial 
documents, but they sometimes use the assistance after financial 
problems develop. According to servicemembers and legal assistance 
attorneys, military personnel may avoid the DOD-provided legal 
assistance for fear that their career progression would be limited if 
the command were to learn of their financial problems. Recently, DOD 
has explored additional on-installation alternatives to payday loans, 
like special loan programs offered by on-installation credit unions and 
banks. 

We are making two recommendations to improve DOD's ability to curb the 
use and effects of predatory lending practices: (1) amend existing 
regulations to require at least semiannual meetings of the Armed Forces 
Disciplinary Control Boards and (2) clarify regulations pertaining to 
advertisements in installation publications to require more prominent 
disclaimers and additional steps to ensure advertisements reflect 
stated DOD policies. In commenting on a draft of this report, DOD 
concurred with our recommendations. 

Background: 

DOD officials have expressed concern that servicemembers are often the 
victims of predatory lending practices by certain types of lenders who 
typically lie outside the system of traditional financial institutions 
such as banks. These lenders offer alternative access to cash for 
consumers with low incomes or poor credit records, and generally do so 
without standard credit checks. The fees charged for these alternative 
loans are generally much higher than those charged by traditional 
financial institutions, and other terms and conditions of such loans 
are often unfavorable to the borrower. As a result, some federal, 
state, and consumer advocacy agencies have expressed concern that many 
of these alternative loans could include predatory practices. The most 
common of these loans include the following: 

* Payday loans, according to the Federal Deposit Insurance Corporation, 
are small, short-term loans that borrowers promise to repay out of 
their next paycheck or deposit of funds. These loans typically have 
high fees and are often rolled over repeatedly, which can make the cost 
of borrowing--expressed as an annual percentage rate--extremely 
high.[Footnote 6]

* Rent-to-own loans, according to the Federal Trade Commission, provide 
immediate access to household goods (such as furniture and appliances) 
for a relatively low weekly or monthly payment, typically without any 
down payment or credit check. Consumers have the option of purchasing 
the goods by continuing to pay "rent" for a specified period of time-- 
however; the effective cost of the goods may be two to three times the 
retail price.[Footnote 7]

* Automobile title pawns provide short-term loans to borrowers who give 
the lender the title to their car as collateral for the loan. Effective 
interest rates are generally very high. 

* Tax refund loans provide cash loans against the borrower's expected 
income tax refund. 

Senior DOD and service officials have noted that such loans may have 
associated predatory lending practices, which can be detrimental to 
servicemembers who choose these loans as a way to overcome immediate 
needs for cash. The fees for loans such as the payday loans provide a 
general indication of the loans' potential detrimental financial 
effects on servicemembers' finances. The Community Financial Services 
Association of America, a payday-advance trade association, which says 
that it represents more than half of the payday advance industry, 
developed a set of best practices for its member companies. Among other 
things, the association's best practices limit the number of extensions 
for outstanding: 

advances.[Footnote 8] Association representatives noted that borrowers 
select payday loans over other alternatives for a number of reasons. 
For example, in some instances, the officials stated that the 
individual may not have the good credit history required to borrow from 
a bank or credit union. In other instances, an individual might use a 
payday loan to avoid a bounced check fee, late payment penalty, or 
reconnection fees associated with the late payment of a utility bill. 
The Congressional Research Service estimated that the number of payday 
loan offices nationwide increased from approximately 300 in 1992 to 
almost 15,000 in 2002, and the total dollar volume of payday loans in 
2002 was about $25 billion.[Footnote 9]

Use of Consumer Loans That Are Considered Predatory Is Unknown, but 
Sources Say Predatory Lenders May Be Targeting Servicemembers: 

The extent to which active duty servicemembers use consumer loans 
considered to be predatory and the effects of such borrowing are 
unknown, but many sources suggest that predatory lenders may be 
targeting servicemembers. While DOD has some data on servicemembers' 
use of four types of loans, DOD is unable to quantify the extent to 
which these types of loans have associated predatory practices, the 
frequency of borrowing, the amounts borrowed, or the effects of the 
loans. Information from our focus groups, however, provided insights to 
some of these issues. Although DOD is unable to quantify usage and 
effects, consumer advocates, state government officials, DOD officials, 
and servicemembers in our focus groups indicated that military 
personnel are being targeted by some predatory lenders. 

DOD Has Limited Data for Quantifying the Extent That Servicemembers Use 
Consumer Loans Considered Predatory: 

DOD does not have comprehensive data for quantifying the extent to 
which servicemembers use consumer loans that are considered predatory 
in nature and the effects of such use on servicemembers' finances or 
their units' readiness. The only DOD-wide statistics on servicemembers' 
use of loans are obtained from surveys. In the August 2004 DOD 
survey,[Footnote 10] 12 percent of servicemembers indicated that, 
during the last 12 months, they or their spouse had used at least one 
of the four specified types of financial loans that DOD says may have 
associated predatory practices. Seven percent of servicemembers 
indicated they (or their spouse) had obtained payday loans; 4 percent 
had obtained rent-to-own loans, 1 percent had obtained automobile title 
pawn loans, and 6 percent had obtained tax refund loans. While only 2 
percent of the officers had used any of the four financial 
transactions, 14 percent of the junior and 13 percent of the senior 
enlisted servicemembers had used at least one such loan. Although not 
generalizable to all active duty servicemembers and their spouses, some 
of the more than 400 participants in our 60 focus groups reported 
encountering problems when they used the short-term consumer loans; 
while other servicemembers said such loans have positive elements such 
as being quick, easy, and obtainable even if servicemembers had a bad 
credit history (see app. II for example comments). 

DOD's efforts to assess predatory lending are hampered by the lack of a 
precise definition of predatory lending--a problem shared with other 
organizations attempting to quantify the use and effects of predatory 
loans. The lack of precision in the definition is found in DOD's 
acknowledgement that the four types of loans may (i.e., not always) 
contain predatory lending practices, but other DOD statements state 
that payday lending is predatory, without including a qualifier. 
Imprecision in the definition and the way the questions are asked on 
surveys can affect results. For example, the percentage of 
servicemembers who reported using the various types of loans may be 
larger than the percentage of servicemembers who would have said they 
obtained a predatory loan, had the question been oriented somewhat 
differently. Other important issues not addressed in the survey but 
needed to quantify the extent and effects of borrowing from lenders 
that may use predatory lending practices include questions on the 
frequency of use, amounts borrowed, negative and positive effects of 
the loans, and any problems encountered during the transactions. 

DOD, service, and installation officials maintained that obtaining data 
on the use and effects of predatory lending are also hampered because 
of privacy considerations and the reluctance of most servicemembers to 
discuss their financial difficulties with their command. Installation 
officials told us that they are likely to learn about servicemembers' 
use of the previously cited types of loans only when a situation has 
become serious enough to warrant creditors contacting the command or 
servicemembers contacting either financial counselors or legal 
assistance attorneys on the installations. Because of general privacy 
concerns, it is unlikely that all contacts with attorneys and 
counselors could be provided in an installation-level statistic. 

Multiple Sources Indicate Some Predatory Lenders May Be Targeting 
Servicemembers: 

According to some consumer advocates, state officials, DOD officials, 
and military personnel, servicemembers are targeted by predatory 
lenders. A 2003 National Consumer Law Center report stated that junior 
enlisted servicemembers are targeted because they have a relatively low 
but secure income (with military basic pay that currently ranges from 
about $1,200 to $1,900 per month) and tend to be young and financially 
inexperienced.[Footnote 11] The report further suggested that deploying 
servicemembers are more vulnerable targets than their nondeploying 
peers because the former often must get their finances in order quickly 
and leave behind spouses who may not know how to manage the family's 
finances. The report noted several financial practices that it 
considered "consumer scams" aimed at servicemembers. These included 
payday loans, rent-to-own transactions, and automobile title pawns. 

Some state officials have also suggested that payday lenders--a type of 
predatory lending according to DOD--target servicemembers. For example, 
the Georgia General Assembly has recently determined as part of its new 
antipayday lending legislation that despite its illegality, payday 
lending was growing in Georgia and having an adverse effect on 
servicemembers and others in the state.[Footnote 12] Similarly, the 
Florida governor's 2004 statement to the Committee on Senate Armed 
Services, Subcommittee on Personnel, noted that Florida had regulated 
activities of payday loan and check cashing businesses that 
traditionally target servicemembers. In 2004, the Under Secretary of 
Defense for Personnel and Readiness posted an issue paper on its Web 
site[Footnote 13] to the National Governors Association that addressed 
payday lending and other personnel issues. Regarding payday lending, 
the Under Secretary stated that "Payday lending practices have proven 
to be detrimental to servicemembers who have chosen these loans as a 
way of overcoming immediate needs for cashStatutes that cap small loan 
interest rates and establish usury ceilings help protect vulnerable 
servicemembers from the usury nature of payday loans and their 
associated predatory practices."

