Lending Scams Target the Military

Payday Loans Neon Sign

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In every military town, you will pass multiple pawnshops, cash advance shops, and used car dealerships with "no credit needed loans" to buy their vehicles.

These businesses, all within a close radius of any military base are preying on young military personnel with a steady paycheck who are unfamiliar with high-interest rates on these types of loans.  

There is hope for the people considering using these businesses — the Navy-Marine Corps Relief Society. This nonprofit agency provides Navy and Marine Corps families with financial assistance and interest-free loans during a family crisis.

The Army and Air Force also have the Army Emergency Relief Society and the Air Force Relief Society to help soldiers and airmen get loans for all types of financial situations. 

These programs offer military families another option over the "quick-cash" businesses and who ultimately get "hooked" into a relentless cycle of high-interest loans.

It's a poor choice using these high-interest rate businesses. Consider the military relief organizations first, because if you go for the instant cash, they have you locked into an interest rate that is difficult to meet the monthly obligations. 

The National Consumer Law Center (NCLC) Assistance

Steve Tripoli, a consumer advocate with the National Consumer Law Center, accused "quick cash" lenders of targeting the service members and veterans with unfair lending practices.

NCLC issued the 66-page report that day, entitled, "In Harm's Way -- At Home: Consumer Scams and the Direct Targeting of America's Military and Veterans." The center is a nonprofit organization that works to address consumer issues, especially those affecting low-income consumers.

These loan businesses are using deceptive practices that violate federal law provisions of the Truth in Lending Law, designed to inform consumers of the amount that credit will cost.

Also, many of these high-interest loans could violate state laws that prohibit unfair, deceptive acts and other fraudulent practices in the marketplace.

"They (service members) are absolutely under siege by these businesses," Tripoli said. He illustrated his point with a slide presentation that showed how various cash-advance stores, quick-cash lenders, and auto-title pawn shops had set up shop on the main road leading to Kings Bay Naval Submarine Base, Ga.
"How bad do service people fall for it? Certainly, because they mismanage their money, in some cases," he said. "But that's not very hard to do when your salary is low, and you're young and inexperienced," he added.

Tripoli said military personnel are "particularly vulnerable" to quick-cash lenders because of economics and demographics.

"Service people are attractive targets because they are younger, their paychecks are of a very stable source -- the U.S. government; They' re not about to be laid off and are facing -- especially the younger ones - - more financial pressures early in life," he explained.

Meanwhile, to get military personnel to borrow money, Tripoli noted that many lenders give their businesses names that sound military affiliated.

Those cited in the report include names such as Pioneer Military Lending, Veterans First Financial Service, American Military Debt Management Service, and Armed Forces Loans. Tripoli said that such names tend to make people think these companies are catering to the military. They DO NOT!

"They cram their promotional literature with expressions of concern for military families," he said. He added "advertisements in military newspapers lead service members to believe that these national newspapers are official newspapers when in fact they are not."

According to the report, what's common about businesses that offer cash advances on personal checks, or payday loans, and others often disguised as phone-card, Internet and catalog-sales companies are that they loan small amounts of cash for short terms at exceedingly high-interest rates.

Do Not Fall For These Types of Scams

A business called Florida Internet offers its customers a series of instant-cash rebate options in exchange for signing up for Internet service.

One reported option is a $480 rebate when customers commit to a year's Internet service. The cost is $80 every two weeks, automatically deducted from customer's bank or credit card accounts, for up to eight hours' service. And the Internet can only be accessed at the company's handful of storefront sites.

When NCLC advocates visited two companies, they found four terminals, two at each company. However, none of the computers was in use, Tripoli said.

Although unlimited Internet access on a home computer can be purchased for about $20 a month, the report says customers buying the $480 rebate option will end up paying $2,080 ($173.33 per month) for a year of limited service (eight hours every two weeks). The result: The $480 rebate that costs $173.33 monthly for one year translates into a 421.6 percent annual percentage rate.

The report said that phone-card sales companies operate similarly. In one example, a company near Marine Corps Base Camp Lejeune, N.C., sold phone-card memberships that provide an instant $300 cash back rebate. In exchange, the borrower agrees to purchase 300 minutes worth of phone cards at the cost of $67.50 every two weeks, or $135 a month over the next year.

Tripoli said this means the $300 rebate amounts to 533 percent annual percentage rate.

Customers who use catalog-sales companies for cash advances rarely use the catalog coupons issued by the company in exchange for the advances, Tripoli noted. And he says the products offered by catalog sales companies are "very high priced" and "of low quality." He added the products are subject to outrageous shipping and handling charges that make the purchases not worthwhile.

The report also targets auto-title pawn dealers that provide short-term loans based on a vehicle's value, using its title as collateral. In many cases, if the borrower defaults on the loan, the lender claims the vehicle for a fraction of its value.

Remember, if money handed to you "is too good to be true - it probably is." Do not fall for the easy money options. Check with your chain of command first and get some military, financial advice from professionals who are part of the military team.