The Worst Military Financial Scams of 2011
This content is provided courtesy of USAA.
Payday Loan Collections
The payday loan industry has forever targeted enlisted men and women with offers of quick cash. With outrageous interest rates, these loans are bad news, and they've taken a twisted turn.
June Walbert, a CERTIFIED FINANCIAL PLANNER™ practitioner with USAA, says now military service members must be wary of thieves trying to collect on loans that have already been paid off or that never even existed.
Even though it's illegal for a collector to threaten criminal prosecution for a debt, scammers are making these kinds of threats, even claiming they have grounds for court-martial. Threats of going to a commanding officer or the military police are often enough to force service members to offer payment — even when none is due.
Poor credit can jeopardize a security clearance, and that makes these scare tactics effective.
If you've never had the loan in question, report the collector to the Federal Trade Commission and your state's attorney general.
If you've borrowed money from the company the collector claims to represent, use the contact information on the original loan papers to determine whether you really do owe anything. And check with the Federal Trade Commission for rules governing debt collectors.
High Prices on Electronics
If you're in the military, scammers know you have a steady paycheck coming in and often target you for frauds of all kinds. For those who are new to the military, it's often the first time they've had a steady paycheck coming in, and access to substantial amounts of money.
One of the top scams for 2011 involves charging exorbitant rates for electronics and high-tech gadgets.
A recent investigation found that a financing company associated with one electronics chain store purchased electronic equipment at warehouse clubs and then charged soldiers quadruple the retail price. How? The firm refused to accept cash and instead forced buyers to sign financing contracts filled with charges and shocking interest rates. They were caught in the scam, and New York's attorney general filed charges on behalf of nearly 1,000 soldiers. The company is paying millions to settle charges.
Young soldiers are more vulnerable to this tactic because they have significant amounts of cash for the first time, and often they're not experienced in making purchase decisions on their own.
So how do you protect yourself? Do lots of research before you buy a costly item. And don't trust the salesman's explanation of a contract. Always read the fine print for yourself before signing on any financing deal.
Bogus Rental Deposits
Scam artists know when military life gets vulnerable and predictable and moving often is one of the most difficult things about military service. It's hard on the finances, hard on the family, and a lot must be done in a short period of time.
A scam has surfaced that tricks military service members into paying bogus rental deposits.
It starts when a soldier finds what appears to be a great deal on a rental in their next station. Scammers pressure that soldier to wire a deposit before visiting the property. Eventually, the soldier realizes the property doesn't exist or isn't really for rent. Victims never see their money again — and they don't have a place to live.
Here's how to protect yourself: If you can't visit properties in advance, find a reputable real estate agent and ask the agent to check the property and send photos with him or her in the shot. Compare photos to what's on the rental website, if possible. Just because a site or company markets itself exclusively to service members does not mean that it's trustworthy. If an agent contacts you first and makes an offer, beware.
You can also check out the agent and landlord with the base's consumer and housing offices to see if others have reported problems.
The Grandparent Scam
When you serve away from home, the separation can be hard on your family and scam artists know this and take advantage.
The grandparent scam is heartbreaking because thieves are targeting elderly family members and using your military situation to create a convincing story.
Scammers gather details from obituaries and social networks and then contact a deployed service member's grandparents to say he or she has gotten leave and wants to surprise the family. Another phone call comes later, but this time it's someone posing as the service member or a friend, and they claim the service member's car has broken down. They ask grandparents to wire money, and if that happens, there's no getting it back. Average reported losses have been between $5,000 and $15,000 per family.
Avoid this scam by being certain about who you are talking to. Tell your loved ones, especially elderly ones, to ask questions and push back on requests for money. Typically, with just a little resistance, a scammer will hang up and move on to the next target. You can also ask for their phone number to call them back. Never wire money to someone you're not completely sure about. Use several ways to verify that the person you're dealing with is who they say they are.
Veterans Benefits Buyouts
When times get tough financially, scam artists have a way of talking you into quick money.
One of the top scams for 2011 is the Veterans Benefit Buyout Plan. What appears to be a very tempting offer for quick money ultimately becomes an expensive loan to pay back.
If someone offers you cash for your military pension, be wary.
The offers usually sound legit, but over time, the interest and fees become outrageous. One retiree reported getting $90,000 in cash in exchange for eight years of benefits that were worth nearly $250,000. He still had to repay that money, plus more than 30% in interest, fees, and other add-ons. In August a judge ruled in favor of a group of retirees who filed a class action lawsuit to void dozens of these unscrupulous buyout plans. It's a high-interest loan, and they're generally illegal in most states.
It's never a good idea to sign over your benefits in exchange for upfront cash. It might sound like a good deal, but you'll end up regretting it. Find another way to raise cash and always read the details of any buyout arrangements to see how much they will really cost you in the end.