Scam artists target members of the military -- Page
Besides high-priced mutual funds, many service personnel
are sold expensive whole life insurance policies when virtually
all members of the military have low-cost insurance options available
elsewhere. Congress is investigating both period payment plan and
insurance sales to members of the military.
Catalog, phone card and Internet
plans: These are variations of quick or
instant cash schemes, "often nothing more than thinly disguised
forms of high-priced lending," the National Consumer Law Center
says. Members of the military are lured into signing up for phone
card, Internet access and special catalog deals by a quick rebate
that is provided on the spot. The plans are paid for through regular
automatic payments from service members' checking or credit card
Prices for these phone cards, catalog products and
Internet access far exceed what such services normally retail for
and are in many cases extremely difficult to access. The National
Consumer Law Center cited one phone card scam with a repayment schedule
that amounted to a loan with an interest rate of 533 percent.
The military and personal financial
problems. While financial scams such as payday lending ensnare
many Americans outside the military, service members are especially
vulnerable, a study published in 2002 by the Rand Corporation reported.
Commissioned by the Department of Defense, the report found that
27 percent of service personnel have problems with their bills vs.
18 percent of civilians.
In addition, 18 percent of service members in 1999
reported that they had experienced financial pressure from creditors,
compared with 10 percent of comparable civilians. Not only are service
personnel younger and less sophisticated than many civilians, they
also tend to marry earlier, have children at a younger age and live
far away from home.
"Deployments, long hours and family separations
are common in the military, and these factors all contribute to
financial problems of members," the report notes.
In terms of pay, while the youngest junior enlisted
service people don't make a lot of money, they are generally better
paid than their counterparts in the civilian world, says Cindy Williams,
editor of "Filling the Ranks, Transforming the U.S. Military
Personnel System." While paid better than civilians, nearly
75 percent of all military personnel make less than $30,000, Department
of Defense statistics reveal, and many in the lowest ranks are paid
$20,000 or less.
"A lot of these 18- or 19-year-old kids are making
$1,000 or $1,500 a month, and it's more money than they ever had
when they were living at home," says Richard Buddin, the lead
author of the Rand study. "But they are far away from home
and may buy things like expensive cars and fancy stereos that they
really can't afford."
Feraldo says financial problems can affect morale
and military readiness. "If you are a young sailor or Marine
and have borrowed money for a legitimate reason, but can't shake
the loan and are short of money to pay rent and your car loan, your
mind is on your bills rather than on the job at hand," says
Feraldo. "You need service members' minds on their jobs --
as many are dangerous."
John Molino, deputy undersecretary of defense for
military community and family programs, says the military has a
pre-deployment program to deal with financial issues in an effort
to minimize potential problems.
"Service members are required to develop a plan
for an extended absence to ensure home, car, utilities and other
important monthly payments will be covered," he says. "Since
planning does not necessarily cover all contingencies, service members
and their families are provided several sources of information and
assistance to overcome short-term problems."
Affinity marketing. Many
service personnel and veterans are lured into lending and benefits
scams that are marketed by companies with military-sounding names
that hire former officers as salespeople. Drysdale says affinity
marketing plays a big role in these schemes and is a major reason
why problems are increasing.
"You can tell that these payday loans and other
scams are targeted at the military by the way they advertise, with
flags waving and the military-sounding names," she says. "These
things give service members the impression that such companies are
affiliated with or blessed by the military when they see their advertisements
in military newspapers and on the Internet."
Current and proposed solutions
The Department of Defense, legislators and consumer groups are attacking
the problem from different angles and have had some successes with
a combination of education, legislation and lawsuits:
Education. In response to the Rand Report, the Department
of Defense established a Campaign for Financial Readiness to further
educate service members in financial matters, says Molino. The
campaign has increased required education for service people and
established financial awareness publications and Web sites, including
24-hour hot lines where service members can receive immediate
Buddin is skeptical whether enforced education will reduce the
instance of financial problems among military members. "Adult
education is a bit tricky," he says. "You force people
in a room and they don't pay attention because they don't think
it is relevant when they aren't having a problem."
It's also tough to get service members to confess to their superiors
that they are having financial problems because such problems
can be a black mark against them in terms of future promotions,
Changing pay and benefits structure. Williams' book advocates
a complete revamping of the military pay and benefits structure,
with less reliance on various allowances and more direct pay put
into service members' paychecks.
"Even though military pay compares well with civilian pay
for the same education and experience, that doesn't mean that
we shouldn't pay service members more," she says. "We
ask a lot of service members: The training is difficult, they
get moved a lot, they have to work all hours and there is the
chance of getting killed." The British military system considers
this "X factor" in pay rates for service members, she
Off-limits lists. Tripoli says the military should make
more use of its powers to declare businesses "off limits"
to service people. Leaders at bases make the determinations on
a case-by-case basis. Once a company is declared "off limits,"
service members are prohibited from doing business with it.
Lawsuits. Consumer groups and their lawyers frequently
turn to the courts in an effort to stamp out illegal practices
and get justice for wronged veterans and active-duty service members.
In October, the National Consumer Law Center filed a class-action
lawsuit in U.S. District Court for the Northern District of Georgia
to stamp out veterans' pension buyouts for good, alleging that
such buyouts are in fact illegal loans that violate truth-in-lending
and usury laws.
State legislation. A number of states have enacted legislation
to curb abusive practices aimed at both service members and consumers.
Georgia banned payday lending and Florida banned title pawn lending.
However, some companies are moving out of state and setting up
new entities in other states and then coming back and continuing
to do business in Georgia, Tripoli notes.
Federal legislation. Legislation last year banned companies
from offering veteran's benefits buyouts. However, congressional
negotiators stripped out the strict criminal penalties that were
in the original bill. In response, Sen. Bill Nelson, D-Fla., who
sponsored that bill in 2003, plans to introduce new legislation
that would establish criminal penalties for anyone found guilty
in such a scheme. "People who rob veterans of their retirement
should be punished," said Nelson in a statement.
The National Consumer Law Center has drafted an amendment to
the existing Soldiers and Sailors Civil Relief Act that would
cap interest rates at 36 percent for any loan entered into during
Enforcement. The bottom line on preventing these abuses
is enforcement, Tripoli says, both on the military and civilian
sides. The Judge Advocate General's Corps, the legal arm of the
military, has incorporated the National Consumer Law Center's
report in its training materials. The military also actively lobbied
for the payday lending ban in Georgia, he says. Both federal and
state officials can also do more to fight scams in terms of following
up on suspected problems and vigorously enforcing current laws,
Amy B. Crane is a freelance writer
based in Erie, Pa.