New moves to protect military members from financial fraud
Regulatory crackdown and educational efforts aim to keep soldiers' money safe
Attention scammers: The military, government and consumer groups are fighting back against financial fraudsters and unscrupulous business people who seek to profit from the often young and sometimes financially naive men and women who serve their country. Federal and state regulators, along with other groups, are also offering education, protection and recourse for those caught in the cross hairs.
The battle comes amid a proliferation of shady offers targeting members of the military for mortgages, car loans, payday loans and cash advances. "If you go outside almost any military installation, you see the used car places, the title loan places," says Guy Shields, a retired Army colonel and spokesman for Army Emergency Relief, a private nonprofit group incorporated in 1942 to assist soldiers in financial need. "The younger generation in particular is sometimes susceptible."
Service members are particularly attractive to scammers, according to the Federal Trade Commission, because in addition to their military duties, many soldiers are taking on for the first time the responsibilities that come with living on their own and earning a steady paycheck. Fraud against any consumer is unfair, but with military personnel it may have national security implications: It can undermine military readiness and troop morale.
The FTC has stepped up its efforts to reach out to military consumers in recent years and has seen a steady increase in the number of complaints coming from them. The FTC tracked 65,957 complaints from service members in 2013, up from 62,211 in 2012, spokesman Frank Dorman says.(Those figures exclude Do Not Call registry and identity theft complaints.) Top grievances concerned debt collection, impostor scams, fraud involving offers of prizes, unlawful banking or lending practices and scams offering mortgage foreclosure relief or debt management services.
Service members are also increasingly taking their complaints to the 3-year-old Consumer Financial Protection Bureau. The number of gripes from service members increased 148 percent from 2012 to 2013 as the consumer watchdog agency spread the word about resources provided to the military community, according to a March 2014 report by the CFPB's Office of Servicemember Affairs.
"Behind those case numbers are service members with questions about mortgages, military spouses seeking to invoke consumer legal protections on behalf of their deployed spouse, veterans desperately fighting scams that threaten to steal their retirement income, and many more members of the military community with compelling, sometimes heartbreaking, real-life stories," wrote Holly Petraeus, assistant director of the agency's Office of Servicemember Affairs, in a statement released with the report.
Going after wrongdoers
In response, the CFPB and other government agencies are going after wrongdoers and providing resources to help protect military consumers. On July 29, the bureau announced, along with 13 state attorneys general, a settlement of $92 million in debt relief for 17,000 service members and other consumers harmed by a predatory lender. The CFPB says Colfax Capital Corp. and Culver Capital, also collectively known as Rome Finance, lured consumers with promises of no money down and instant financing for electronic goods sold at mall kiosks near military bases, then masked expensive finance charges by artificially inflating the advertised price of the merchandise. In some cases, Rome Finance was the initial creditor, and in others it bought financing contracts from merchants who sold the goods.
The company and its partner merchants told consumers they would pay an APR of 16 percent, when in fact the APR was 100 percent or more, the CFPB said. Rome Finance and two of its owners are permanently banned from consumer lending.Separately, the CFPB has partnered with state attorneys general and the Department of Defense to compile a database called Repeat Offenders Against Military (ROAM) to track companies and individuals that routinely target the military community, especially across state lines.
The FTC is also cracking down on fraudsters who bilk military personnel. For instance, it shut down Texas-based Goldman Schwartz in 2013 after finding the company used a variety of unlawful tactics in attempting to collect debts from consumers in general and used military-specific threats with service members. One service member told the FTC that the debt collector claimed to be a military liaison, then threatened to disclose the purported debt to the soldier's commander, claimed that indebtedness was grounds for dismissal from the military and threatened to ruin the soldier's military career.
Unscrupulous car dealers are counting on the service member missing a payment so they can repossess the car.
In another case, involving mortgage modification scams, the FTC collected a record $7.5 million civil penalty from Mortgage Investors Corp. of Ohio, one of the country's largest refinancers of veteran home loans. The commission said the company presented current and former service members with false claims that low-interest, fixed-rate mortgages were available at no cost to them. The FTC also alleged the company violated the Do Not Call provisions of the Telemarketing Sales Rule.
