For military personnel, insolvency is ready to strike. Hidden money traps specific to servicemen and servicewomen are abundant and create unique fiscal obstacles. WisePiggy takes a look at some of the factors surrounding the financial problems specific to military personnel and their families, and what to do to avoid falling victim.

Identity theft and fraud

The Federal Trade Commission’s (FTC) recently released Consumer Sentinel Network Data Book noted 41.09 percent of the collective 212,698 identity theft and fraud complaints filed in 2014 came from military personnel. The total number of military complaints continues to grow — 87,400 in 2014, up from 65,957 complaints in 2013 and 62,211 in 2012. The U.S. Army ranks as the military branch with the most complaints (48 percent), followed by the U.S. Navy (21 percent).

The financial threat most amplified for servicemen and servicewomen is identity theft, accounting for 26,349 (27 percent) of complaints in 2014.

What are thieves doing with the stolen information? Nearly half (44.7 percent) of misused information was linked to government documents or benefits fraud. Credit card fraud accounts for 16.7 percent of complaints (11.6 percent connected to new accounts and 5.1 percent linked to existing accounts). Keeping a close eye on your credit score and credit report is an easy way to detect credit card fraud and other forms of identity theft.

Why is identity theft increasingly prevalent for military?

Key ingredients for successful identity theft and fraud are date of birth and Social Security number. Until 2011 the military printed Social Security numbers on ID cards which may have adversely affected military safety. Current FTC records show 66 percent of military identity fraud complaints accrued from retired military personnel — perhaps a possible link.  

Deployments also make tracking fraudulent charges, unusual changes in credit scores, and other suspicious account activity a challenge. Requesting an active duty alert can help — having this alert on your credit reports means businesses have to take extra steps before granting credit in your name, according to the FTC. Active duty alerts last for one year, and can be renewed to match the period of deployment.

Are age, education factors?

According to the 2013 Military OneSource Demographic Report, 49.4 percent of all active duty enlisted personnel are under the age of 26 and more than 71 percent of the entire active duty enlisted members are 30 or younger. The same report, created for the U.S. Department of Defense, shows 78.1 percent of active duty personnel have a high school diploma, GED, or less.  Do young age and low education automatically breed a culture for naïve financial decisions? Maybe not, but after comparing Equifax credit scores (by ZIP code) of the five largest military installations to the city center ZIP code for each post’s largest neighboring metro, the data suggests something is awry. 

There is a staggering average 93-point credit score difference between the bases and the next largest metropolitan area.

Financial actions that result in low credit scores create issues, no matter the cause.  According to Adjudicative Guidelines for Determining Eligibility for Access to Classified Information, and the “whole-person” concept used by the U.S. Department of Defense, financial considerations affect security clearances. Reviewing the 2014 Department of Defense judgments for denying or revoking security clearances shows financial issues (mismanagement of debt and questionable credit history) among the most common cause for concern. Restricted clearances equal improbability of rising through the ranks, or being taken off assignment completely, perpetuating financial hardships.

Predatory lending

Combating financial distress can romanticize payday loans. A 2006 U.S. Department of Defense report on predatory lending found payday loan shops to be significantly more prominent near military bases than in other U.S. locations, proving lenders may target the military. Partly for this reason, the government passed the Military Lending Act (MLA) and the Talent-Nelson amendment in 2006 to protect active-duty service members and their eligible family members from predatory lending. Even with the laws intact, a 2013 report by Consumer Federation of America noted that over half of service members are stationed in states where state law permits high-cost lending, who operate within loopholes of the Military Lending Act.

The Consumer Financial Protection Bureau notices the ambiguity as well, as stated in a December 2014 report:

• Current laws state that active military and eligible family members can’t be charged an interest rate higher than 36 percent on some types of consumer loans like certain payday loans, auto title loans, and tax refund anticipation loans. The rules, however, do not cover closed-end payday loans with terms over 91 days or closed-end auto title loans with terms of more than 181 days.
• Current laws don’t protect closed-end payday loan amounts greater than $2,000.
• Open-end credit lines are not covered by current Military Lending Act regulations.

Lenders providing terms outside of these limits have few regulations. Issuing loans with an APR of 300 percent? No problem. While rules have been proposed to tighten up the MLA, protection is still weak.