According to a 2004 Consumer Federation of America study, 15 states 
prohibit or limit payday lending through laws on interest rate caps for 
small loans, usury laws, or specific prohibitions for check 
cashers.[Footnote 14] We did not independently verify that these 15 
states, in fact, do prohibit this activity, nor did we review laws in 
the other 35 states. Figure 1 shows these 15 states identified by the 
Consumer Federation of America, along with information on the number of 
active duty servicemembers on installations in each state. Even in 
those states that prohibit or otherwise regulate payday loans, 
servicemembers may be able to obtain such loans. Another Consumer 
Federation of America report noted that a growing number of Web sites 
deliver small loans, with some lenders using anonymous domain 
registrations or residing outside the United States.[Footnote 15]

Figure 1: The Number of Servicemembers in Each State and Whether or Not 
the State Has Payday Lending Laws with Interest Caps or Other 
Prohibitions: 

[See PDF for image] 

[End of figure] 

DOD's Tools for Curbing the Use and Effects of Predatory Lending 
Underutilized: 

DOD and servicemembers are underutilizing the tools that DOD has for 
curbing predatory lending practices and the effects of such lending. 
While commanders at some installations we visited have changed the 
unfair practices of businesses by using recommendations from Armed 
Forces Disciplinary Control Boards to place or threaten to place 
businesses on off-limits lists to servicemembers, boards at other 
installations we visited rarely met or made such recommendations. 
Although installation newspapers appear to meet current disclaimer 
requirements by including a statement noting that the U.S. government 
does not endorse a business' products or services, the advertisements 
may lead to confusion for readers because the disclaimers are not 
prominently printed or located near the advertisement. Additionally, 
servicemembers typically have not made full use of free DOD-provided 
legal assistance before signing contracts and other financial 
documents, but they sometimes use the assistance after financial 
problems develop. Recently, DOD has sought to expand the tools 
available for curbing the use and effects of predatory lending 
practices by exploring additional on-installation alternatives to 
payday loans. 

Armed Forces Disciplinary Control Boards Can Be an Effective Tool for 
Curbing Predatory Lending Practices, but They Are Underutilized: 

Armed Forces Disciplinary Control Boards and the recommendations that 
they make to an installation commander to place businesses off-limits 
to servicemembers can be effective tools for avoiding or correcting 
unfair practices, but data gathered during some of our site visits to 
the various installations revealed few times when boards were used to 
address predatory lending practices.[Footnote 16] For example, at three 
of the installations, the board had not met for more than a year and, 
therefore, may not have adequately addressed whether actions were 
needed against businesses whose practices negatively affected 
servicemembers. The board at Fort Bragg, North Carolina, had not met 
for over a year and the board at Fort Stewart, Georgia, had not met 
since 2003 because the Directors for both boards had deployed to Iraq. 
The board at Fort Drum, New York, had not met in about 4 years because 
the board's Director did not see a reason to convene. He was not aware 
of two recent, lending-related lawsuits filed by the New York Attorney 
General that had connections with Fort Drum servicemembers. 

* The Attorney General settled a lawsuit in 2004 in behalf of 177 
plaintiffs--most of whom were Fort Drum servicemembers--involving a 
furniture store that had improperly garnished wages pursuant to 
unlawful agreements it had required customers to sign at the time of 
purchase. 

* The Attorney General filed a lawsuit in 2004 involving catalog sales 
stores. He characterized the stores as payday-lending firms that 
charged excessive interest rates on loans disguised as payments toward 
catalog purchases. Some of the servicemembers and family members at 
Fort Drum fell prey to this practice. The Attorney General stated that 
he found it particularly troubling that two of the catalog stores were 
located near the Fort Drum gate. 

The Garrison Commander at Fort Drum and a representative of the board 
said that had they known about these cases, they would have considered 
placing the businesses on the off-limits list. Legal assistance 
attorneys at Fort Drum were, however, aware of the legal actions by the 
New York Attorney General. By not making full use of the boards, 
commanders may not be doing all they can to help servicemembers avoid 
businesses that employ predatory practices. 

According to officials at the installations we visited, the boards 
might not be used as a tool for dealing with predatory lenders for a 
variety of reasons. First, high deployment levels have resulted in 
commanders minimizing some administrative duties, such as convening the 
boards, in order to use their personnel for other purposes. Second, as 
long as the lenders operate within state laws, the boards may determine 
they have little basis to recommend placing or threatening to place 
businesses on the off-limits lists. Third, significant effort may be 
required to put businesses on off-limits lists. At the installations we 
visited, the boards' composition included representatives from 
functional areas like public works, family community services, legal 
counsel, safety, and public affairs. 

In contrast, businesses near two other installations we visited changed 
their lending practices after boards recommended that commanders place 
or threaten to place businesses on off-limits lists. The Commander of 
the Navy Region Southwest's board identified actions that were based on 
the board's recommendations against businesses committing illegal acts 
or taking unfair advantage of servicemembers. For example, in October 
2002, a company was placed off-limits because it represented itself as 
a government agency when arranging loan-repayment allotments with 
servicemembers, threatened debtors with court-martial for nonpayment, 
and wrote loans that had interest rates of 60 percent. Similarly, the 
board at Camp Lejeune, North Carolina, threatened to take action 
against a lender that was charging 33.1 percent interest and requiring 
servicemembers to waive their rights set forth by the Servicemembers 
Civil Relief Act.[Footnote 17] The business avoided being placed on the 
installation's off-limits list by terminating two employees and 
changing some of its business practices. 

Advertising in Installation Newspapers Could Confuse Servicemembers 
about Whether the Military Endorses Payday Lenders: 

In some instances, DOD is not providing a clear message about whether 
it endorses advertisers in official installation newspapers. Some 
servicemembers in our focus groups said they were confused about 
whether the military endorses the businesses that advertise in 
installation newspapers, and the confusion could lead servicemembers to 
use a type of business that DOD has labeled as potentially having 
predatory lending practices. Earlier, a 2003 Army publication stated 
that payday loan advertisements appear in official and unofficial 
military publications, and readers often incorrectly assume that 
military officials have approved the businesses and their 
claims.[Footnote 18] A DOD instruction requires installation 
publications to run disclaimers warning readers that advertisements do 
not constitute endorsement by the U.S. government. The instruction also 
requires public affairs staffs to oversee the appropriateness of 
advertisements in installation publications.[Footnote 19] Among other 
things, the public affairs staff is to review advertisements and 
identify any that may be detrimental to DOD personnel or their family 
members. If an advertisement is found to be detrimental, the public 
affairs staff is to take steps to either have the advertisement removed 
by the publisher or report the situation to the installation commander 
who can act to preclude distribution of the publication on the 
installation. 

Servicemembers' confusion about businesses' advertisements may have 
multiple causes. First, readers may not see the advertising disclaimer. 
We reviewed 14 installation newspapers and found that all of them 
contained a disclaimer; however, we also observed that the disclaimers 
were typically (1) included only once in the newspaper, (2) listed with 
other administrative notices such as statements identifying the 
publisher and the availability of advertised items, and (3) located 
remotely from many of the advertisements. Second, advertisements for 
some types of businesses may run contrary to official DOD statements 
about the use of those businesses. Servicemembers participating in our 
focus groups said they were confused because DOD officials and 
information provided during PFM training warned against using payday 
lenders but such lenders were allowed to advertise in installation 
newspapers. We observed two such advertisements for a payday lender 
during our review of the 14 installation newspapers, and PFM program 
managers wrote comments about this issue when responding to a GAO 
survey of all PFM managers. Third, there is confusion about which 
businesses do and do not use predatory lending practices. For example, 
the PFM program manager at one installation identified a particular car 
financing business as predatory, but the PFM program manager at another 
installation sometimes directs servicemembers to this same business 
when they have had past credit problems that limit their loan options. 
Fourth, legal assistance attorneys on some of the installations we 
visited told us that lenders and other businesses are free to advertise 
in the newspapers. A potential negative effect of the confusion 
regarding whether businesses are approved and endorsed by the 
installation is that servicemembers may use types of businesses that 
DOD policy officials have determined to be predatory, rather than 
seeking assistance through alternatives such as military relief/aid 
societies identified by the installation PFM program manager and staff. 

