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Scam artists target members of the military -- Page 2

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.

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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 accounts.

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 financial counseling.

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, he says.

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 says.

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 military service.

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, he adds.

Amy B. Crane is a freelance writer based in Erie, Pa.

-- Posted: April 25, 2005





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