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Consumer Reports

Predatory loan scams targeting U.S. soldiers | (KRT) Apparently Iraqis aren't the only target of shameless looting today. So are U.S. military personnel.

Schemes and scams targeting active soldiers and veterans are proliferating - not on foreign soil, but right here in America.

Many are variations on the common theme of predatory loans, for which those on the lower rungs of the military ladder make perfect targets. They're poorly paid, especially if they're raising families, but have steady income and a culture that breeds respect for authority.

Mix in another common tactic of many borderline businesses - using names that imply something untrue, such as an official connection to the military - and it's easy to imagine how that leverage works.

Consider this language in a loan contract from Delaware's "Military Financial Network Inc.," which, according to a 66-page report made public recently by the National Consumer Law Center, has no formal ties with the military:

"If I fail to provide these funds, I understand that this will be a violation of Articles 123a and 134 of the UCMJ (Uniform Code of Military Justice), punishable by up to 6 months confinement, forfeiture of all pay and allowances, and a bad conduct discharge. ... I authorize the Military Financial Network to contact my military superiors in these matters."

Retired Adm. Jerome Johnson, who heads the Navy-Marine Corps Relief Society, a nonprofit that assists service members in need, told the consumer law center that such language is there "to intimidate and coerce."

"That is just not what a commander does," except in the most extreme cases, Johnson said.

Still, it's the kind of language that seems to work especially well with military personnel. Because they worry that bill collectors can call their commanding officers, soldiers and sailors are easy prey to payday lenders who offer short-term loans with annual interest rates that can top 500 percent.

One result, report author Steve Tripoli says, is that virtually every military base in the country has strip malls next door that offer an array of whatever envelope-pushing businesses are legal in that state:

Payday or cash-advance lenders, which typically charge a large chunk of interest for a two-week loan.

"Title pawn" lending, in which a borrower essentially pawns his or her car title for a loan amount that's a fraction of the vehicle's value. If the borrower can't pay, the lender takes the car.

"Buy here/pay here" car deals, in which used-car lots charge a large down payment, then put customers on a biweekly payment plan. A Florida lawyer said: "The car breaks down, the payments stop, they repossess the vehicle, and sell it again. They're just churning cars, basically."

Sadly, those represent just a fraction of the marginal business practice that the consumer law center has outlined.

Why are military personnel so likely to be targeted? Tripoli blames a combination of deregulation and demographics.

Deregulation, because lenders have increasingly been able to skirt state usury limits, sometimes by insisting that they charge "fees" for the use of money rather than triple-digit interest, which is what the fees add up to on an annualized basis.

Demographics, because the lower ranks of the military are increasingly populated by people who are married and raising families, which makes them more prone to financial distress.

You don't have to be in the military, of course, to be at risk of suffering from most of these practices. But one of the worst deserves special mention because it's targeted directly at veterans: offering them large chunks of cash to "cash out" their veterans benefits.

One 20-year Navy veteran described in the report was offered $15,000 in return for giving up three years of $900 a month in retirement pay. After fees, he netted less than $14,400 - and paid the equivalent of 63 percent interest on a three-year loan for that amount.

Tripoli, who says two Congress members asked the law center to look into these so-called "benefits buyouts," says they already should be illegal under federal law prohibiting the assignment of veterans' benefits. But about 30 companies offer them, he says.

Obviously, one answer is better enforcement of existing laws. But meanwhile, military personnel need to be as vigilant about financial rip-offs as they are about genuine ambushes.

And we should all be distressed that those who put their lives on the line are being targeted by businesspeople who see them as easy marks.

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© 2003, Distributed by Knight Ridder/Tribune Information Services