Servicemembers Do Not Make Full Use of Free DOD-Provided Legal 
Assistance for Financial Issues: 

Servicemembers do not take full advantage of free DOD-provided legal 
assistance on contracts and other financial documents. Legal assistance 
attorneys at the 13 installations we visited stated that servicemembers 
rarely seek their assistance before entering into financial contracts 
for goods or services such as purchasing cars or lifetime film 
developing. The attorneys said that servicemembers are more likely to 
seek their assistance after encountering problems such as the following 
selected examples: 

* Used car dealers offered low interest rates for financing a vehicle, 
but the contract stated that the interest rate could be converted to a 
higher rate later if the lender did not approve the loan. 
Servicemembers were later called to sign a new contract with a higher 
rate. By that time, some servicemembers found it difficult to terminate 
the transaction because their trade-in vehicles had been sold. 

* Used car dealers refused to allow servicemembers to take their 
contracts to a legal assistance attorney for review. In one such 
instance, a servicemember signed a contract to pay $30,000 for a car 
with a blue book value of $12,000. 

* A company used car titles as collateral on loans and required 
servicemembers to provide an extra set of keys to the cars so that they 
could be easily repossessed if the loans were not paid. This type of 
transaction can result in triple-digit interest. 

During our interviews, legal assistance attorneys said they provide 
preventive briefings to incoming and deploying servicemembers to 
address financial issues such as car buying, payday loans, and debt 
management during deployment. In some cases, they might take actions to 
assist servicemembers who have financial problems. Depending on the 
circumstances, they may represent servicemembers in local court 
involving consumer cases that affect the military community. In 
addition, while most legal assistance attorneys do not represent 
servicemembers in bankruptcy cases, they may provide servicemembers 
with information on bankruptcy, advice about whether filing is 
appropriate, and a reference to an off-installation civilian attorney. 

Legal assistance attorneys, as well as other personnel in our 
interviews and focus groups, noted reasons why servicemembers might not 
take greater advantage of the free legal assistance before entering 
into business agreements. They stated that junior enlisted 
servicemembers who want their purchases or loans immediately may not 
take the time to visit the attorney's office for such a review. 
Additionally, the legal assistance attorneys noted that servicemembers 
feared information would get back to the command about their financial 
problem and limit their career progression. 

DOD Is Exploring On-Installation Alternatives to Payday Loans: 

DOD, service, and installation officials are exploring on-installation 
alternatives to payday loans for those servicemembers with financial 
problems. In 2004, DOD said it surveyed approximately 150 defense 
credit unions and received responses from 48. Of those responding, 
which may not be representative of all defense credit unions due to the 
low response rate, 29 credit unions said that they offer an alternative 
to payday lending. The alternatives, which can be shared with other on- 
installation credit unions and banks as well as PFM program managers 
and command financial counselors, included (1) low-cost, short-term 
lines of credit; (2) short-term signature loans or small unsecured 
signature loans; and (3) availability of funds 2 days before the 
servicemember's normal pay date. 

Some of the PFM program managers at the 13 installations we visited had 
also worked with on-installation credit unions and banks to obtain 
payday loan alternatives, which included special loan programs or 
overdraft protection of up to $500 for customers with "less-than 
perfect" credit histories. One credit union that we visited advertised 
a loan alternative called QuickCash, which had an annual percentage 
rate of 18 percent. To use QuickCash, servicemembers were required to 
join the credit union, apply for the loan, and have the repayment 
deducted from their account the following pay period. Some of the on- 
installation credit unions also offer seminars and training to assist 
servicemembers in finding lending alternatives. 

Other alternatives to payday loans include pay advances and military 
relief/aid society grants and no interest loans to 
servicemembers.[Footnote 20] Some servicemembers in our focus groups 
stated that they would not use these types of installation-related 
alternatives because the alternatives take too long, are intrusive 
because the financial institution or relief/aid society required in- 
depth financial information in the loan or grant application, or may be 
career limiting if the command found out the servicemembers were having 
financial problems. The Army Emergency Relief Society has attempted to 
address the time and intrusiveness concerns with its test program, 
Commander's Referral, for active duty soldiers lacking funds to meet 
monthly obligations of $500 or less. After the commander approves the 
loans, the servicemembers can expect to receive funds quickly. 
Noncommissioned officers in our individual interviews and focus groups 
said the program still does not address servicemembers' fears that 
revealing financial problems to the command can jeopardize their 
careers. 

Conclusions: 

Although we have cited examples where installation commanders changed 
the predatory practices of businesses by adding or threatening to add 
the lenders to an off-limits list, other installation commanders we 
visited have made only limited use of their Armed Forces Disciplinary 
Control Board for such purposes. The fact that some boards have not met 
for a year or more seems to run contrary to DOD, service, and 
installation efforts to curb the use and effects of predatory lending 
practices. As we have discussed, failure to utilize this valuable tool 
fully and appropriately for curbing unfair or illegal commercial or 
consumer practices can have negative, but difficult-to-quantify, 
consequences on servicemembers' finances as well as unit morale and 
readiness. Furthermore, although military installations appear to be 
meeting current requirements regarding disclaimers for advertisements 
in installation publications, the location of the disclaimer has 
resulted in unclear messages to some servicemembers about whether 
inclusion of certain advertisements constitutes approval or endorsement 
of the business by DOD. In addition, some servicemembers have been 
confused when the content of some advertisements is contrary to 
official DOD statements regarding the use of lenders who may use 
predatory lending practices. This confusion is particularly problematic 
because it may harm DOD's efforts to reduce the use and effects of 
predatory lending practices. 

Recommendations for Executive Action: 

We are making the following two recommendations to the Secretary of 
Defense: 

* To improve DOD's ability to curb the use and effects of predatory 
lending practices, we recommend that the Secretary of Defense direct 
the Under Secretary of Defense for Personnel and Readiness to amend 
existing regulations to require installation commanders to convene the 
Armed Forces Disciplinary Control Boards at least semiannually to 
investigate and make recommendations to commanders on matters related 
to eliminating conditions which adversely affect the health, safety, 
morals, welfare, morale, and discipline of the Armed Forces, to include 
servicemembers' use of lenders who may use predatory lending practices. 

* To ensure DOD provides servicemembers a clear message about whether 
it endorses advertisers in official installation newspapers that may 
use predatory lending practices, we recommend that the Secretary of 
Defense direct the Assistant Secretary of Defense for Public Affairs to 
clarify the regulations pertaining to advertisements in installation 
publications by requiring disclaimers to be more prominent and taking 
steps to ensure advertisements reflect stated DOD policies regarding 
what it considers to be predatory lending. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, DOD concurred with our 
recommendation to clarify regulations pertaining to advertisements in 
installation publications and partially concurred with our 
recommendation to amend regulations to require at least semiannual 
meetings of the Armed Forces Disciplinary Control Boards. 

In its comments, DOD noted that it is in the initial stages of staffing 
and coordinating changes to the Armed Forces Disciplinary Control 
Boards' joint regulations and will take two actions--require boards to 
meet four (instead of two) times a year and direct that businesses on 
the off-limits list for one service be off-limits for all services. 
Although DOD's comments dealt primarily with the issue of payday 
lending, the intent of our recommendation was to address all types of 
consumer predatory lending encountered by servicemembers. Moreover, 
DOD's actions will go even further than our recommendation suggested. 
DOD also noted that the boards' process would be an ineffectual 
deterrent against payday lenders for several reasons. For example, it 
stated that the boards' process would be ineffectual because of the 
difficulty in providing adequate oversight of all payday lending 
businesses and noted that installation commanders may have to develop 
criteria outside of state statutes for the 35 states where payday 
lending is legal. Our draft report had already noted that boards may 
have little basis for recommending or threatening to place businesses 
on an off-limits list when lenders operate within state laws. Our 
recommendation will (1) require the boards to meet regularly and (2) 
provide installation commanders additional focus and oversight into 
conditions that may adversely affect servicemembers on their 
installations. Implementing our recommendation does not require 
installation commanders to monitor all payday lending businesses; 
instead, it is intended to provide commanders with a routine process 
for reviewing and taking appropriate action against those lenders that 
adversely affect servicemembers on the commanders' installation. 

DOD's comments are reprinted in appendix III. DOD also provided 
technical comments, which we incorporated in the final report as 
appropriate. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. At that time we will send copies of the report to 
the Secretary of Defense and interested congressional committees. We 
will also make copies available to others upon request. This report 
will be available at no charge on GAO's Web site at [Hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-5559 ([Hyperlink, stewartd@gao.gov]) or Jack E. 
Edwards at (202) 512-8246 ([Hyperlink, edwardsj@gao.gov]). Other staff 
members who made key contributions to this report are listed in 
appendix IV. 

