Petty Officer First Class Vernaye Kelly winces when roughly $350 is automatically deducted from her Navy paycheck twice a month.
A business offering short-term loans near Fort Bliss in El Paso, Tex. Interest rates on such loans can reach as much as 80 percent.
Month after month, the money goes to cover payments on loans with annual interest rates of nearly 40 percent. The monthly scramble -- the scrimping, saving and going without -- is a familiar one to her. More than a decade ago, she received her first payday loan to pay for moving expenses while her husband, a staff sergeant in the Marines, was deployed in Iraq.
Alarmed that payday lenders were preying on military members, Congress in 2006 passed a law intended to shield servicemen and women from the loans tied to a borrower's next paycheck, which come with double-digit interest rates and can plunge customers into debt. But the law failed to help Ms. Kelly, 30, this year.
Nearly seven years since the Military Lending Act came into effect, government authorities say the law has gaps that threaten to leave hundreds of thousands of service members across the country vulnerable to potentially predatory loans -- from credit pitched by retailers to pay for electronics or furniture, to auto-title loans to payday-style loans. The law, the authorities say, has not kept pace with high-interest lenders that focus on servicemen and women, both online and near bases.
"Somebody has to start caring," said Ms. Kelly, who took out another payday loan with double-digit interest rates when her car broke down in 2005 and a couple more loans this summer to cover her existing payments. "I'm worried about the sailors who are coming up behind me."
The short-term loans not covered under the law's interest rate cap of 36 percent include loans for more than $2,000, loans that last for more than 91 days and auto-title loans with terms longer than 181 days.
While it is difficult to determine how many members of the military are struggling with loans not covered by the law, interviews with military charities in five states and more than two dozen service members -- many of whom declined to be named for fear that disclosing their identity would cost them their security clearances -- indicate that the problem is spreading.
"Service members just get trapped in an endless cycle of debt," said Michael S. Archer, director of military legal assistance for the Marine Corps Installations East.
Shouldering the loans can catapult service members into foreclosure and imperil their jobs, as the military considers high personal indebtedness a threat to national security. The concern is that service members overwhelmed by debt might be more likely to accept financial inducements to commit espionage.
The Military Lending Act followed a series of articles in The New York Times in 2004 that documented problems in the sale of life insurance and other financial products. Those problems were also highlighted in congressional hearings and reports from the Government Accountability Office. The 2006 law was meant to stamp out the most dangerous products while ensuring that service members did not lose access to credit entirely.
Source: New York Times Dealbook | JESSICA SILVER-GREENBERG AND PETER EAVIS