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Pentagon Federal Credit Union Creates New Foundation--
Promotes Financial Literacy and Takes Aim at Payday Loans
by John T. Raines

Recently I sat across a polished conference table, talking with Mr. Roderick (Rocky) Mitchell at the Pentagon Federal Credit Union corporate headquarters in Alexandria, Virginia. Rocky is the credit union's senior vice president for community development programs and president of the newly created Pentagon Federal Credit Union Foundation. He joined the executive team 15 months ago specifically to start and administer a foundation that will be fully devoted to improving the financial literacy and well being of the military members served by the credit union. He proudly announced that the Foundation had just been awarded 501 (c)(3) certification (nonprofit status) under the Internal Revenue Service.

Rocky has built a career of helping people; his previous position was president of the Bedford- Stuyvesant Restoration Corporation. Founded in 1967, with the bipartisan Support of Senators Robert F. Kennedy and Jacob K. Javits and local community participation, it is the oldest community development corporation in America.

We talked a bit about the nature of the credit union movement in America (people helping people). Then he asked me, "What do you know about payday loans?" I'm sure my answer, "That's when the old sarge lends the young trooper $10 till payday," came across as extremely naive.

"Wrong," he said. "It's a $45-billion-a-year enterprise where certain predatory loan companies charge military members up to 1000 percent interest on short-term loans -- and it's completely legal!"

I learned that these companies proliferate around military bases and take advantage of inexperienced junior military personnel by giving them easy loans to be repaid the next payday (for a very hefty fee). When the lower-graded service member finds that he or she cannot pay, the loan rolls over, sometimes for up to a year, generating another "fee" payment to the lender every time it rolls over. All too often the “fees” add up to many times the amount of the original loan.

Freeing service members of the credit union from the clutches of such lenders is one of two major and ongoing initiatives of the Pentagon Federal Credit Union Foundation. Through the Foundation, the credit union plans to offer military members a very limited number of loans (not more than 5 loans per year) while charging only low interest rates like those available to all credit union members. For example, the credit union's interest charge on a $400 loan would be about $2.56 per loan as opposed to the $80.00 per-loan "fee" that the commercial lenders typically charge.

Along with the low-interest loan, the military member is required to enter a Foundation program of financial counseling in which creditors will be contacted and a roadmap to individual financial health will be created for the member. No credit checks will be made in order to ensure chat all who want help in escaping the quicksand of payday lending can receive it.

Neither the Foundation nor the credit union will make money on the initiative. The sole intent is to help the member learn to manage his or her personal finances successfully and to establish a relationship with a financial institution that works in his or her interest rather than to extract an exorbitant profit.

This program will be piloted at Pope Air Force Base, North Carolina, and at Fort Hood, Texas, both high-activity areas for commercial payday lenders. If successful, it will be expanded system-wide next year.

Rocky described another major initiative that the Foundation is undertaking: a program called Dream Makers, named for the American dream of home ownership for all. The program is aimed at enabling enlisted personnel and Department of Defense civilians to buy their first homes with grants of up to $5,000.00. (A grant does not have to be repaid.)

An individual must be a first-time homebuyer or must not have owned a home for the last three years or must have lost a home through divorce or disaster and must qualify in terms of gross income in accordance with standards published by the Department of Housing and Urban Development.

A pilot of the Dream Makers Program is being conducted in the Fayetteville, North Carolina, and the Washington, D.C., areas. (For information, e-mail Dream.Makers@penfed.org.)

These two initiatives are just the beginning of the new Foundation's efforts. There are plans to develop teaching materials geared specifically to the junior enlisted members and spouses: electronic games, Web sites, interactive courseware, and more.

As Rocky Summarized, "These Superb young people are joining our armed forces and laying their lives on the line for us. They deserve the best we can give them. And my personal goal, and the goal of the Pentagon Federal Credit Union Foundation, is that they not be trapped in endless debt by their lack of financial expertise. Rather, we will build and foster financial literacy for all our military members -- and that we give them all we can in exchange for their service to our country.”

(Author's Note: The entire operating cost of the Pentagon Federal Credit Union Foundation (for example, salaries, office space, supplies) is being underwritten by the Pentagon Federal Credit Union so that 100 percent of any donations made to the PFCU Foundation will go directly to those clients whom the Foundation is helping. For further information, contact Roderick Mitchell at (703) 838-1020, or e-mail him at Roderick.Mitchell@pentagonfoundation.org)

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