Saturday, October 31, 2020

Our War-Fighters Suffer Privatized Base Housing And Payday Loan Parasitism?

americanbanker |   Regardless of the product, usage rates of short-term loans and other alternative financial products are incredibly high among active duty members of the military — despite a concerted effort by the U.S. armed forces to promote fiscal responsibility and deter their active duty members from obtaining short-term lending products. At Javelin Strategy & Research’s blog, we’ve found 44% of active duty military members received a payday loan last year, 68% obtained a tax refund loan, 53% used a non-bank check-cashing service and 57% used a pawn shop — those are all extraordinarily high use rates. For context, less than 10% of all consumers obtained each of those same alternative financial products and services last year. 

Why is this happening? At least part of this phenomenon can be attributed to age as those in the military tend to be young and Gen Y consumers are generally higher adopters of these services because they are earlier in their financial lives — earning less income and in possession of less traditional forms of credit.

But those conditions don’t tell the whole story. With the explosion of digital financial services, a lack of accessibility doesn’t explain these differentials. Is there something more? Why are these products so attractive to a segment of the population with a very regular paycheck? It could be a function of unintended consequences.