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Consumer protection laws are not protecting U.S. troops and their families from a combination of predatory lending practices and aggressive debt collection, key lawmakers said Wednesday.
Federal and state officials responsible for regulating lenders warned that a combination of outright lawbreaking and skirting around the edges of consumer protections requires both better financial education for service members and better laws.
Getting there won’t be easy. Sen. Jay Rockefeller IV, D-W.Va., the Senate Commerce Committee chairman, said “steady paychecks and relative job security make our servicemen and women appealing targets for unscrupulous businesses pitched predatory loan products.”
Troops could be smarter consumers, he acknowledged, but added: “Rigorous training requirements and the relative isolation of some bases can make it tough for our military service members to comparison shop for goods and financing options.”
And, he said, frequent moves to new bases or overseas deployments “can make tracking bills and negotiating with debt collectors virtually impossible.”
Some lenders aren’t beyond using hardball and even illegal practices, such as threatening security clearances, he said.
Sen. John Thune, R-S.D., the committee’s ranking Republican, shares Rockfeller’s belief that troops are being targeted. “Service members, like all consumers, are not immune to the problems encountered by taking on too much debt,” he said. “However, the unique demands of military service may exacerbate the negative consequences.”
Large unpaid debts can, in fact, result in the loss of a security clearance and in separation from the service.
Rockefeller said some changes in law will happen, such as a revision of the Military Lending Act of 2006 that caps interest rates on loans to service members of longer than six months.
The Federal Trade Commission received 42,000 military-related consumer complaints in 2012, said Charles Harwood, deputy director of the FTC’s Bureau of Consumer Protection. The top complaints involved debt collection, fraud involving prizes and sweepstakes, unlawful lending practices, scams involving debt relief, and scams involving imposters.
Harwood said one military consumer complained that a debt collector claimed to be a military liaison who would have to report the debt to the consumer’s commander if he didn’t pay up. He also said there were many complaints of lenders claiming to be from the IRS and offering special tax rebates to troops that in fact were high-interest loans.
There is no line predator businesses won’t cross, said Tennessee Attorney General Robert E. Cooper Jr., who related an “egregious example of abusive conduct”: a company that for seven months attempted to collect money from the bank account of a soldier who had been killed in Iraq after being tortured and beheaded.
Tennessee ultimately won a default judgment against the company, which sold electronics to service members at high prices and at high interest rates. All collections were stopped, all debts canceled and the service members were allowed to keep the computers and other equipment they had purchased, he said.
Cooper warned that stopping such businesses is not easy. “Defendants in this and other cases who prey on our men and women in uniform will go to great lengths to stay in business because it is very lucrative,” he said.
Deanna Nelson, a New York assistant attorney general working in Watertown, N.Y., said service members can be easy marks. Their pay is easily determined by the rank on their uniforms, and they often don’t immediately recognize when they become fraud victims.
“Basically, we are dealing with a very honorable class of victims who are not likely to cry foul over being victimized,” she said.
Troops are often asked to provide information that no civilian would give up, such as the name and contact information of a work supervisor and a complete copy of their last pay stub, Nelson said.