Scam artists target
members of the military
For some members of the U.S. military, the enemy
isn't a bearded guy with a gun in Iraq. Instead, the enemy is a
slick-talking salesman with a fast pen and a slippery deal right
here at home.
In many military communities, scam artists target
active-duty military members and veterans with an eye-popping variety
of rip-offs, including payday loans, car title cons and repair scams.
Drive down the streets leading into virtually any
military base in the nation and you'll see storefront after storefront
advertising quick cash, fast loans and cheap furniture, cars and
repairs. On base, the pages of military-affiliated newspapers feature
ads from many of the same companies, many of which cloak themselves
in military-sounding names.
The Department of Defense, consumer
groups and state and federal governments are fighting back with educational campaigns,
lawsuits and legislation designed to protect service members and veterans from
exploitation. It's an ongoing effort that will also take more enforcement of existing
laws to be truly effective.
Take Rick Sinclair, a single parent of four who moved
to North Carolina after 19 years in the U.S. Navy. Like many Americans,
he had a job, but couldn't get ahead of his bills.
the former submarine weapons officer spotted an ad in the Navy Times that looked
like the answer to a prayer. It offered veterans such as Sinclair the chance to
receive cash in return for a portion of their veteran's pension benefits.
he signed an agreement under which he would get $19,000 in return for signing
over his monthly pension benefit of $1,014 to C&A Financial Programs for three
years. It wasn't just a bad deal, it was illegal, says Lynn Drysdale, an attorney
with Florida Legal Services in Jacksonville, Fla. Drysdale represents Sinclair
in a lawsuit filed against him by C&A Financial for nonpayment under the terms
of the contract he signed.
While Sinclair was supposed to receive
$19,000, he actually received $18,130. The assignment of his pension benefit meant
he would have paid C&A $36,504, an effective interest rate of 53.25 percent,
according to Drysdale.
Sinclair repaid more than $23,000 before stopping
payment to C&A after being notified by the Florida Attorney
General's Office that these benefits buyouts and the companies doing
them were under investigation. Despite numerous requests for an
interview, Leif Grazi, C&A's attorney, declined to comment about
"When these buyouts are packaged as sales rather
than loans, the companies don't have to provide any truth-in-lending
information or disclosures about interest rates, which frequently
are in excess of state usury laws," says Drysdale. "These
buyouts are prohibited by federal law and we're litigating a number
of cases as a class action in Florida."
While Congress has passed legislation that curbs these
practices, several companies are taking advantage of loopholes to
market scams to veterans as sales rather than loans.
"buyouts" of veterans' benefits are only one of the many financial scams
that victimize veterans and active-duty military.
Many of these scams take the form of high-interest loans, ensnaring
service members in a cycle of repayments with stratospheric interest rates --
some at annual percentage rates of 365 percent.
Not only are many of these loans and scams outrageously
expensive, some are illegal, says Steve Tripoli, consumer advocate
at the National Consumer Law Center in Boston. Tripoli co-authored
a report last year titled "In Harm's Way -- At Home: Consumer
Scams and the Direct Targeting of America's Military and Veterans."
"Members of the military present an ideal
demographic target for these scams," he says. "They are
generally young, financially unsophisticated, low-income people
whose financial affairs are easily upset by unexpected problems.
They have a rock-solid paycheck that arrives on schedule twice a
month and are not going to get laid off."
Here's a rundown of the various scams:
lending. With outright payday loans, a service member signs up for a quick
loan to deal with a temporary financial problem, promising to pay back the loan
with his or her next paycheck.
"Many sailors live paycheck to paycheck, and
when they take out a payday loan to cover some unexpected expenses,
it is paid off with their next paycheck with an automatic withdrawal
from their bank account, " says Dave Feraldo of the Navy-Marine
Corps Relief Society, a nonprofit organization that provides
financial assistance to members of the Navy and Marine Corps. "Then
they don't have money to pay their other bills, so they take out
another payday loan and the cycle continues."
Feraldo, who is based at the Jacksonville Naval Air
Station., said the problem is getting worse. "The problem will
continue to get worse until there is more legislation to control
these practices and more awareness of the problem within the military
community and the nation at large," he says.
Automobile-related scams. Car-related
scams include "title pawn lending," "yo-yo-sales,"
"buy here, pay here" used car dealers and garden-variety
high interest rate repairs and parts scams, says Tripoli. With title
pawn lending, instant cash loans are given by lenders for a fraction
of a car's value, using the car as collateral. If the soldier can't
pay the loan back, the car is repossessed.
Under "buy here, pay here" scams, a used
car dealer finances and sells cars that aren't in very good condition.
The cars break down and the service member quits paying, leading
to repossession. These cars are then sold again, the National Consumer
Law Center report says, and another soldier is victimized.
Tripoli describes yo-yo sales as a form of bait and
switch. A car dealer sells a car to a soldier, approves financing,
but then backs out after the soldier drives the car away, saying
the soldier either must put down more money or go with a higher
interest rate, both of which lead to an eventual higher default
Periodic payment investment plans
and insurance. Periodic payment plans are basically mutual
fund investments wrapped in this label to get around federal securities
laws. Under these plans, investors are assessed excessively high
sales loads that can amount to as much as half of their first year's
investment. Many brokers who make these sales are former
military personnel who conduct "educational" investment
seminars on military bases and sign up many clients on the spot.
While investing is a wise practice, many military
personnel could invest the small regular amounts that they typically
place in periodic payment plans through no-load mutual funds at
a fraction of the cost.