WASHINGTON - A Pentagon official urged Congress on Thursday to limit interest rates on payday loans to military service members, thousands of whom are paying ruinous rates and falling into a cycle of debt.

The problem is growing and the financial straits of some military personnel are so severe that they have been removed from their duties and lost their security clearances, an expert told a hearing of the Senate Banking Committee.

They “have fallen into the Venus flytrap of payday lending and it has literally destroyed their lives,” said retired Adm. Charles Abbot, president and CEO of the Navy-Marine Corps Relief Society.

A measure imposing a 36 percent cap on the annual interest rate for payday loans to service members passed the Senate earlier this year as part of a defense bill, but the ceiling was not included in a House-passed version of the defense legislation.

The Defense Department “believes service members who require loans with interest rates above 36 percent (annual percentage rate) should seek assistance and not consider further increasing their debt load,” Chu said.

With annual interest rates running from around 390 percent to more than 900 percent, many users of payday loans — military and civilian — get in over their heads when they can't repay them quickly and fees accumulate.

The loans work this way: You need money today, but payday is a week or two away. You write a check dated for your payday and give it to the lender. You get your money, minus the interest fee.

In two weeks, the lender cashes your check or charges you more interest to extend, or “roll over,” the loan for another two weeks, possibly at a higher interest rate.

Many of the storefront businesses are clustered around military bases, and many of the military customers are 18 or 19 years old. Experts say payday lending problems are becoming more prevalent with long troop deployments, as service members and their families face increasing financial hardships.

Twelve states prohibit triple-digit rates on payday loans, according to the Consumer Federation of America. They are Arkansas, Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Vermont and West Virginia.

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