How the military can avoid predatory lenders

After serving abroad, military personnel return home to face a new economic reality that often unfortunately includes lenders seeking to take advantage of their vulnerability.

These so-called predatory lenders, who spring up around military bases, try to lure or deceive young soldiers into taking out loans that impose abusive or unfair conditions.

“Predatory lenders like to prey on young military personnel because they are often inexperienced with money, have little or no credit, and are generally very keen on spending that first salary,” the planner said. Certified Financial Tara Falcone, Founder of the Financial Education Company. ReisUP. She is also a former hedge fund analyst and is married to a US Navy officer.

The end result is a loan that is expensive, with exorbitant interest rates and hidden fees. For example, if a serviceman is convinced to take out a payday loan, which requires a check dated next payday, he could ultimately end up with an interest rate close to 400%. Unscrupulous auto lenders and credit card companies have also been known to target the military.

“One of my husband’s sailors came to see him one day and told him that a car dealership near the base had convinced him to take out a loan for double the value of the car …[at] an interest rate of almost 20%, ”Falcone said.

To remedy the situation, the sailor went to a local federal credit union, got a new loan at a lower rate, and then paid off the predatory loan.

“By doing this, they saved over $ 100 on their car payment each month and over $ 7,000 in interest over time,” she said.

The government has taken action to crack down on bad lending, adopting the Military Loans Act in 2006. The law capped the interest rate on most consumer loans at 36%, but military and veterans organizations recently expressed concern about the lack of oversight of lenders.

Last year, the Consumer Financial Protection Bureau stopped monitoring compliance with the law. Earlier this year, the new CFPB director said the agency lacks explicit oversight authority and called on Congress to give that power to the CFPB.

“What we’re seeing is really a pattern of neglect around consumer protection both for consumers in general, who are targeted by payday lenders, but also a disregard for the full implementation of the law. military loans and to make sure the military isn’t targeted by high cost, abusive lenders, ”said Tom Feltner, research director at the Center for Responsible Lending.

A CFPB spokesperson said the office was “committed to the financial well-being” of the US military.

“This commitment includes ensuring that lenders under our jurisdiction comply with the Military Loans Act, so that our military personnel and their families enjoy the protections of this law,” the spokesperson said. things you can do to make sure you don’t become another victim. Not only do predatory loans cause undue financial stress, but they can also negatively impact a soldier’s military readiness, Falcone said.

Here are four tips from Falcone that can help military personnel protect themselves.

1. Be proactive, not reactive

When trying to get a loan, arm yourself with information before you begin the process. That means knowing your credit score and familiarizing yourself with current interest rates, as well as the fair value of the item you’re going to buy, advises Falcone.

“Don’t just think the lender is going to tell you the right thing,” she said.

2. Know how much you can afford

You need to look beyond the simple monthly payment when it comes to determining your budget, Falcone said. Instead, know the “all-inclusive cost” you can afford, which includes taxes, fees, and interest.

3. Learn the language of loans

Predatory lenders may try to coerce you into signing up by using jargon that you may not fully understand. Therefore, before considering a loan, make sure you know how the process works.

“You have to understand how lenders can manipulate all of the different factors in the borrowing process – including interest, payments, and term – in order to sway it in their favor and make it look like you’re getting a really good deal. case. Said Falcone.

Predatory lenders like to prey on young military personnel because they are often inexperienced with money, have little to no credit, and are generally very excited to spend that first paycheck.-Tara Falcone FOUNDER OF REISUP

4. Ask questions

Never take out credit if you don’t have the answers to your questions.

“When it comes to your money, you are the authority,” Falcone said. “If you have any questions, be sure to ask them, and if something seems crazy or strange to you, be prepared to stand up and drop the deal.”

Disclosure: Invest in yourself: ready. Together. Grow. is a financial wellness and education initiative of CNBC and Acorns, the microinvestment app. NBCUniversal and Comcast Ventures are investors in Tassels.

About Scott Bertsch

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