Sincerely yours,

Signed by: 

Derek B. Stewart: 
Director, Defense Capabilities and Management: 

[End of section]

Appendixes: 

Appendix I: Scope and Methodology: 

In addressing the objectives of this engagement on predatory lending, 
we limited our scope to active duty servicemembers because we have 
previously issued a number of reports on the compensation, benefits, 
and pay-related problems of reservists.[Footnote 21] While performing 
our work, we visited 13 installations with high deployment levels, as 
identified by service officials (see table 1).[Footnote 22] During 
these site visits to installations in the United States and Germany, 
special emphasis was given to ascertaining the financial conditions of 
junior enlisted servicemembers because the Department of Defense (DOD) 
and service officials have reported that this subgroup is more likely 
to encounter financial problems. 

Table 1: Installations in the United States and Germany Where GAO 
Conducted Site Visits from May to October 2004: 

Service: Army; 
Installation: Fort Bragg, North Carolina. 
Installation: Fort Campbell, Kentucky. 
Installation: Fort Drum, New York. 
Installation: Fort Lewis, Washington. 
Installation: Fort Stewart, Georgia. 
Installation: ServiceNavy: Ray Barracks, Friedberg, Germany. 

Service: Navy; 
Installation: Naval Air Station Jacksonville, Florida. 
Installation: Naval Station San Diego, California. 

Service: Marine Corps; 
Installation: Camp Lejeune, North Carolina. 
Installation: Camp Pendleton, California. 

Service: Air Force; 
Installation: Bolling Air Force Base, Washington, D.C. 
Installation: Langley Air Force Base, Virginia. 
Installation: Ramstein Air Base, Germany. 

Source: GAO. 

[End of table]

To address servicemembers use of consumer loans considered to be 
predatory in nature, we reviewed and analyzed laws, policies, and 
directives--such as the Servicemembers Civil Relief Act[Footnote 23] 
and DOD's Financial Management Regulation 7000.14R, Volume7A. We also 
reviewed and analyzed lending-related findings and perspectives 
contained in publications issued by GAO, DOD, Congressional Research 
Service, Federal Reserve Bank of Philadelphia, Federal Deposit 
Insurance Corporation, Federal Trade Commission, state government 
officials, consumer groups (Consumer Federation of America and National 
Consumer Law Center), and an association that says it represents around 
50 percent of payday lenders (Community Financial Services Association 
of America). We reviewed a 2004 Consumer Federation of America study, 
which cited 15 states that prohibit or limit payday lending through 
laws on interest rate caps for small loans, usury laws, or specific 
prohibitions for check cashers.[Footnote 24] We did not independently 
verify that these 15 states, in fact, do prohibit this activity, nor 
did we review laws in the other 35 states. We also contacted the 
Federal Trade Commission and ascertained that its Military Sentinel 
database has little information on servicemembers' complaints against 
businesses. We interviewed DOD and service policy officials, as well as 
representatives of consumer groups and a payday association. During our 
13 site visits, we developed and used structured questionnaires for 
interviews with seven types of officials: installation leaders, 
personal financial management (PFM) program managers, command financial 
counselors, senior noncommissioned officers (pay grades E8 to E9), 
legal assistance attorneys, chaplains, and relief/aid societies. We 
used a structured protocol for conducting 60 focus groups with over 400 
individuals who met in four homogeneous types of groups: junior 
enlisted servicemembers (pay grades E1 to E4), noncommissioned officers 
(pay grades E5 to E9), company-grade officers (pay grades O1 to O3), 
and spouses of servicemembers. In addition, we constructed, pretested, 
and administered a survey to participants in the focus groups to 
collect supplemental information that may have been difficult to 
collect in a group setting. We also obtained data from an August 2004 
DOD-wide survey[Footnote 25] to assess its reliability and determine 
prevalence rates for four types of loans that DOD says may contain 
predatory practices. The August 2004 survey had a response rate of 40 
percent. DOD has conducted and reported on research to assess the 
impact of this response rate on overall estimates. They found that, 
among other characteristics, junior enlisted personnel (E1 to E4), 
servicemembers who do not have a college degree, and members in 
services other than the Air Force were more likely to be 
nonrespondents. We have no reason to believe that potential non- 
response bias in the estimates, not otherwise accounted for by DOD's 
research, is substantial for the variables we studied in this report. 
Therefore, we concluded the data to be sufficiently reliable to address 
our objectives. We found the data sufficiently reliable to address our 
objectives. This information was supplemented with information obtained 
from three group discussions with a total of 50 personnel affiliated 
with the PFM programs while they attended a November 2004 conference. 

To assess whether DOD was fully utilizing the tools that it has to curb 
the use and effects of predatory lending practices, we obtained 
information from the laws, policies, directives, and reports that were 
used to address servicemembers' use of loans that DOD considered to be 
predatory in nature. DOD and service policy officials identified DOD's 
primary tools for curbing the use and effects of predatory loans. These 
individuals also supplied their perspectives on how fully utilized 
those tools were. Similarly, individual interviews and focus groups 
with others who supplied information on the question related to 
servicemembers' use of consumer loans also provided their perspectives 
on how fully the tools were used, the effects of underutilizing the 
tools, and possible reasons that some tools were not used more fully. 
In addition, we examined official installation newspapers to determine 
whether they contained disclaimers and advertisements for loans that 
DOD officials say may contain predatory practices. This examination of 
newspapers was just a cursory review and was not based on any sort of 
random sampling. Interviews with representatives of on-installation 
credit unions and national military relief/aid societies provided input 
about alternatives to payday loans. 

We performed our work from March 2004 through February 2005 in 
accordance with generally accepted government auditing standards. 

[End of section]

Appendix II: Predatory Lending Findings from GAO-Led Focus Groups Held 
at 13 Installations: 

We held focus group sessions at the 13 military installations we 
visited during the course of this engagement to obtain servicemembers' 
perspectives on a broad range of topics, including the impact of 
deployment on servicemembers' finances and the types of lenders 
military families use, along with the personal financial management 
(PFM) training and assistance provided to servicemembers by the 
Department of Defense (DOD) and service programs (see app. I for a list 
of installations visited). Servicemembers who participated in the focus 
groups were divided into three groups: junior enlisted personnel (pay 
grades E1 through E4), senior enlisted personnel (pay grades E5 through 
E9), and junior officers (pay grades O1 through O3). Although we 
requested to meet with servicemembers who had returned from a 
deployment within the last 12 months, some servicemembers who had not 
yet deployed also participated in the focus groups. At some 
installations, we also held separate focus groups with spouses of 
servicemembers. Most of the focus groups consisted of 6 to 12 
participants. 

We developed a standard protocol, with seven central questions and 
several follow-up questions, to assist the GAO moderator in leading the 
focus group discussions. The protocol was pretested during our first 
installation visit, and, after minor changes, was used at the remaining 
12 installations. During each focus group session, the GAO moderator 
posed questions to participants who, in turn, provided their 
perspectives on the topics presented. We essentially used the same 
questions for each focus group, with some slight variations to 
questions posed to the spouse groups. Questions and sample responses 
are listed below. 

We sorted the 2,090 summary statements resulting from the 60 focus 
groups into categories of themes through a systematic content analysis. 
First, our staff reviewed the responses and agreed on response 
categories. Then, two staff members independently placed responses into 
the appropriate response categories. A third staff member resolved any 
discrepancies. 

In this report, we provide focus group participants' statements for 
only question 5--the one that asked participants about their 
experiences with predatory lenders.[Footnote 26] Before the question 
was asked we attempted to provide participants with a general context 
for answering the question by reading the following information: "Now 
we would like to talk about specific problems with predatory lenders. 
These include lenders that charge excessive fees and interest rates and 
those that lend without regard to borrowers' ability to repay--usually 
lending to those with limited income or poor or no credit. Some payday 
lenders and fast checking places that charge high interest rates may 
fall into this category. Or a predatory lender could be a lender that 
commits outright fraud or deception--for example, falsifying documents 
or intentionally misinforming the borrowers about the terms of a loan, 
which may occur with unscrupulous car dealers."

The themes and the number of installations for which a statement about 
a theme was cited are provided in italics below. Also, two examples of 
the statements categorized in the theme are provided. Only those themes 
cited at a minimum of three installations are presented. The number of 
installations--rather than the number of statements--is provided 
because (1) the focus of this engagement was on DOD-wide issues and (2) 
a lengthy discussion in a single focus group may have generated 
numerous comments. 

5. What kinds of experiences have your fellow servicemembers or 
subordinates had with predatory lenders?

A. Other issue regarding experiences with predatory lenders (N = 13): 

* Example: Businesses will tell young Marines that they can buy an item 
for a certain amount each month. They keep the Marine focused on the 
low monthly payments and not on the interest rate or the terms of the 
loan. 

