Soldiers returning from fighting overseas often face a different kind of battle at home -- one that their military leaders acknowledge leaves far too many casualties.
This war pits military families against used car sellers, short-term loan vendors, pawn shops, rent-to-own companies, mortgage refinancers and a host of other lenders who prey on our troops.
As thousands of troops return home from the Middle East this month with the end of the Iraq war, those working to protect service members from financial rip-offs say they'll be working double duty on the home front.
"We're drawing down and we're having more of these service members coming home," says Brenda Linnington, director of the Better Business Bureau's Military Line, a service that caters to military families needing financial counseling and advice. "Even keener financial management skills are going to be needed."
Military commanders are drawing a line in the sand against predatory lenders and devoting more resources to protecting military families from fraud, abuse or deception in the marketplace.
Experts say military families must navigate the same land mines that we all do when it comes to being smart consumers: confusing credit card terms and vulnerability to excessive overdraft fees on checking accounts or costly mistakes on high-interest loans. Unlike the general public, however, those in the armed forces have special challenges.
- They move frequently, sometimes every two to three years or less.
- Many are young. According to the Defense Department, nearly half of the armed services (46 percent) are 25 years old or younger. Often, they are inexperienced in managing their money and personal finances.
- Unscrupulous lenders see them as easy marks and aggressively go after them, or more specifically, their paychecks.
"Military families are prime targets because of their guaranteed income," says John Alexander, a retired Navy commander and vice president of the Navy-Marine Corps Relief Society, a private nonprofit foundation that provides loans, grants and other assistance to active duty and retired sailors and troops.
"The lower enlisted families may not make a lot of money, but the world knows they're getting paychecks every two weeks like clockwork and they're not going to get laid off," Alexander says. "It shines a spotlight on them for predators with high-interest loans."
The new federal consumer financial watchdog agency -- the Consumer Financial Protection Bureau (CFPB) -- has a special office devoted to helping military families. Headed by Holly Petraeus, the Office of Servicemember Affairs is shining a light on the problems and lobbying for change. Petraeus, an Army wife and military mom, has spent a lifetime around military families and knows firsthand the financial challenges they face.
"Unfortunately, there are still too many young troops learning about wise spending through hard experience and years of paying off expensive debt," Petraeus told a congressional committee on Nov. 3, 2011.
Security issues Keeping their financial houses in order is more critical for military families than average Americans. The military performs periodic background checks on troops as part of getting security clearance for their assignments. Bad credit and excessive debt can be reasons for yanking security clearance. Between 2006 and 2010, the U.S. Department of Defense (DoD) denied or revoked 5,059 security clearances for military, civilians and contractors based solely on financial considerations. During that time period, there were 3.6 million total checks performed. Financial problems are the leading cause of security clearance revocation or denial, according to a DoD spokeswoman.
"If you can't maintain good credit, then DoD doesn't want you," says Jerry Jackson, a financial counselor at Lackland Air Force Base in Texas. The first thing he asks clients is, "What's your credit report look like?"
Bad credit can have implications not only for the soldier, who can be downgraded in rank, but also for his or her unit, which may not be ready for a mission because a key member of the staff has been reassigned. "It is just horrific to lose that person because of financial indebtedness," Alexander says.
A double hit for two-income military families
As throughout America, military families often rely on two incomes to help make ends meet. When the military reassigns soldiers, spouses must give up their jobs to move. In this tough economy, the spouse may or may not find similar work in the new location. The defense department tries to help spouses find jobs through its new Military Spouse Employment Program, but it had only 96 employers signed up as of Dec. 13.
Becky Dixon Matousek, the wife of a U.S. Air Force captain, says she gave up a teaching job when her husband was reassigned. They moved to Laughlin Air Force Base in Del Rio, Texas, in July 2011. She couldn't find a teaching job in the new city and instead took a paid internship at the base's Family Readiness Center, a counseling facility that provides free financial planning and credit counseling services to military personnel and their families.
She says she and her husband were $50,000 in debt from student and car loans, but they managed to pay it off in April 2011 after enrolling in a debt reduction program sponsored by financial adviser Dave Ramsey. "We were in a culture that you just made the minimum payment for 10 years," Matousek says. She adds it's not uncommon among military families, especially young service members, to live beyond their means.
"We see a lot of people 18 and 19 years old," Matousek says. "They are working now, and they expect to have the type of lifestyle that they came from in their parents' home. But they're not thinking that their parents had to work many years to get the kinds of things that they have. Some think they deserve a certain lifestyle, but they just don't have the means to pay for it, and that's where they get into trouble."
Free financial counseling Military leaders acknowledge that troops don't have to be victimized in the marketplace. Part of the challenge is educating their own service members about all the programs available to them -- and getting them to take advantage of what's offered. Military credit unions and relief societies offer low and zero interest loans to soldiers. In addition, Family Readiness Centers located at every military base offer free financial counseling and assistance with drafting a family budget. The centers also host workshops and sessions on financial topics such as getting a mortgage or buying a car.
With so much attention focused on protecting military families from fraud, why are so many still getting ripped off?
Financial counselors say many are in a hurry and looking for a quick fix to their debt woes. Some are embarrassed to ask for help and want to solve their problems on their own. Others are just inexperienced at life.
Air Force Tech Sgt. Scott McNabb understands the reluctance of his fellow service members to seek help.
