JIM LEHRER: Next tonight: a special Frontline/NewsHour collaboration on how to protect consumers from too much debt. Advocates say the military could teach Congress some lessons on that subject.
Frontline correspondent Lowell Bergman reports.
LOWELL BERGMAN: Here at the Point Loma Naval Base in San Diego, California, everyone working on this nuclear submarine requires a security clearance. And the single biggest reason sailors fail to get their security clearance is debt, involving credit cards, cash advances, and other consumer loans.
Navy Captain Mark Patton:
CAPTAIN MARK PATTON: When you get a security clearance, your credit rating is actually a very important part of that. And it looks to see if you could be susceptible to bribery or espionage. If you look at the history of espionage, it’s generally all about money.
LOWELL BERGMAN: In 2005, the military realized it had a problem. The number of personnel unable to get their security clearance because of severe debt had skyrocketed to over 2,500.
At the time, Captain Patton was base commander at Point Loma.
CAPTAIN MARK PATTON: I had sailors standing gate guard because they were unable to deploy on their submarine because they had financial issues that needed to be resolved.
If an individual can’t deploy to Iraq or Afghanistan, that doesn’t mean that nobody goes. That means somebody else gets short-cycled in order to fill that position. So, we saw that there was a relationship between the financial health of our service members and the operational readiness of their unit.
LOWELL BERGMAN: Captain Patton was appointed head of a military-wide task force to tackle the problem and help service members struggling with overwhelming debt, like Airman Ashlyn Tracy.
Mandating financial education
AIRMAN ASHLYN TRACY, U.S. Air Force: When I first got a credit card, I thought it was free money. I just blew the money, as if it wasn't mine, electronic devices, stereo system, clothes.
LOWELL BERGMAN: But you did wind up having a problem with...
AIRMAN ASHLYN TRACY: Correct, I did. After not paying on the credit cards, it, you know, adds up, and it actually became a hindrance on my pay. I started having a deficit in -- in my paycheck.
LOWELL BERGMAN: The interest and late fees and everything else would mount up, to the point where it was bigger than your paycheck?
AIRMAN ASHLYN TRACY: Yes.
LOWELL BERGMAN: To respond to the debt problem, Captain Patton's task force developed mandatory financial education programs for all new service members.
WOMAN: Debt is killing us. OK? It's killing us.
LOWELL BERGMAN: And the military created what they call financial road shows, like this one at Peterson Air Force Base in Colorado.
DAVID JULIAN, Department of Defense: What we have going right now are the tailored workshops. We have got ones on taking control of your finances, avoiding debt, understanding credit and improving credit.
LOWELL BERGMAN: Retired Navy Commander David Julian runs the road shows.
DAVID JULIAN: What we are trying to avoid is mission failure, really. So, if a service member is concentrating on maybe that financial situation back home that's not so great, rather than focusing on the mission, then there is potential for -- for not executing the mission successfully.
So, really, this is a chance to avoid again a lot of those common pitfalls that the greater America are falling into these days as well.
LOWELL BERGMAN: Captain Patton realized that education alone was not enough and began to target predatory lenders, especially cash advance stores, called payday lenders.
Danger of payday loans
CAPTAIN MARK PATTON: You know, if a service member comes up short on cash, and they get a payday loan, they go in and they write typically a $300 check, and they get $255 in cash.
LOWELL BERGMAN: Payday lenders had sprung up around military bases. They typically charge more than 400 percent annual interest for a small two-week loan.
CAPTAIN MARK PATTON: Two weeks later, that $300 comes due. Well, if they're living from paycheck to paycheck, or, more importantly, paycheck to almost paycheck, which is what we would see, well, they're not going to have that $300 in the next paycheck cycle either. And so it starts a cycle of debt, in which they can repeatedly get payday loan after payday loan.
LOWELL BERGMAN: Captain Patton and his colleagues went to state legislatures and the United States Congress, asking for an interest rate cap for the military to solve their payday loan problem.
In 2006, the military succeeded. They won bipartisan support from Congress for a 36 percent cap on interest rates for payday and other predatory loans.
Martin Eakes of the Center for Responsible Lending.
MARTIN EAKES: It was this odd coalition of consumer groups and civil rights groups and the Department of Defense that supported the one and only bill that has been able to get through the U.S. Senate that basically regulated interest rates.
LOWELL BERGMAN: That interest rate cap effectively bans troops from going to payday lenders.
RICK LAKE, CEO, California Check Cashing: We were attacked for taking advantage of the military, which was not true at all.
LOWELL BERGMAN: Rick Lake runs a chain of more than 100 payday lending stores. And he says troops are now denied a choice.
RICK LAKE: Let's say your electric bill came due, and you had two choices: You could either get a payday loan or have your electricity cut off. Whether you like the service or not, wouldn't you like to have the choice of using it? The need has not gone away. People are still going to need cash.
Offering an alternative
LOWELL BERGMAN: The military has solved that need for cash by offering their own emergency loans for their service members.
And they gave you an interest-free loan.
AIRMAN ASHLYN TRACY: Correct, which you have to pay back over a 10-month time increment.
LOWELL BERGMAN: That enabled you to get back on your feet?
AIRMAN ASHLYN TRACY: Yes. It helps pay my utilities and my rent, which is what got me through that month, that hardship.
LOWELL BERGMAN: Military financial counselors tell us the payday loan problem is under control. And they say the education programs are slowly changing the culture of debt in the armed forces.
As for the rest of us, Congress is now considering new financial protections. And consumer advocates like Martin Eakes are pointing to the military as a model.
MARTIN EAKES: If it's right to protect our military service members, why is it not also right to protect our teachers, our policemen, our firemen, our other first-responders, and really the other citizens of America?
CAPTAIN MARK PATTON: It's not the military's position to say what is right for the American public. However, I was surprised to find out that the police departments in San Diego, as well as the city administration, both contacted me and were very interested in what we were doing to protect our sailors, because they had the same issues.
They had public servants that, when their financial health degraded, it could directly impact their ability to do their job.
LOWELL BERGMAN: Right now, the Banking Committee of the United States Senate is considering creating a new consumer financial protection agency...
SEN. CHRISTOPHER DODD, D-Conn.: Predatory practices need to be over with, completely.
LOWELL BERGMAN: ... which would regulate the entire consumer loan industry, including credit cards, mortgages, and payday loans, covering all Americans.
JIM LEHRER: Frontline takes a broader look at consumer credit later this evening. For more on credit cards, follow a link from our Web site, NewsHour.PBS.org, to theirs.