* Example: Some Marines feel that a business would not take advantage 
of them because they are in the military. This leads them to be more 
trusting of the local businesses than they should be, which in turn, 
leads the businesses to take advantage of them. 

B. Predatory lender used--car dealers (N = 11): 

* Example: Most of the participants stated that the car dealerships 
around base were the worst predatory lenders because they charge high 
interest rates and often provide cars that are "lemons." They said that 
most of the sales people at the dealerships are former personnel who 
know how to talk to servicemembers to obtain their trust. 
Servicemembers do not expect this. 

* Example: One captain had a Marine in his unit who signed a contract 
with a car dealer for a loan with a 26 percent interest rate. The 
captain took the Marine to the Marine Credit Union and got him a new 
loan with 9.5 percent interest. 

C. Predatory lender used--payday lenders (N = 10): 

* Example: A master sergeant got caught in the check-cashing cycle. He 
would write a check at one payday lender in order to cover a check 
written at another lender the previous week. 

* Example: One participant shared that when he was a younger Marine he 
got caught up with a payday lender. The problem did not resolve itself 
until he deployed and was not able to go to the lender anymore. 

D. Reason for using predatory lender--get fast cash and no hassle (N = 
10): 

* Example: People use payday lenders because they are quick and easy. 
All soldiers have to do is to provide their leave and earnings 
statement and they get the money. 

* Example: Most of the participants say they know people that have used 
a payday lender and those soldiers use them because they have bad 
credit and can get quick cash. 

E. Predatory lender targeting--close proximity and clustering around 
bases (N = 9): 

* Example: It is almost impossible to be unaware of lenders and 
dealerships because many are clustered in close proximity to the 
installation. They also distribute flyers and use pervasive advertising 
in local and installation papers. 

* Example: The stores and car lots near the installation have signs 
that say "E1 and up approved" or "all military approved" to get the 
attention of the military servicemembers. 

F. Command role when contacted by creditors (N = 8): 

* Example: The noncommissioned officers sometimes offer to go with the 
junior enlisted to places like car dealers; but, the young soldiers do 
not take them up on these offers. 

* Example: One participant said that debt collectors do call his house 
and the command. He noted that one lender called him nine times in one 
day and his chief petty officer eventually asked the lender to stop 
harassing his sailor. 

G. Predatory lender targeting--advertising in installation/local 
newspaper (N = 7): 

* Example: Soldiers are being targeted by predatory lenders in a 
variety of ways; for example, flyers are left on parked cars at the 
barracks, advertising is present at installation functions, and words 
such as "military" are used on every piece of advertising to make the 
servicemember believe that the company is part of or supported by the 
military. The servicemember would normally trust lenders associated 
with the military. 

* Example: Most predatory lenders have signs that say "Military 
Approved" or commercials that say the same thing or "E1 and above 
approved."

H. Reason for using predatory lender--urgent need (N = 6): 

* Example: Many soldiers use payday lenders because they are in a bind 
for money and they know these lenders can provide quick cash. 

* Example: Soldiers will use a payday lender because they need money 
for a child, the kids, the house payment, etc. In many cases, it does 
not matter why they need it; they just need it. So, they go where they 
can get cash the fastest and the easiest way possible. 

I. Predatory lender used--furniture/rent-to-own (N = 6): 

* Example: One of the participants stated that he had obtained a loan 
to purchase a new washer and dryer. The loan had a 55 percent interest 
rate and the appliances cost a lot more than they should have. 

* Example: Rent-to-own businesses are widely used by soldiers. One 
soldier ended up paying $3,000 for an $800 washer and dryer set. 

J. No problem with predatory lenders (N = 5): 

* Example: There have not been any problems with predatory lenders 
lately. The state of Florida has been using legislation to shut them 
down. 

* Example: The participants said that they had never encountered an 
officer who had to use payday lenders or predatory lenders. According 
to the participants, most of the officers' problems come when they have 
a bitter divorce. 

K. Reason for using predatory lender--other reasons (N = 5): 

* Example: One soldier stated that his credit was so bad that he had no 
other option but to use high interest rate lenders. He stated that, "I 
have bad credit and I will always get bad credit."

* Example: One participant said he has several friends that use payday 
lenders because they are E1s or E2s and don't make much money. 

L. Predatory lender targeting--employing former military members (N = 
4): 

* Example: The people running and working for the predatory businesses 
are usually former military servicemembers who use their knowledge of 
the system to take advantage of Marines. 

* Example: Many times the predatory lenders are veterans, former 
Marines, or retirees. Using these types of people gives the younger 
Marines a false sense of trust and then the lenders will take advantage 
of the servicemember or stab the servicemember in the back. 

M. Reason for using predatory lender--command will not know financial 
conditions (N = 3): 

* Example: When a soldier needs money, a payday loan can be used 
without notifying the chain of command. Any form of assistance from the 
Army requires a soldier to obtain approval from a dozen people before 
they can get any money. 

* Example: The most significant reason that people use payday lenders 
is privacy. The spouses stated that to obtain assistance through the 
Air Force, you must use the chain of command to obtain approval. By 
doing so, everyone in the unit will know your business. 

[End of section]

Appendix III: Comments from the Department of Defense: 

OFFICE OF THE UNDER SECRETARY OF DEFENSE:
PERSONNEL AND READINESS:

4000 DEFENSE PENTAGON: 
WASHINGTON, D.C. 20301-4000:

APR 12 2005:

Mr. Derek B. Stewart: 
Director:
Defense Capabilities and Management: 
U.S. Government Accountability Office: 
Washington, D.C. 20548:

Dear Mr. Stewart:

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO-05-349, 'MILITARY PERSONNEL: DoD's Tools for Curbing the 
Use and Effects of Predatory Lending Not Fully Utilized,' dated March 
29, 2005 (GAO Code 350661)." Comments on the two draft report 
recommendations are attached.

Sincerely,

Signed by: 

Jeanne B. Fites: 
Deputy Under Secretary of Defense: 
Program Integration:

Attachment: As stated:

GAO-05-349/GAO CODE 350661:

"MILITARY PERSONNEL: DOD'S TOOLS FOR CURBING THE USE AND EFFECTS OF 
PREDATORY LENDING NOT FULLY UTILIZED:"

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: "The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Personnel and Readiness to 
amend existing regulations to require installation commanders to 
convene the Armed Forces Disciplinary Control Boards at least 
semiannually to investigate and make recommendations to commanders on 
matters concerning eliminating conditions which adversely affect the 
health, safety, morals, welfare, morale, and discipline of the Armed 
Forces, to include Service members' use of lenders who may use 
predatory lending practices.". (Page 15/Draft Report):

DoD RESPONSE: PARTIALLY CONCUR:

This recommendation may inhibit the impact of payday lending in 
isolated situations, since the Armed Forces Disciplinary Control Board 
(AFDCB) provides a process that highlights issues with specific 
locations and proprietors, allowing an opportunity for the proprietor 
to take corrective action. However, due to the business model employed 
by payday lenders, the difficulty in providing adequate oversight of 
these businesses, and their prevalence outside military installations, 
the AFDCB process would be an ineffectual deterrent, even when fully 
deployed as defined in this recommendation.

Business Model: Payday lenders provide short term loans, without credit 
checks, at annual interest rates at or above 390%. These small loans 
cost the consumer approximately $15 - $20 per $100 borrowed, if the 
loan is paid at the end of the two-week loan period. These loans become 
predatory as they are rolled-over, or as individuals engage in multiple 
loans of $300 - $500.	The impact of roll-overs or multiple loans is 
to extend the individual far beyond their ability to payback the 
interest and principle, capturing the individual in a spiral of debt. 
These activities are legal in 35 states and would require the local 
command to develop criteria other than the state statutes to determine 
if the payday lender should be made off limits. The current Community 
Financial Services Association (CFSA) best practices mentioned in the 
report are not adequate criteria for determining acceptability. For 
example, the GAO report states that CFSA best practices limit the 
number of roll-over loans allowed. Their limit is 4 roll-overs, which 
produces an interest rate of 60% - 70%, which is unacceptable. For 
example, cost to a Service member for a loan for 8 weeks (4 roll-overs) 
for $500 would be approximately $300 - $350. The Department of Defense 
is prepared to develop criteria that would prohibit roll-over and 
multiple loans.