Debt 'stigma' "You don't want to broadcast to the world that you're hurting," he says. "You don't want to broadcast to your leadership that you're hurting." McNabb, who is a client at the Lackland Air Force Base's Airman and Family Readiness Center, adds, "If we can work to get rid of that stigma that it's a bad thing to go and get help, that will do a lot."
Air Force Staff Sgt. Francis Osorio knew what to do when she was contemplating refinancing her home mortgage. The terms seemed OK, but to be sure, she called Jerry Jackson at the readiness center before signing the paperwork. Jackson warned her off of the deal.
"I was about to pay them $10,000 more," a grateful Osorio recalls. She meets with Jackson monthly at Lackland to review her finances.
"Even a seasoned person with knowledge of the financing is going to overlook the fine points," Jackson says.
Davis says those working to help service members avoid predatory lending should push to loosen lending standards so military families can more easily qualify for low-interest loans. "If I can't get the loan from the bank, I'm going to go someplace else," Davis says. "If the government really wanted to do something, it shouldn't be so hard to get a loan."
Predators beyond the gates Need evidence that some lenders are targeting military personnel for high-cost services? Look no farther than just outside the gates of many military installations around the country.
Unlike a generation ago, when the majority of military personnel lived on base, today nearly 70 percent live off base, according to Robert L. Gordon III, deputy assistant secretary of defense for military community and family policy.
Several studies have documented how payday lenders, used car dealers, check cashing stores and the like tend to set up shop within a few miles of the base. Many use signs and billboards touting some military affiliation -- a picture of someone resembling a soldier in uniform or a mascot or symbol of the armed services.
"Car dealers in particular love to try to come up with some sort of affiliation on there to make service members think they are one of us, that they understand us, that they understand the fact that our situation is different," says Chris Kukla, the author of "Buy Here, Pay Here Dealers and the Military." The study looked at the concentration of independent used car lots near Fort Bragg in Fayetteville, N.C., and near several military bases in San Antonio.
Four of out five of the "buy here, pay here" used car dealers in San Antonio's Bexar County were within five miles of Lackland Air Force Base, Randolph Air Force Base, Brooks Air Force Base and Fort Sam Houston. In Fayetteville, more than half of the dealers were within three miles of Fort Bragg.
Kukla says unscrupulous lenders know soldiers have little time to challenge bad deals.
"There's some knowledge that if you're a service member and you get ripped off at Fort Bragg, three months later you get shipped off to Afghanistan," Kukla says. "When are you going to find the time to file a lawsuit?"
Lenders also capitalize on some soldiers' lack of time or inclination to comparison shop for better deals from military credit unions or relief societies offering no-interest loans. Some service members may have limited off-duty time to shop around. Says Kukla: "They probably have two hours on a Saturday afternoon to go find a car. That's a car dealer's greatest dream ... All they have to do is wait you out. They know that."
The Internet and offshore lenders While car dealers still need to be nearby, other lenders don't. Military financial counselors say the Internet has made it less important for predatory lenders to locate their businesses on military base perimeters.
Payday lenders, which offer loans that can end up costing borrowers 500 percent or more in interest when fees are tacked on, were such a problem for military families that Congress passed the Military Lending Act in 2007. It capped interest rates for active duty military borrowers on such closed end payday loans at 36 percent. That clamped down on the loans. Alexander says his society issued $1.4 million in loans to help Navy and Marine sailors bail out from payday loans the year before the law went into effect. In 2010, that amount dwindled to just $168,000.
Military financial counselors say it didn't take long for lenders to figure out ways around the interest rate cap. They can bypass the federal law's restrictions if they use offshore companies or Indian tribal affiliations to offer the loans via Internet marketing. Others offer open-ended loans and tack on a lot of fees.
"As soon as you create rules to stop them, another one comes along with a way to get around it," says Kevin Keith, a financial counselor with the Air Force Aid Society.
Now, Internet lending targeting the military is becoming a problem and veterans, who aren't covered by the protections offered to active duty personnel, are particularly vulnerable, says the BBB's Linnington. She says the latest scams targeting vets include companies offering to buy their veterans' future benefits in exchange for upfront lump sums. "Those deals are potentially problematic," Linnington says. "In the end, you don't get the full extent of your benefit."
Another scam involves someone posing as a government contractor recruiting veterans. Applicants are asked to provide copies of their passports and that information is used to steal their identities.
The 'fire hose' approach All new military recruits are required to undergo a financial briefing as part of their training. In addition, a so-called "first termers" class is mandated. Any service member can take advantage of the free financial counseling and additional classes provided by family readiness centers at each installation. The problem: Many often don't seek out help until their financial problems have ballooned into a crisis.
While well-intentioned, those financial education classes given to new service members only brush the surface of what young soldiers need to know. Financial counselors say, to be effective, they may have to repeat the lessons seven times or more. Complex financial deals such as buying a car are difficult to teach in one session.
Alexander, from the Navy-Marine relief group, likens educating young soldiers about personal finance to "teaching it with a fire hose. You don't know how much sank in."
Kukla from the responsible lending group says financial counselors agree that making financial products and services clearer and less abusive for all consumers is the best solution to help protect the troops.
"If the transactions were fair and there were adequate protections on them, we wouldn't have to spend so much time trying to keep them from getting ripped off."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.