The military has a different tool in its arsenal against rip-off artists. It can ban service members from patronizing certain businesses. Car dealerships have been a particular target. For example, in Virginia and elsewhere, unscrupulous car dealers have misled military personnel into buying cars they don't want or can't afford. The service members are then trapped into unfair contracts for vehicles sold at inflated prices. Some dealers "churn" car sales -- selling a car the dealer knows the service member can't afford, then repossessing that car and selling it again.
"Automobile dealers are keenly aware of what young service members earn," says Gerri Walsh, president of the Financial Industry Regulatory Authority Foundation (FINRA). "They're encouraged to buy the most expensive car they can afford. The terms the service member is being offered are often not favorable. Unscrupulous car dealers are counting on the service member missing a payment so they can repossess the car."
FTC's page for military families -- information about credit products, car buying, identity theft and more
Military Financial Readiness Program -- free financial counseling, education tools and training from FINRA for service members and their spouses
SaveAndInvest.org -- information and military financial toolkits from FINRA
Moneytopia -- e-learning game from FINRA
National Military Family Association -- links to service resources, plus information about taxes and other laws
Military Saves -- campaign to encourage military families to save money every month
BBB Military line -- financial literacy and consumer protection resources via 112 Better Business Bureaus across the U.S.
A Salute to Smart Investing -- online publication with information about savings, investing, credit and scams targeted at the military
The Joint Armed Forces Disciplinary Control Board for Southeastern Virginia and Northeastern North Carolina has banned its members from patronizing various area car dealerships, including Victory Lane Motors in Norfolk, Virginia (whose listing on MilitaryCarDealers.com says "We specialize in the unique military car buying experience"). The dealership was declared off-limits for military personnel in August 2013, allowed back in November 2013 and then once again banned after complaints from service members led the Virginia Department of Motor Vehicles to investigate.
Know your rights and
Service members have a number of resources to help keep their money safe. Financial information and education programs abound.
Counseling is available for specific questions. The Military Financial Readiness Program, which was created by FINRA and the Department of Defense, trains military spouses to become accredited financial counselors, providing both help to service members and a portable career for spouses. These counselors walk service members through financial activities such as planning to buy a car, budgeting and other topics, Walsh says.
The Military Lending Act caps interest rates charged to service members, spouses and certain dependents at 36 percent per year for payday loans, auto title loans and tax refund anticipation loans. But service members in financial straits need not pay even that much, says Shields. Each branch of the military is affiliated with a private nonprofit emergency relief organization dedicated to providing no-interest loans (and sometimes outright grants) to active and retired soldiers and their dependents when there is a valid need. Army Emergency Relief is among these.
The top needs receiving approval by AER are for rent and mortgage help, followed by car repair, Shields says. Most loans are $2,500 or less, but there is no limit. Other expenses the service routinely covers include rental and replacement vehicles, relocation/travel expenses, dependent dental care, repairing of HVAC systems, repair of major appliances, child car seats, cranial helmets for babies and basic furniture.
"One of the biggest challenges is making sure all soldiers know assistance is available," Shields says. "We tell them, 'If you get in trouble, don't go downtown -- come to Army Emergency Relief.' The other services are the same way. Assistance is available 24/7."
If service members are not stationed near their branch's emergency relief office, they can seek help at another service's agency, Shields says. (The other relief agencies are Air Force Aid Society Section, Navy-Marine Corps Relief Society and Coast Guard Mutual Assistance.) And if the service member is more than 50 miles from any military installation, the Red Cross will process the relief application.
Active Duty Alert
Soldiers who are serving overseas can get an active duty military alert from each of the three credit reporting bureaus -- Equifax, TransUnion and Experian -- to help minimize the risk of fraud and ID theft while deployed. The alert requires extra verification before credit is issued and lasts one year. The service member's name also is removed from all pre-approved or firm offers of credit for two years, the credit reporting companies say.
If you want even more protection, you might look into a credit freeze, also known as a security freeze. A freeze locks access to your credit file, meaning fraudsters can't open new accounts in your name. It also keeps lenders and creditors from viewing your file, so it's not a tool for everyone.
Armed with financial education and a sense of vigilance, military service members may provide their own best defense against money woes.See related: Military families remain easy prey for ID theft, Military gets thicker armor against predatory loans, 12 tips to help military families avoid financial rip-offs
Published: August 1, 2014
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