Various reports have raised concerns about certain business practices and fraudulent schemes targeting military personnel and their families. As the Base Realignment and Closure Act takes hold in Maryland, greater attention is required to assure those serving our country are well served by our business community. This article briefly reviews a few practices generally regarded as “predatory,” a term of art and of contention, and alleged to be targeting military consumers. It then explores some legal provisions countering such threats, followed by several recommendations. The topics addressed herein are relevant to those serving military families and those advising businesses with customers that include military personnel.
Three seminal studies have explored this topic in greater detail, but none focused specifically on Maryland. Steven M. Graves and Christopher L. Peterson provided empirical evidence illustrating that payday lenders target military bases by surveying 20 states, 1,516 counties and 13,253 ZIP codes in their 2005 law review article “Predatory Lending and the Military: The Law and Geography of ‘Payday’ Loans in Military Towns”. A 2003 report by Steve Tripoli and Amy Mix of the National Consumer Law Center collected advertisements, contracts and disclosure statements from businesses surrounding military bases in Georgia and Florida. The authors similarly concluded that various allegedly harmful business practices clustered around these bases. The third study by the Department of Defense evaluated predatory lending practices directed at members of the armed forces in 2006.
As these studies explained, there are many reasons why military service members are targeted, including: age; military culture; the form, amount and distribution of pay; prohibitions on holding a second job; voluntary and involuntary allotment of pay to creditors and merchants; and the frequent dislocation and sometimes transient nature of military life on bases. There are also parallels to the financial risks millions of lower-income consumers face each day. Specifically, potentially unprincipled businesses and predatory practices similarly target other groups’ communities, such as disadvantaged minorities and newly-arrived immigrants. The distinct purpose here is to shed light on one subsection of a larger group of at-risk Americans at a time when military personnel already bear the weight of significant burdens upon their shoulders.
At the outset, it is critical to note that the practices described here may operate within the law, serve important needs, and not pose any risks. On the other hand, stories abound about how these and other practices ripen into fraud to the financial determinant of military members. Some risks involve sales and marketing practices. For example, companies use names that misleadingly imply a military connection to foster trust and get consumers to let their guard down. They may appear near bases, advertise in official-sounding periodicals, or use official-looking ads on the Internet. Yo-yo sales, spot delivery, and unique variants are other examples of unscrupulous sales practices often employed against military personnel.
Short-term loans at high interest rates (when considered per annum) and fees that inflate the total cost are another risk. In Maryland, most consider payday loans illegal because Maryland’s Consumer Loan Law mitigates the typical operation and harmful effects of such loans. Lenders can provide short-term loans; however, the law’s interest rate and time provisions reduce the usual deleterious effects. Signs appearing around Maryland military bases nonetheless suggest there may be reason for concern. Furthermore, many bases border other jurisdictions without the same legal protections, and some lenders disguise such loans by structuring them as “catalog sales.” These sales provide upfront cash and “rebates” for high-priced, poor-quality goods or services from a catalog, never intended to be purchased, to consumers in exchange for a post-dated check. Finally, other schemes such as benefits assistance or benefits buyout programs, title pawning, or short-term rental and telecommunication service sales can involve false or misleading advertising, deceptive terms, or hidden high fees.
There are both federal and state protections to counter these issues. As an illustration, the Servicemembers Civil Relief Act protects against default judgments, provides for a stay or vacation of execution of judgments, attachments and garnishments, and imposes a maximum rate of interest on debts incurred before military service. Creditors are not powerless and can turn to courts for relief under certain circumstances. The Act also protects military families against eviction, foreclosure and repossession, and permits termination of residential or motor vehicle leases. The Maryland Consumer Protection Act, false and fraudulent advertising laws and other provisions also address the issues frequently identified in consumer protection reports, though without specifically focusing on military personnel.
The general response has been to ban and regulate through caps and other restrictions. These may prove effective; however, they also create unintended consequences, such as diverting consumers to less-regulated states where risks are greater, and increasing costs and inconvenience. As Donald P. Morgan noted in “Defining and Detecting Predatory Lending,” part of the problem is the existence of too few short-term lenders because the absence of competition increases costs and fees. Other approaches can provide benefits to consumers while encouraging responsible business. The main objective in addressing these concerns should be to avoid the unacceptable, reform the imperfect and expand the mutually beneficial.
As the military’s presence in Maryland continues to grow, addressing the risks posed by certain practices is imperative. Education and outreach to both military personnel and surrounding businesses is critical. Coalitions between the military, local bar, community organizations and federal and state decision-makers could work to identify threats, increase education and develop sound legal and extralegal responses, including innovative approaches to increased enforcement, as needed. The goal should be to provide service members with access to the goods and services they require while informing businesses of their duties and obligations under the law, generally. Balancing the need to protect consumers with businesses’ rights to reasonable financial opportunities can assure vitality for both groups.
Justin Browne is Co-Chair of the MSBA Military Law Committee and has recently conducted comprehensive research on this topic during law school. He is currently an associate at Whitney & Bogris, LLP.