Providing Adequate Oversight: Developing criteria outside of state 
statutes places the Department of Defense in the position of regulating 
business practices off of the installation. Other similar situations, 
such as the monitoring of commercial insurance, have proven costly to 
administer, unpopular with both legislators and the industries 
concerned, and ineffectual due to limited surveillance capability. 
Surveillance, in order to ensure compliance with DoD regulations, would 
require local commands to periodically review each location in order to 
determine whether the outlet maintains programs within the criteria of 
the Department, or whether they have deterred Service members and their 
family members from using their products and services. In each 
circumstance, the Department has no legal recourse, other than making 
the facility off limits. If the location, having been made off limits, 
continues to offer products and services to Service members and their 
family members, local commands have no legal recourse to limit their 
activities.

AFDCB Processes Would Be Ineffectual: Finally, the AFDCB is established 
to review and consider whether to place a single location off-limits, 
as exemplified in the GAO report. Research accomplished by Steven M. 
Graves, Assistant Professor of Geography, California State University, 
Northridge, and Christopher L. Peterson, Assistant Professor of Law, 
University of Florida, Fredric G. Levin College of Law, illustrates 
that the number of payday lending outlets around military installations 
would overwhelm a process designed to review one location at a time. 
The chart, at Tab A, provides examples of the number of payday lending 
outlets in the top 30 counties and zip codes for payday lenders in 20 
states, many of which are adjacent to military installations. In many 
cases there are over 50 payday lenders located around military 
installations. A process that requires a board to review so many 
locations on an individual basis would be unwieldy. To take action 
against one location and leave scores of other locations open to 
provide payday loans would have little impact on the problem. To 
consider evaluating all locations around a military installation as a 
single case would eliminate much of the due-process required in an 
AFDCB review, where the business is allowed to submit a letter to the 
Board and to negotiate a process that would allow the business to stay 
off of the off-limits list. Allowing one location to negotiate in an 
evaluation encompassing all locations around a military installation 
would require individual review of each location.

The business model established by payday lenders does not leave much 
room for negotiation. The local military command would have to 
establish rules, beyond state statutes and industry best practices, as 
the criteria for allowing payday lenders to remain open to military 
customers. The Department is not in the position to establish 
regulations to limit payday lenders and to provide the necessary 
oversight to ensure they comply. Furthermore the number of payday 
lenders around military installations makes the AFDCB process unwieldy 
for the purpose of reviewing and potentially making payday lenders off- 
limit businesses.

The Department has included payday lending as one of its top issues to 
discuss with state governments to encourage policies and statutes that 
assist and protect Service members and their families. Through the 
National Governors Association, the National Conference of State 
Legislature, the Conference of State Governments and American 
Legislative Exchange Council, as well as responding to representatives 
from several states, the Department has made legislators and 
administrators aware of its concerns over payday lending. The 
Department has been encouraged to see several states have considered 
legislation to limit multiple and roll-over loans, limit annual 
percentage rates, and develop practices that allow Service members to 
negotiate more acceptable payback terms through credit counseling 
agencies. Through partnership with state governments, the appropriate 
agency can maintain the laws of the state to ensure Service members and 
their families are not abused by off-installation establishments.

Additionally, the rapid increase of payday lending in the past 15 years 
and its multistate nature suggest the need for strong federal 
legislation to limit or eradicate this high-cost form of borrowing that 
impacts all low-income consumers, not just low-ranking military 
members. 

Also, beyond the specific problem of payday lending, two changes to the 
Anned Forces Disciplinary Control Board's (AFDCBs) joint regulation are 
in the initial stages of staffing and coordination by the executive 
agent for AFDCBs, the Army's Office of the Provost Marshall General. 
These changes are: 1) Direct that the AFDCBs meet quarterly to better 
engage the board and its constituent organizations in eliminating 
conditions that adversely affect the health, safety, morale, welfare, 
and discipline of the Armed Forces. 2) Direct that when one Service 
places a business "off limits," the rule will apply to all Services.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Assistant Secretary of Defense for Public Affairs to clarify 
the regulations pertaining to advertisements in installation 
publications by requiring disclaimers to be more prominent and taking 
steps to ensure advertisements reflect stated DoD policies regarding 
what it considers to be predatory lending. (Page 15/Draft Report):

DoD RESPONSE: CONCUR:

TAB A Analysis from "Predatory Lending and the Military: The Law and 
Geography of "Payday" Loans in Military Towns:

State: Alabama; 
Installation: Fort Rucker; 
Number of payday lending locations within adjacent counties: 68; 
Number of payday lending locations within adjacent zip codes: 42. 

State: Alabama; 
Installation: Maxwell AFB; 
Number of payday lending locations within adjacent counties: 96; 
Number of payday lending locations within adjacent zip codes: 19. 

State: Alabama; 
Installation: Redstone Arsenal; 
Number of payday lending locations within adjacent counties: 90; 
Number of payday lending locations within adjacent zip codes: 14. 

State: Arizona; 
Installation: Luke AFB; 
Number of payday lending locations within adjacent zip codes: 49. 

State: Arizona; 
Installation: Davis Monthan AFB; 
Number of payday lending locations within adjacent zip codes: 37. 

State: California; 
Installation: Twenty-Nine Palms USMC; 
Number of payday lending locations within adjacent counties: 161; 
Number of payday lending locations within adjacent zip codes: 7. 

State: California; 
Installation: NAS Lemoore; 
Number of payday lending locations within adjacent counties: 90; 
Number of payday lending locations within adjacent zip codes: 13. 

State: California; 
Installation: Edwards AFB; 
Number of payday lending locations within adjacent counties: 59. 

State: California; 
Installation: NS San Diego; 
Number of payday lending locations within adjacent counties: 238; 
Number of payday lending locations within adjacent zip codes: 28. 

State: California; 
Installation: Cam Pendleton USMC; 
Number of payday lending locations within adjacent counties: 117; 
Number of payday lending locations within adjacent zip codes: 22. 

State: California; 
Installation: Los Angeles AS; 
Number of payday lending locations within adjacent counties: 671; 
Number of payday lending locations within adjacent zip codes: 5. 

State: California; 
Installation: Travis AFB; 
Number of payday lending locations within adjacent counties: 30. 

State: California; 
Installation: Beale AFB; 
Number of payday lending locations within adjacent counties: 5. 

State: California; 
Installation: Port Hueneme; 
Number of payday lending locations within adjacent counties: 34. 

State: California; 
Installation: Vandenberg AFB; 
Number of payday lending locations within adjacent counties: 19. 

State: Colorado; 
Installation: Fort Carson; 
Number of payday lending locations within adjacent counties: 179; 
Number of payday lending locations within adjacent zip codes: 46. 

State: Colorado; 
Installation: Peterson AFB; 
Number of payday lending locations within adjacent counties: 129; 
Number of payday lending locations within adjacent zip codes: 36. 

State: Colorado; 
Installation: Schriever AFB; 
Number of payday lending locations within adjacent counties: 129. 

State: Colorado; 
Installation: Buckley AFB; 
Number of payday lending locations within adjacent counties: 366; 
Number of payday lending locations within adjacent zip codes: 51. 

State: Colorado; 
Installation: USAF Academy; 
Number of payday lending locations within adjacent zip codes: 7. 

State: Delaware; 
Installation: Dover AFB; 
Number of payday lending locations within adjacent counties: 30; 
Number of payday lending locations within adjacent zip codes: 23. 

State: Florida; 
Installation: NAS Jacksonville; 
Number of payday lending locations within adjacent counties: 88; 
Number of payday lending locations within adjacent zip codes: 21. 

State: Florida; 
Installation: NS Mayport; 
Number of payday lending locations within adjacent counties: 77; 
Number of payday lending locations within adjacent zip codes: 10. 

State: Florida; 
Installation: MacDill AFB; 
Number of payday lending locations within adjacent counties: 138; 
Number of payday lending locations within adjacent zip codes: 15. 

State: Florida; 
Installation: NAS Pensacola; 
Number of payday lending locations within adjacent counties: 22. 

State: Florida; 
Installation: Eglin AFB; 
Number of payday lending locations within adjacent counties: 17. 

State: Florida; 
Installation: Tyndall; 
Number of payday lending locations within adjacent zip codes: 5. 

State: Idaho; 
Installation: Mountain Home; 
Number of payday lending locations within adjacent zip codes: 4. 

State: Kentucky; 
Installation: Fort Campbell; 
Number of payday lending locations within adjacent counties: 18; 
Number of payday lending locations within adjacent zip codes: 8. 

State: Kentucky; 
Installation: Fort Knox; 
Number of payday lending locations within adjacent counties: 22; 
Number of payday lending locations within adjacent zip codes: 44. 

State: Louisiana; 
Installation: Barksdale AFB; 
Number of payday lending locations within adjacent counties: 67; 
Number of payday lending locations within adjacent zip codes: 45. 

State: Louisiana; 
Installation: Fort Polk; 
Number of payday lending locations within adjacent counties: 14; 
Number of payday lending locations within adjacent zip codes: 14. 

