WASHINGTON – Sheila Keeton has seen all the ads, posted around bases or in military newspapers.
“Attention Active-Duty Members . . . Lower Payments.”
“Too much in debt?” “Immediate Cash!!!” for future pension payments.
“Get Out of Debt! . . . Serving the Needs of the Military.”
And Keeton, a personal financial counselor at Andrews Air Force Base, has also seen what can happen to vulnerable military families who answer those ads. She regularly deals with soldiers who have no money or are trapped in personal loans with excessive fees and interest, payday loans and other problems.
“They prey on the military because if they (soldiers) don’t pay they can go to the commanders and guarantee their money. That’s why they target the military,” Keeton said.
And it’s not just Andrews. At Fort Meade, Jamie Cole, the director of community services, has seen service members buy automobiles with high interest rates because dealers offer instant credit, no matter what the person’s income. She has also seen retired people who agreed to pay back loans with their retirement benefits, “not realizing that it triples the interest.”
While hard numbers are difficult to come by, experts say military members are attractive targets for predatory lenders because they often mismanage money and have low financial education. And the government is a reliable employer. Cole notes that some car ads promise, “Your job is your credit.”
Keeton has received several complaints about an agency that claims to offer personal loans without application fees, but later charges soldiers $600 in processing fees in addition to a 23 percent interest rate.
Payday loans — in which a lender offers money in anticipation of a borrower’s paycheck — are as problematic as personal loans, Keeton said, with interest rates reaching 150 percent if the loan is not repaid promptly. She cited a recent case in which a woman took a $300 payday loan, only to see her debt grow to $380 in two weeks. And it keeps growing at a faster pace until it is paid.
Lenders are not the only ones taking advantage, counselors said.
Keeton said several people at Andrews bought furniture on credit, only to realize later that they had agreed to large debts, such as $10,000 for a bedroom set. Another complaint concerns a Virginia car dealer who offers soldiers a ride to Richmond to see the vehicles, but then refuses to give them a ride back. Keeton said some soldiers have actually bought cars “worth nothing” so they could get back to Maryland.
Many of these lending practices are illegal in Maryland, said Linda Sherman, spokeswoman of the Department of Labor, Licensing and Regulation. But prosecuting such cases is not easy.
Lenders who work through the Internet are hard to track, for example. And because not all soldiers stationed here are state residents, their legal status and the legality of the loans made to them is not always clear-cut.
Sherman said payday loans are prohibited in the state and state law limits interest rates on personal loans. Check-cashing agencies cannot charge more than 2 percent to cash a government check and unlicensed companies cannot charge more than 1.5 percent.
It is also illegal to assign veterans benefits, but a report by the National Consumer Law Center last year found that such benefits are bought for “lump sums” nationwide.
“If we find out, we would prosecute them (companies violating the law),” Sherman said. “They really prey on people.”
But Keeton said the people being preyed on are often reluctant to complain.
The first reason is fear: Deep debt can cost a service member his security clearance, for example, or cast a pall over her performance. The National Consumer Law Center said there is a military “notion that financial trouble means career trouble.”
For that reason, service members often do not seek counseling or apply for help until it is too late — even avoiding interest-free loans that are available in some instances from the military.
Many soldiers only look for help when they are deep in debt and do not have money for living expenses, or when lenders start calling their commanders seeking payments. The commanders then force the soldiers to go to counseling in order to keep their jobs.
Even then, not all can be helped. Some may need to file for bankruptcy by the time they seek help, or they do not tell the counselor about all their debts for fear of being discharged. Keeton said some soldiers have monthly bills up to $1,000 higher than their monthly income.
In February, the General Accounting Office reported that 1.2 percent of the active-duty service members had filed for bankruptcy. The Defense Department last year started a financial readiness campaign to educate military members about finances, after finding that stress caused by economic problems can affect military readiness.
But advocates said more can, and should, be done.
“Military consumers should learn that they can often get far less expensive credit then they’re being offered,” said the National Consumers Law Center report. “They should head first for credit unions, base financial counselors or military relief societies when money is an issue.”
-30- CNS 04-28-04