Military personnel are prime targets for shady sales practices of financial criminals who want a piece of the troops' regular paychecks and have mastered ways to take advantage of their frequent moves. Troops have been exploited by exorbitant-interest-rate payday loans, high-fee investments, unsuitable life insurance, ID-theft schemes and bogus products promoted with counterfeit military connections.
State and federal regulators and the Department of Defense have cracked down on the crooks, and new laws and resources help protect members of the military from being pressured into high-fee loans, investments and insurance. But ever-creative scam artists scheme to stay a step ahead of new laws. So, add this to your list of assignments: Protecting your family from the latest generation of financial fraud.
The commercial strips around many bases used to be lined with payday lenders. There you could find a short-term loan against your next paycheck, often for outrageous interest rates. (Would you believe more than 400%?) But the Military Lending Act capped payday-loan rates at 36% for members of the military on active duty and their dependents, which led many lenders offering payday loans to disappear.
But some lenders discovered ways around the law, offering varieties of high-rate loans that aren't subject to the 36% cap. For example, some car dealers near bases have been known to push high-rate loans with big upfront fees. Some payday lenders have taken to the Internet to continue to offer expensive loans targeting troops, outside the reach of regulators. And some offer open-ended loans with rates as high as 136%, which fall through a loophole in the law.
What You Can Do
Get a 0% loan through a military emergency-relief fund. Each branch of the military has an emergency-relief fund that offers small interest-free loans for emergencies. Contact the community-service office at your base for details, or visit Army Emergency Relief, Navy-Marine Corps Relief Society, Air Force Aid Society or Coast Guard Mutual Assistance.
1. Join a credit union. Credit unions on base often offer short-term loans at reasonable interest rates. Some even offer small emergency loans to members of the military with little or no credit check.
2. Boost your emergency fund. You're best off if you can avoid borrowing for unexpected expenses. Build an emergency fund with at least six months' worth of expenses in a safe and liquid account, such as a money market account.
3. Get credit counseling. If you have to borrow to cover your expenses, you may be grappling with a bigger issue than a short-term emergency. Consider meeting with a financial-planning manager on base or a credit counselor who can help you set up a budget, pay down debt and prioritize your spending. You can find a credit counselor through the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Credit unions and other financial institutions on base are required to offer counseling services at no charge. But beware of "credit repair" firms that charge high upfront fees with a promise to get you out of debt. As appealing as such a prospect is, you may find yourself chasing an illusion and wind up in even worse financial shape.
Military families are magnets for identity thieves because their Social Security numbers are widely available (although the Department of Defense is gradually reducing the public use of the identifier), and troops can be hard-pressed to monitor their credit records and bills when they're deployed. While phishing is a growing problem everywhere, military families can be particularly susceptible to calls or e-mails that purport to be from financial institutions regarding a deployed servicemember's account.
What You Can Do
1. Monitor your accounts online. Check your bank, credit-union and credit-card accounts regularly, and have a plan for yourself (or a trusted family member) to review accounts while you're deployed so that any suspicious activity is spotted quickly. If you receive an e-mail or a call about any "problems," don’t click on a link or answer personal questions on the telephone; instead, call your bank or credit union's customer service number.
2. Check your credit report. You can request a free copy of your credit report from each of the three major credit bureaus every year through www.annualcreditreport.com. It's a good idea to stagger your requests so you get a report from one of the bureaus every four months.
3. Put an active-duty alert on your credit report. This free service notifies creditors that you’re on active military duty and asks them to take extra precautions to verify the identity of an applicant before extending credit. Include the phone number of a trusted friend or family member for creditors to call while you're deployed. To place an alert, contact Experian.com, Equifax.com or TransUnion.com.
And you can take an extra step to protect yourself by putting a credit freeze on your account, especially if you're deployed and unable to monitor your credit report regularly. The freeze prevents lenders and other companies from accessing your credit report without your permission, which can help stop identity thieves from taking out new credit in your name. It generally costs $10 to freeze and $10 to thaw your record at each bureau (and you need to do it at all three for the freeze to be effective).
Over the past few years, state and federal regulators have cracked down on companies that target members of the military with high-fee investments, including some that were charging a whopping 50% sales charge in the first year. The Department of Defense and several organizations have also made a big push to help military families identify scams and learn more about legitimate financial-planning strategies.
But there are still salespeople who push exorbitantly priced investments or inappropriate insurance near base and who seem ever-ready to pounce on members of the military who receive a substantial windfall, whether at retirement, from a reenlistment bonus or deployment pay. The good news is that you have plenty of solid and legitimate savings alternatives.
What You Can Do
1. Take advantage of special savings programs for the military. Servicemembers have some excellent savings opportunities. The Thrift Savings Plan is a great way to save for retirement. You can invest up to $17,000 in this low-fee, tax-deferred account in 2012 and even more of your tax-exempt pay while serving in a combat zone, up to a total contribution of $50,000 for the year (see www.tsp.gov for details). You can also open a Roth IRA through a financial institution. You can invest up to $5,000 in 2012 plus an extra $1,000 if you’ll be at least age 50 by the end of the year. Take a hard look at fees when comparing IRA options. And be sure to take advantage of the military's Savings Deposit Program. Deployed troops can deposit up to $10,000 in a special account that pays 10% per year during deployment, and for up to three months afterward.
2. Verify a broker's record. Before doing business with a broker, use Finra's BrokerCheck tool to get information on a broker's licensing status and any disciplinary action he or she has faced. Also check the broker through your state securities regulator (www.nasaa.org). State securities regulators offer programs to help military families, including California’s Troops Against Predatory Scams (TAP$) and Investor University on Base, offered by the state of Florida in conjunction with the Investor Protection Trust.
3. Check out insurers and agents with your state insurance department. Before you buy coverage, ask about licensing, complaints and disciplinary actions. Find links to state insurance regulators at the National Association of Insurance Commissioners. The NAIC’s www.InsureUonline.org also offers insurance advice for members of the military. And before you consider any other life insurance, max out your low-cost Servicemembers' Group Life Insurance.
Criminals have no qualms about fabricating an affiliation with the military to gain a family's trust. Often these are small-time operators who go door to door using a military insignia or any military connection to try to sell their wares—whether it's burglar-alarm systems to families of deploying troops, high-fee work-at-home schemes for military spouses, used cars with questionable titles, or even fake life insurance and investments.
What You Can Do
1. Contact the base community-service office. For example, Army Community Service at Fort Hood, Tex., has a database that cross-references complaints made to the community-service, legal-assistance and housing offices on base, as well as the local Better Business Bureau. The base’s legal-assistance office will also help you carefully review contracts before you sign on the dotted line.
The Armed Forces Disciplinary Control Board at each base can ban certain salespeople or companies and prohibit anyone on base from doing business with them. Just the threat of being put on the banned list can help resolve complaints.
2. Contact the Better Business Bureau. You can check a business's complaint record and get help resolving consumer problems through the local BBB. BBB Military Line focuses on providing information and resources specifically for servicemembers and their families.