State: Missouri; 
Installation: Fort Leonard Wood; 
Number of payday lending locations within adjacent counties: 36; 
Number of payday lending locations within adjacent zip codes: 8. 

State: Missouri; 
Installation: Whiteman AFB; 
Number of payday lending locations within adjacent zip codes: 4. 

State: North Carolina; 
Installation: Seymour Johnson; 
Number of payday lending locations within adjacent counties: 30; 
Number of payday lending locations within adjacent zip codes: 11. 

State: North Carolina; 
Installation: NCAS Cherry Point; 
Number of payday lending locations within adjacent counties: 19; 
Number of payday lending locations within adjacent zip codes: 6. 

State: North Carolina; 
Installation: Camp LeJeune; 
Number of payday lending locations within adjacent counties: 14; 
Number of payday lending locations within adjacent zip codes: 10. 

State: North Carolina; 
Installation: Fort Bragg/Pope AFB; 
Number of payday lending locations within adjacent counties: 39; 
Number of payday lending locations within adjacent zip codes: 25. 

State: Ohio; 
Installation: Wright-Patterson AFB; 
Number of payday lending locations within adjacent counties: 30; 
Number of payday lending locations within adjacent zip codes: 17. 

State: Oklahoma; 
Installation: Tinker AFB; 
Number of payday lending locations within adjacent counties: 124; 
Number of payday lending locations within adjacent zip codes: 53. 

State: Oklahoma; 
Installation: Vance AFB; 
Number of payday lending locations within adjacent counties: 8. 

State: Oklahoma; 
Installation: Altus AFB; 
Number of payday lending locations within adjacent counties: 4. 

State: Oklahoma; 
Installation: Fort Sill; 
Number of payday lending locations within adjacent counties: 10; 
Number of payday lending locations within adjacent zip codes: 7. 

State: South Carolina; 
Installation: Shaw AFB; 
Number of payday lending locations within adjacent counties: 37; 
Number of payday lending locations within adjacent zip codes: 30. 

State: South Carolina; 
Installation: MC Beaufort/Parris Island; 
Number of payday lending locations within adjacent counties: 21; 
Number of payday lending locations within adjacent zip codes: 4. 

State: South Carolina; 
Installation: Charleston AFB; 
Number of payday lending locations within adjacent counties: 95; 
Number of payday lending locations within adjacent zip codes: 44. 

State: South Carolina; 
Installation: Fort Jackson; 
Number of payday lending locations within adjacent counties: 72; 
Number of payday lending locations within adjacent zip codes: 45. 

State: South Dakota; 
Installation: Ellsworth AFB; 
Number of payday lending locations within adjacent counties: 42; 
Number of payday lending locations within adjacent zip codes: 40. 

State: Tennessee; 
Installation: Millington ton; 
Number of payday lending locations within adjacent zip codes: 32. 

State: Tennessee; 
Installation: Milan Arsenal; 
Number of payday lending locations within adjacent zip codes: 8. 

State: Texas; 
Installation: Sheppard AFB; 
Number of payday lending locations within adjacent counties: 22; 
Number of payday lending locations within adjacent zip codes: 12. 

State: Texas; 
Installation: NAS Corpus Christi; 
Number of payday lending locations within adjacent counties: 45; 
Number of payday lending locations within adjacent zip codes: 12. 

State: Texas; 
Installation: Fort Bliss; 
Number of payday lending locations within adjacent counties: 61; 
Number of payday lending locations within adjacent zip codes: 19. 

State: Texas; 
Installation: Goodfellow AFB; 
Number of payday lending locations within adjacent counties: 14; 
Number of payday lending locations within adjacent zip codes: 8. 

State: Texas; 
Installation: Fort Hood; 
Number of payday lending locations within adjacent counties: 4; 
Number of payday lending locations within adjacent zip codes: 9. 

State: Texas; 
Installation: Lackland AFB; 
Number of payday lending locations within adjacent counties: 124; 
Number of payday lending locations within adjacent zip codes: 9. 

State: Texas; 
Installation: Fort Sam Houston; 
Number of payday lending locations within adjacent counties: 124; 
Number of payday lending locations within adjacent zip codes: 19. 

State: Texas; 
Installation: Randolph h AFB; 
Number of payday lending locations within adjacent counties: 124. 

State: Virginia; 
Installation: Fort Lee; 
Number of payday lending locations within adjacent counties: 5; 
Number of payday lending locations within adjacent zip codes: 9. 

State: Virginia; 
Installation: Norfolk; 
Number of payday lending locations within adjacent counties: 230; 
Number of payday lending locations within adjacent zip codes: 50. 

State: Virginia; 
Installation: Fort Eustis; 
Number of payday lending locations within adjacent counties: 41; 
Number of payday lending locations within adjacent zip codes: 7. 

State: Virginia; 
Installation: Langley AFB; 
Number of payday lending locations within adjacent counties: 68; 
Number of payday lending locations within adjacent zip codes: 25. 

State: Virginia; 
Installation: Fort Story; 
Number of payday lending locations within adjacent counties: 102; 
Number of payday lending locations within adjacent zip codes: 11. 

State: Washington; 
Installation: Fairchild AFB; 
Number of payday lending locations within adjacent counties: 55; 
Number of payday lending locations within adjacent zip codes: 32. 

State: Washington; 
Installation: Fort Lewis; 
Number of payday lending locations within adjacent counties: 75; 
Number of payday lending locations within adjacent zip codes: 24. 

State: Washington; 
Installation: NS Bremerton; 
Number of payday lending locations within adjacent counties: 169; 
Number of payday lending locations within adjacent zip codes: 6. 

State: Washington; 
Installation: McChord AFB; 
Number of payday lending locations within adjacent counties: 11; 
Number of payday lending locations within adjacent zip codes: 42. 

State: Washington; 
Installation: NS Everett; 
Number of payday lending locations within adjacent counties: 173; 
Number of payday lending locations within adjacent zip codes: 2. 

State: Washington; 
Installation: NAS Whidbey Island; 
Number of payday lending locations within adjacent counties: 23. 

[End of table] 

[End of section]

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Jack E. Edwards (202) 512-8246: 

Acknowledgments: 

In addition to the individual named above, Leslie Bharadwaja, Alissa 
Czyz, Marion A. Gatling, Gregg Justice, III, David Mayfield, Brian 
Pegram, Minette Richardson, Terry Richardson, and Allen Westheimer made 
key contributions to this report. 

[End of section]

Appendix V: Related GAO Products: 

Military Personnel: More DOD Actions Needed to Address Servicemembers' 
Personal Financial Management Issues. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-348] 
Washington, D.C.: April 26, 2005. 

Credit Reporting Literacy: Consumers Understood the Basics but Could 
Benefit from Targeted Educational Efforts. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-223] 
Washington, D.C.: March 16, 2005. 

DOD Systems Modernization: Management of Integrated Military Human 
Capital Program Needs Additional Improvements. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-189] 
Washington, D.C.: February 11, 2005. 

Highlights of a GAO Forum: The Federal Government's Role in Improving 
Financial Literacy. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-93SP] 
Washington, D.C.: November 15, 2004. 

Military Personnel: DOD Needs More Data Before It Can Determine if 
Costly Changes to the Reserve Retirement System Are Warranted. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-1005] 
Washington, D.C.: September 15, 2004. 

Military Pay: Army Reserve Soldiers Mobilized to Active Duty 
Experienced Significant Pay Problems. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-911] 
Washington, D.C.: August 20, 2004. 

Military Pay: Army Reserve Soldiers Mobilized to Active Duty 
Experienced Significant Pay Problems. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-990T] 
Washington, D.C.: July 20, 2004. 

Military Personnel: Survivor Benefits for Servicemembers and Federal, 
State, and City Government Employees. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-814] 
Washington, D.C.: July 15, 2004. 

Military Personnel: DOD Has Not Implemented the High Deployment 
Allowance that Could Compensate Servicemembers Deployed Frequently for 
Short Periods. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-805] 
Washington, D.C.: June 25, 2004. 

Military Personnel: Active Duty Compensation and Its Tax Treatment. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-721R] 
Washington, D.C.: May 7, 2004. 

Military Personnel: Observations Related to Reserve Compensation, 
Selective Reenlistment Bonuses, and Mail Delivery to Deployed Troops. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-582T] 
Washington, D.C.: March 24, 2004. 

Military Personnel: Bankruptcy Filings among Active Duty Service 
Members. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-465R] 
Washington, D.C.: February 27, 2004. 

