CHARLESTON, W.Va. -- Members of the military are especially likely to fall prey to predatory or fraudulent lenders or debt collectors and should be on the lookout for high-pressure sales tactics or anyone who says you have to sign now, witnesses at a U.S. Senate Commerce Committee hearing said Wednesday.
The hearing, called by Sen. Jay Rockefeller, D-W.Va., was a step in trying to address why military members have higher credit card debt than civilians and are more likely to use payday lenders and other high-interest loans.
"I've had clients who purchase two cars in one day. It sounds perplexing, but service members have been trained to trust authority," said Dwain Alexander, an attorney with the Navy's legal assistance office and a retired Navy captain. "When we ask a sailor to swab the deck or charge an enemy position, that's not a debatable issue and for young people that's not something you turn off."
Unscrupulous lenders also prey on military members because they move around so much and because bases tend to be isolated, so they don't have the knowledge and experience that come from a stable community.
Rockefeller mentioned three types of lenders that specialize in small loans and have high-interest rates and fees: payday loans, installment loans and auto title loans, where a loan is tied to a person's car, giving the lender extra leverage.
State law prohibits payday lenders from operating in West Virginia.
A federal law that passed in 2006, the Military Lending Act, was supposed to cap the interest rate that service members pay on loans at 36 percent, but it only covers loans when a term is six months or less, leaving plenty of loopholes.
Robert Cooper, the attorney general of Tennessee, told of his state's suit against SmartBuy, a retailer selling electronics, that set up outside Fort Campbell on the Tennessee-Kentucky border.
SmartBuy was charging more than 300 percent of recommended prices, but disguising that by advertising payments in installments. They were also falsely advertising interest rates and using illegal collection practices, like threatening to call a service member's superior officers.