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Military Families Are Targets of Predatory Lending

Military families are especially vulnerable to predatory lending schemes, which can ultimately lead to having their security clearances jeopardized or even being discharged.
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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.

So it's no wonder that when some military families struggle with personal finances and fall behind on bill payments, they fall prey to predatory lending schemes, which can ultimately lead to having their security clearances jeopardized or even being discharged.

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 routine banking transactions like cashing checks, Warszawski notes that wherever military families go offsite for financial assistance, they are responsible for making 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 that 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.
  • 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 borrowing options such as your bank or credit union first.
  • Before signing any loan documents, first decide if it's for something you truly need and not something you just want. Then make sure you fully understand all terms of the loan -- things like the annual percentage rate, monthly payment amount, full payback amount, fees, penalties, etc. Don't hesitate to take the paperwork home to think it over or consult with a financial advisor.
  • Avoid pawn shop loans using your car's title as collateral. Besides having to pay very high rates, if you miss a payment it 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.)
A number of government agencies and private organizations provide financial information aimed at the special needs of military personnel, veterans and their families, including:
  •, the federal government's official web portal, features a robust site for defense personnel.
  •, a financial education program created by the Financial Industry Regulatory Authority's Investor Education Foundation to improve military members' saving and investing knowledge.
  •'s Finance site, which features tax tips, relocation assistance, credit guidelines and more.
  • Service Nation's Mission Serve, a network of 36 initiatives partnering civilian and military service organizations to support our troops and their families, whose launch was kicked off by First Lady Michelle Obama and Second Lady Dr. Jill Biden on Veteran's Day 2009.
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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