Information on Savings account payday loans

As a retired Naval officer and now president of the National Association of Federal Credit Unions, I want to commend The Officer for shining a much-needed spotlight on the disturbing practice of payday lenders targeting U.S. military personnel and their families (Mike Woelflein's excellent article "'Payday' Loans," March 2005).

As he noted, payday lenders market themselves as a hassle-free source of cash for young military families struggling to make ends meet, yet nothing could be further from the truth. The commanding officer of Naval Submarine Base Kings Bay probably said it best: "These so-called payday lenders, who make short-term loans at exorbitant interest rates, and repeatedly renegotiate these loans when consumers cannot pay, need to be stopped."

Of course, one low-cost alternative for servicemembers is the base credit union. Credit unions have a mission of service that includes making low-interest loans to military personnel and providing education and financial strategies to help young military personnel and their families build a solid future. Credit unions also have a record of working with those with blemished credit. Recognizing the value of the on-installation credit union in providing financial education and counseling, DoD recently revised its directive on Personal Financial Management for Service Members (DoD Instruction 1342.17) to state a preference for these member-owned institutions in the conduct of financial training and counseling.

I would, however, take some exception to the statement that it might take "several days" for a credit union to process a relatively small short-term loan and to the implication that credit unions might not be a good alternative to payday lenders. Payday lenders are in the business to make money--and they are very good at it. On one's first visit, it may take some time for the payday lender to process the loan application because they want to ensure repayment, and this requires obtaining account statements and employment verification. Once, however, a servicemember is granted his or her first payday loan, and is hooked to the payday lender, the processing of the next payday loan becomes more expeditious, with the payday lender often having obtained the servicemember's written authorization for what is generally an irreversible electronic transaction automatically withdrawing the amount owed on the next payday.

I would urge all base commanders to take steps to protect servicemembers from payday lenders and better educate their personnel about the basics of budgeting and personal finance--taking advantage of the services of the base credit union, considering these distinct member benefits:

* Low minimum balances

* Better rates of return on savings

* No- or low-fee checking accounts and ATMs

* Lower interest rates on credit cards and loans

* Accounts insured by the U.S. government

* Competitive mortgage rates and equity loans

* Credit counseling, and

* A voice in the credit union's operations.

Fred R. Becker Jr.

CAPT, JAGC, USN (Ret.)

Arlington, Va.

Captain Becker is president and CEO, National Association of Federal Credit Unions, and a former director of Naval Services Affairs at ROA.