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Military families targets of predatory lending

By Jason Alderman

You've got to hand it to our military personnel: Not only are they often put in harm's way, but they must contend with a host of issues that would be tough under the best of circumstances, including low pay scales and frequent moves to new assignments that trigger relocation costs.

It's no wonder then that when some military families struggle with finances and fall behind on payments, they fall prey to predatory lending schemes or even see their security clearances jeopardized.

Claudia Warszawski, manager of personal financial management for Navy Federal Credit Union, says, "What we tell our members who are over-extended and looking for an easy way to pay off their debts or make a quick buck is, 'If it sounds too good to be true, it is too good to be true.'"

That advice applies to civilians as well. According to Warszawski, when people patronize check-cashing outlets, payday lenders or pawn shops looking for quick loans to tide them over, they often don't realize how expensive that financing can be.

"When you calculate the true cost for these loans, the rates are staggering," she explains. "The Military Personnel Financial Services Protection Act of 2006 caps the rate these institutions can charge military families at 36 percent. But anyone else might pay an annual percentage rate of 400 percent or more."

Although on-base banks or credit unions are better options for transactions like cashing checks, Warszawski adds that wherever military families go offsite for financial assistance, they're responsible to make their military status known in order to be protected by the Act.

According to Warszawski, the underlying reason so many people experience financial difficulties – military and civilian alike – is that they live above their means and don't follow a budget. She says each military unit is responsible for ensuring its people maintain financial stability, so don't hesitate to consult your command if you're having financial difficulties.

"Each military base command offers free command financial specialists to talk with military personnel about their finances and help them set up a budget," notes Warszawski. "Many banks and credit unions also offer these services to their customers."

Warszawski offers a few additional suggestions and precautions for military families:

Each branch of the military has a relief society and many grant emergency loans. Turn to them first before taking out a payday loan.
Even the 36 percent maximum rate payday lenders are allowed to charge military families is still extremely high and could take years to pay off, so explore other options first.
Before signing any loan documents, first decide if it's for something you truly need, not something you just want. Then make sure you fully understand all terms – things like the annual percentage rate, monthly payment amount, full payback amount, fees, penalties, etc.
Avoid pawn shop loans using your car's title as collateral. Missing a payment could cost you ownership of your car.
Set up an automatic paycheck withdrawal for an emergency fund; that way, you won't be tempted to take out a high-interest loan when unexpected expenses occur.
When choosing a bank or credit union, ask what special benefits they extend to military families (free checking, financial counseling, etc.)

For help setting up a livable budget, you can also visit Visa Inc.'s free personal financial management site, Practical Money Skills for Life (www.practicalmoneyskills.com/budgeting) for tips and interactive budgeting tools.

Jason Alderman directs Visa's financial education programs. Sign up for his free monthly e-Newsletter at www.practicalmoneyskills.com/newsletter

This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to your situation and about your individual financial situation.

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