Scam Alert
Loan
Scammers Target
Veterans and Active Military
By Robert K. Heady
Bank Rate Monitor
Those
of us who are military veterans are now facing another attack,
from scam artists who promise "quick cash" lump sums
in exchange for signing over our monthly payment benefits from
Uncle Sam.
Sometimes it's called
"advance funding" or "veterans benefits buyouts."
With these deals, the veteran can be ripped off to the tune of
tens of thousands of dollars, paying interest rates as high as
50 or 100 percent. In many cases, the lending outfits are stationed
near military bases or advertise in official-sounding newspapers
such as Army Times, Navy Times, Air Force Times and Marine Corps
Times. On the Internet, their official-looking ads may even show
a waving American flag or military insignia hinting at some affiliation
to con the unwary.
National Consumer Law
Center (NCLC), a Boston-and-Washington-D.C.-based non-profit
organization that works with Congress and helps train thousands
of legal-service, government and private attorneys, claims such
predatory loans are illegal. In fact, Senators Bill Nelson, D-FL,
and John McCain, R-AZ, want to make the practice punishable by
stiff fines and jail time.
Here's how bad it can
get, according to congressional records and NCLC's just-released
66-page report, "In Harm's Way - At Home":
One vet, Michael Elliott,
needed money when he saw a C&A Financial Programs ad in Navy
Times. C&A gave him $15,000 cash in exchange for three years'
worth of $900-a-month payments from his Navy retirement check.
That's $32,400 over three years for the 15 grand.
But Elliott had to
pay C&A Financial $631.18 from that sum for insurance in
case he died. Plus, C&A took the first two months' payments
from the lump sum, leaving only $12,568.82. The math worked out
to an annual interest rate of over 63 percent. Months later,
Elliott asked for a payment moratorium and was told that if he
tried that, he'd hear from C&A's attorney. Right how he's
getting legal advice.
Sen. Nelson's office
says "dozens of companies are engaged in the business."
They're first cousins to the familiar "payday loan"
operation, where the outfit gives you $100 cash if you postdate
a $150 check that's cashed later on your pay date. But if you
can't cover the check for a year, the annual interest rate can
run up to more than 700 percent.
NCLC analyzed several
buyout cases for Rep. Lane Evans, D-IL, ranking Democrat on the
House Veterans' Affairs Committee. For example:
Case A: The
veteran receives $66,100 a $80,000 loan minus a $10,000 broker's
fee and an additional $3,900 insurance premium in exchange for
10 years' worth of monthly benefits (96 months at $2,195 a month
and 24 months at $1,027). The veteran also must pay a $110 per
month "management" fee plus $439 a month into a "pooled
investment" fund that may or may not be returned once the
loan is paid. By NCLC's calculation that's $302,928 in payments
for the $66,100 received an annual percentage rate of 49.15 percent.
Case B: The
veteran receives $6,000 initially, and then at the lender's
option two separate loans for an additional $13,500. The three
loans carry rates of 106.21 percent, 92.22 percent and 79.82
percent. The veteran receives a total of $19,500 and pays back
$36,638.
Why do scammers target
military people? Simple. Many are low-income (always the most
targeted group), and veterans and active military have steady
checks coming in. Even with laws like the Fair Credit Lending
Act, more needs to be done, amplified and clarified, such as
making it illegal to assign veterans' benefits to predatory lenders.
Congress hasn't acted yet, but it must.
Vets need to shop before
they borrow, such as at a credit union, read before they sign,
ignore the obvious rip-offs and ask their state's attorney's
office for help if they need to know their legal rights.
It's also a good idea
to access the full NCLC report at www.consumerlaw.org/initiatives/content/report_military.pdf.
Other good websites are www.consumerfed.org, www.consumersunion.org
and the various state Public Interest Research Groups reachable
through www.uspirg.org.
As Senator Nelson put
it: "People who rob veterans of their rights should be punished.
Veterans' benefits are a reward for serving our country, and
they shouldn't be for sale."
Editor's Note: Robert
K. Heady is the founding publisher of Bank Rate Monitor. He invites
Bull & Bear reader mail on consumer money problems and solutions
but cannot respond personally to all inquiries. Send e-mail to
jrnl8888@aol.com, or write to P.O. Box 14875, North Palm Beach,
FL 33408.