Military Pay: Army National Guard Personnel Mobilized to Active Duty 
Experienced Significant Pay Problems. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-413T] 
Washington, D.C.: January 28, 2004. 

Military Personnel: DOD Needs More Effective Controls to Better Assess 
the Progress of the Selective Reenlistment Bonus Program. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-86] 
Washington, D.C.: November 13, 2003. 

Military Pay: Army National Guard Personnel Mobilized to Active Duty 
Experienced Significant Pay Problems. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-89] 
Washington, D.C.: November 13, 2003. 

Military Personnel: DFAS Has Not Met All Information Technology 
Requirements for Its New Pay System. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-149R] 
Washington, D.C.: October 20, 2003. 

Military Personnel: DOD Needs More Data to Address Financial and Health 
Care Issues Affecting Reservists. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1004] 
Washington, D.C.: September 10, 2003. 

Military Personnel: DOD Needs to Assess Certain Factors in Determining 
Whether Hazardous Duty Pay Is Warranted for Duty in the Polar Regions. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-554] 
Washington, D.C.: April 29, 2003. 

Military Personnel: Management and Oversight of Selective Reenlistment 
Bonus Program Needs Improvement. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-149] 
Washington, D.C.: November 25, 2002. 

Military Personnel: Active Duty Benefits Reflect Changing Demographics, 
but Opportunities Exist to Improve. 
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-935] 
Washington, D.C.: September 18, 2002. 

(350661): 

FOOTNOTES

[1] See GAO, Consumer Protection: Federal and State Agencies Face 
Challenges in Combating Predatory Lending, GAO-04-280 (Washington, 
D.C.: Jan. 30, 2004). The cited report addresses home mortgage lending 
and equity loans, but our work did not. Nevertheless, some lending 
practices are widely acknowledged to be predatory and include charging 
excessive fees and interest rates, repeatedly rolling over or 
refinancing loans without economic gain for the borrower, falsifying 
documents, and intentionally misinforming borrowers about the terms of 
their loans. 

[2] For the joint service instruction, see AR190-2, OPNAVIST1620.2A, 
AFI31-213, MCO1620.2C, COMDTINST1620.1D, Armed Forces Disciplinary 
Control Boards and Off-Installations Liaison and Operations (June 
1993). Under this joint policy, installation commanders, at their 
discretion, may establish such boards to advise and make 
recommendations to the commanders on matters concerning eliminating 
conditions around their installations that are adversely affecting the 
health, safety, welfare, morale, and discipline of the Armed Forces. 

[3] See GAO, Military Personnel: More DOD Actions Needed to Address 
Servicemembers' Personal Financial Management Issues, GAO-05-348 
(Washington, D.C.: Apr. 26, 2005) for information about the military's 
PFM training and counseling, as well as other components of the PFM 
programs. These programs are part of DOD's core family support programs 
that are used to address the adverse effects associated with personal 
financial problems. 

[4] See GAO-05-348 and GAO, Military Personnel: Bankruptcy Filings 
among Active Duty Service Members, GAO-04-465R (Washington, D.C.: Feb. 
27, 2004). 

[5] The data for this work were gathered at the same time as the data 
used in GAO-05-348. 

[6] According to the Federal Reserve Bank of Philadelphia, fees for a 
payday loan range from $15 to $30 on each $100 advanced. If the fee is 
$15 to borrow $100 for 14 days, the annualized percentage rate for that 
loan is 391 percent. If the borrower extends the 14-day loan four times 
beyond the initial loan, the 70-day loan of $100 would result in paying 
$75 in fees in addition to repaying the borrowed $100. 

[7] Survey of Rent-to-Own Customers, Federal Trade Commission Bureau of 
Economics Staff Report (undated). 

[8] The association's Web site (www.cfsa.net) states that "a member 
will comply with State laws on rollovers (the extension of an 
outstanding advance by payment of only a fee). In States where 
rollovers are not specifically allowed, a member will not under any 
circumstances allow a customer to do a rollover. In the few States 
where rollovers are permitted, a member will limit rollovers to four 
(4) or the State limit, whichever is less." The association also 
established a separate set of best practices for dealing with military 
customers and published them on its Web site. 

[9] See Congressional Research Service, Payday Loans: Federal 
Regulatory Initiatives, RS21728 (Washington, D.C.: Feb. 5, 2004). 

[10] Because the response rate for this survey was 40 percent, 
uncertainty exists as to how well the survey findings actually project 
to the population of all active duty servicemembers or any subgroup 
thereof. The loan-related items presented in this report are only a 
small portion of the many and diverse questions on the survey. 
According to DOD, the sampling errors for all of the following 
estimates from the August 2004 survey do not exceed plus or minus 2 
percentage points. 

[11] See National Consumer Law Center, Inc., In Harm's Way--At Home: 
Consumer Scams and the Direct Targeting of America's Military and 
Veterans (Boston, Mass.: May 2003). 

[12] Official Code of Georgia Annotated Title 16, Chapter 17. 

[13] See DOD Web site http://www.USA4MilitaryFamilies.org. 

[14] See Consumer Federation of America, Unsafe and Unsound: Payday 
Lenders Hide Behind FDIC Bank Charters to Peddle Usury (Washington, 
D.C.: Mar. 30, 2004). This report noted that 33 states and the District 
of Columbia authorize payday loans by law or regulation, and two 
additional states have no usury limits on small loans by licensed 
lenders. 

[15] See Consumer Federation of America, Internet Payday Lending: How 
High-Priced Lenders Use the Internet to Mire Borrowers in Debt and 
Evade State Consumer Protections (Washington, D.C.: Nov. 30, 2004). 

[16] Under current DOD joint policy, if a board concludes that an 
establishment has unfair commercial or consumer practices, the 
installation commander can prohibit servicemembers from frequenting the 
business by placing the entity on an off-limits list. There are several 
steps a board completes prior to making a recommendation to the 
commander to place an establishment on the off-limits list. These steps 
include (1) notifying the owner or manager that the board is 
considering actions, and giving the owner or manager time to correct 
any adverse conditions or practices; (2) if the adverse conditions are 
not corrected, giving the owner or manager the opportunity to appear 
and present matters before the board; and (3) recommending an off- 
limits restriction, if further investigation indicates that 
improvements have not been made. These steps, according to some 
installation officials, can be time consuming and are designed to 
permit the owner or manager to voluntarily correct conditions or 
practices before the board recommends placement on an off-limits list. 
If a commander places a business on the off-limits list, servicemembers 
are prohibited from entering the establishment and face disciplinary 
action if they violate this prohibition. 

[17] 50 U.S.C. App.  501. The act, among other things, caps the annual 
interest at 6 percent on debts incurred prior to a person's entry into 
active duty military service and sets forth procedures for requesting 
such a reduction. 

[18] See "Consumer Scams: Are You Getting Ripped Off?" Hot Topics, Vol. 
5, No. 4 (2003). U.S. Army publication by the Office of the Chief of 
Public Affairs. 

[19] DOD Instruction 5120.4, Enclosure 4, Department of Defense 
Newspapers, Magazines and Civilian Enterprise Publications (June 16, 
1997). 

[20] These are provided during emergencies, which include nonreceipt or 
loss of pay, funeral expenses for dependents, repair of a primary 
vehicle, and payment of rent to prevent eviction. See AR-930-4, Army 
Emergency Relief (Aug. 30, 1994) section 2-11 (Categories of authorized 
emergency financial assistance); and Air Force Instruction 36-3109, Air 
Force Aid Society (Mar. 5, 2004). The Navy and Marine Corps Relief 
Society officials said they do not have an instruction. 

[21] Our work focused on active duty servicemembers. The Related GAO 
Products section at the end of this report lists several products that 
focus on reservists and their compensation, benefits, and pay-related 
problems that result from deployment. 

[22] To facilitate efficient data collection, the data for this 
engagement were gathered at the same time as those used to prepare GAO-
05-348. 

[23] 50 U.S.C. App.  501. 

[24] See Consumer Federation of America, Unsafe and Unsound: Payday 
Lenders Hide Behind FDIC Bank Charters to Peddle Usury (Washington, 
D.C.: Mar. 30, 2004). 

[25] The target population for all active duty Status of Forces Surveys 
consists of active duty members of the Army, Navy, Marine Corps, and 
Air Force, excluding National Guard and Reserve members who (1) have at 
least 6 months of service at the time the questionnaire is first 
fielded, and are (2) below flag rank. 

[26] See GAO-05-348, app. II, for participants' answers on the other 
six questions asked in the focus groups. 

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Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 

Jeff Nelligan, managing director,

NelliganJ@gao.gov

(202) 512-4800

U.S. Government Accountability Office,

441 G Street NW, Room 7149

Washington, D.C. 20548: