South Nevada Avenue, not far from Fort Carson, is home to several cash-advance and high-interest loan businesses. Some short-term, low-principal loans can reach interest rates in the triple digits.
South Nevada Avenue, not far from Fort Carson, is home to several cash-advance and high-interest loan businesses. Some short-term, low-principal loans can reach interest rates in the triple digits.

The fallout from predatory lending practices can impact significantly more than just a credit score — in the military, it can cost careers.

That’s the view of Terrance McWilliams, vice president of military and veteran affairs for the El Pomar Foundation. He retired from the Army as command sergeant major and senior enlisted adviser to Fort Carson’s commanding general after 31 years of service.

Of the 1,000 to 1,500 Fort Carson soldiers who fell victim to predatory lending annually while he was on active duty, McWilliams said up to 40 percent were forced out of the military due to their debts. Outstanding debt led to the revocation of military security clearances, which then led to discharges.

“Soldiers were going to these lenders because of the ease of access,” McWilliams said, adding young troops with no credit or poor credit were often targeted by predatory lenders just outside the gates of Fort Carson.

“[Soldiers] were using that money to purchase stereos, rims for their cars, tires. It’s a different generation — the ‘I-want-it-now generation.’”

No. 3 in the country

Despite more stringent policing and increased access to educational programs, predatory lending is still a concern, especially within the military, which is heavily targeted by businesses that offer cash advances and small-principal loans with interest rates that can reach triple digits.

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Colorado Attorney General Cynthia Coffman, in an interview with the Business Journal, said Colorado Springs ranks third in the country for fraud complaints, including predatory lending, per 100,000 residents for 2014, amounting to 5,204 claims.

Nationally, consumer lending is the fifth most frequently complained-about consumer issue — in Colorado it is No. 4, based on the 2014 report of the Federal Trade Commission’s Consumer Sentinel database.

Coffman said the high number regionally is primarily due to the region’s active duty military, retired military and retired civilian population.

She said the Colorado Uniform Consumer Credit Code regulates terms and conditions of consumer credit, including the setting of maximum rates and charges, requiring the disclosure of the cost of credit so consumers may shop for the best rates, and providing remedies for consumers who default.

“Under the consumer credit code, there are limits on allowable financing charges depending on the amount a person borrows, as well as caps on fees and other charges. Also, the consumer has the right [if they default] to cure the default,” Coffman said.

Coffman said the economic impact of predatory lending “is quite significant, but it’s not the easiest thing to quantify,” adding that of all the consumer complaints tracked by the AG’s office, predatory lending often ranks among the most frequent.

“It’s generally not small amounts that people are potentially losing,” she said. “They are typically amounts that could cause folks to lose their homes or automobiles. It causes irreparable damage to their credit and can affect future borrowing. That’s especially true of military personnel.”

Coffman said, in addition to many being young and financially naïve, military personnel are a target because they are often dealing with distractions unique to them.

“These folks tend to be making decisions quickly in terms of housing or furniture,” Coffman said.  “They may be about to deploy … Their minds are on many different things and they make for ripe targets.”

Educational programs are available to local military regarding money management and avoiding predatory lenders. Colorado Springs ranked third in the country for fraud complaints in 2014.
Educational programs are available to local military regarding money management and avoiding predatory lenders. Colorado Springs ranked third in the country for fraud complaints in 2014.

Military support 

According to a statement issued by Fort Carson, the post provides numerous resources in an effort to safeguard soldiers from harmful lending practices.

“These lenders lure soldiers into signing contracts by promising to help build their credit. [Army Community Service] teaches soldiers that these promises are, for the large part, empty, as being unable to pay on a high-interest contract will actually be detrimental to their credit score,” the statement said.

“Also, ACS highlights the importance of price comparing, as these lenders frequently add on charges that result in items being two or three times more expensive if purchased elsewhere. ACS Financial Readiness counselors and command financial counselors (non-commissioned officers assigned to units at the battalion level) offer to review any contract a soldier is interested in before they sign and the contract becomes a legal document.”

According to the statement, “If a soldier visits with a Financial Readiness Counselor, having already signed a high-interest contract, the counselor will help the soldier examine his or her finances and look for ways to cut expenses and increase income. Methods include ensuring soldiers have checked the right number of tax exemptions, helping soldiers build a budget and, if they’re married to a non-working spouse, exploring options for the spouse to bring income into the household. Financial Readiness Counselors will assist soldiers in how to prioritize paying off their high-interest debt and provide strategies on how to become debt free. Also, Financial Readiness Counselors are well-versed in the Fair Debt Collection Act, which governs when and who debt collectors can call and help educate soldiers about their rights in that regard.”

The post also educates all soldiers who arrive on Fort Carson with “first term training” as a part of inprocessing. The training includes information about high-interest-rate lenders. ACS also offers voluntary financial classes that are geared toward educating soldiers about personal finances.

“One example of a class offered is the Iron Horse Budget. This class provides soldiers and family members with information to manage their finances effectively and be an informed consumer in the community,” according to the statement. “Soldiers can also go to the on-post legal office for contract review and assistance in getting out of contracts.”

According to a report in Money Magazine, 12 percent of active duty and activated reserve and guard personnel declared bankruptcy between 2010 and 2012. That’s despite the passing of the Military Lending Act in 2006. The regulation placed a 36 percent interest rate cap on certain loans for military personnel, but lenders have loopholes to circumvent those laws, to include longer-term loans not covered by current regulations.

“The principal way around the Act is to design a loan product that doesn’t qualify as a payday loan, auto title loan (illegal in Colorado anyway), or a tax refund anticipation loan,” according to a statement issued by the attorney general’s office. “The principal way to do this is to design an installment loan product or a single payment product where the payment due is more than 91 days from the date of the loan. A lender could also make a payday loan for more than $2,000 or make a payday loan without requiring receipt of a check, debit authorization, or other form of payment that is deferred for one day or more.”

Red flags

Referring to the high number of reports from Colorado Springs, Coffman said the region’s ranking could simply indicate community vigilance.

“There’s aggressive reporting from local law enforcement and the [Better Business Bureau],” she said. “There are active people protecting [potential victims].”

The BBB of Southern Colorado, in fact, has a nationwide program designed to inform and educate military personnel regarding predatory businesses.

According to Jeff Markle, director of marketing and events for the BBB, the bureau monitors “high-alert” industries, to include payday loan and cash advance companies.

“We look for businesses that mislead,” Markle said. “We do ad reviews and look for honesty and transparency.”

Markle added that the Military Lending Act has changed the number who fall victim to predatory lending.

“There’s been a large decrease in what we’ve seen as far as predatory lending reports since 2006,” he said.

According to the attorney general’s office, three predatory lending lawsuits are active in Colorado Springs — Freedom Stores Inc., USA Living (formerly USA Discounters) and CashCall.

In May, Coffman’s office filed a civil lawsuit in Denver District Court against Freedom Stores Inc., and its subsidiaries — Freedom Furniture & Electronics, Military Credit Services LLC, and Freedom Acceptance Corp., which have since gone out of business.

“These companies have repeatedly broken Colorado lending and consumer protection laws in their aggressive pursuit of military customers,” according to a statement released by Coffman’s office in May. “The Attorney General’s complaint alleges that these companies sell consumer goods and services on credit, service those and other consumer loans, and collect on those loans when they are delinquent. They primarily target members of the military and their families at their Colorado Springs retail store and through affiliated vendors.”

Virginia-based USA Living closed its business at Mission Trace Shopping Center on South Academy this month. USA Living’s corporate headquarters did not immediately respond to a request for comment.

As for Freedom Stores, their website advertises “instant credit approval for all active duty military and civil service employees.”

Markle said that type of language should act as a warning, adding BBB accreditation is one indication that a business is less likely to utilize predatory practices.

“Accreditation is not a guarantee, it’s just a symbol that we’ve looked into all that they’ve done and can’t find a warning that it’s not a trustworthy business,” he said.

Markle said consumers should be skeptical of promises that appear “too good to be true,” and said educating oneself about fair lending practices is a must when seeking a loan. In the end, it comes down to personal responsibility.

“Don’t purchase something that will put you in a hard spot down the road,” he said. “Don’t purchase things you can’t afford.”