Author and Financial Expert Ellie Kay on Military Money Scams

by Jocelyn on March 1, 2012

Ellie Kay

In January, during the Faith Deployed…Again online book club, we talked about handling finances responsibly and resisting the temptation to buy things just to feel better. The Bible has a lot to say about money and stewardship (see Tonya Nash’s devotions, Your Financial Future and Declaring War on Debt, on pages 210 and 224 of Faith Deployed…Again).

Unfortunately, military families are often targets for sleazy car dealers, insurance scammers predatory lenders, and identity thieves. So pervasive are the rip-offs and so troubling is the debt incurred by military personnel that US Department of Defense officials recently labeled the situation a threat to national security. Today, Ellie Kay, author of Heroes at Home and a host of financial advice books, will help us recognize how to avoid being red white and scammed.

 Q. First of all, Ellie, what is your connection with the military?

ELLIE: My grandfather was a bombardier who died in WWII, my father is a retired chief master sergeant in the Air Force, my husband flew Air Force fighters for 25 years, one of my sons is a Marine and graduate of the Naval Academy, another son is at the Air Force Academy next year and the youngest son wants to go to West Point and be in the Army.

The DOD has labeled the fraud situation among the military as a threat to national security. How does getting scammed impact lives overseas?

It’s all about distraction. When military members are distracted, whether it’s worry over identity theft or trying to wondering if their spouse is able to deal with messy finances at home—then that’s when accidents happen. Distraction leads to worry which leads to accidents. And when accidents happen, then there is loss of life. So if we want to help save lives overseas, then we can all do our part to protect our military members by exposing rip offs and scams whenever possible.

What are some of the questionable ways that local businesses try to get a piece of the military rcruit’s paycheck?

For example, a computer store outside of Great Lakes Naval Training Center in Illinois employs attractive women to troll for new sailors. Once they get them inside the store, they are pressured into buying a very basic laptop for more than $4000, which is three times as much as the computer is worth. Then they finance the deal and the computer ends up costing even more with the store also making money on financing.

What are some other common ways that the military is ripped off and people should be aware of?

 There was recently a multistate investigation launched into life insurance scams that were being perpetrated against military members just before they took off to the Middle East. These scamsters sold soldiers extremely overpriced or misrepresented policies, taking advantage of the emotional situation of leaving families to go into harm’s way. This investigation ended with the unethical companies offering more than $70 million dollars in refunds to thousands of service members. When it comes to life insurance, military members are offered SGLI or Servicemembers Group Life Insurance, which is a sanctioned and legitimate source for high coverage and low premiums, so there’s really no need to secure other private insurance anyway!

Tell us about the “Red Cross” scam that is getting a lot of attention among military families.

This is fairly despicable, Jocelyn, as it prays on the emotions of family members. A con artist claiming to be with the Red Cross will call a parent of a service member or their spouse, telling them their loved one has been injured and they need their social security number to authorize help for them. In some cases, they ask for an initial cash payment. Military members need to clear any report of injury through the chain of command or by contacting the base family community services.

Do our service members receive any kind of personal finance education as part of their training?

The average age range of military members is between 22 and 28 years old. Of the groups I routinely speak to around the world, I’d say that the average 22 year old has an even younger wife and a baby as well—so it’s a lot of responsibility for someone so young. The good news is that since 2004, service members learn about personal finance as part of their early training. When I give my “Heroes at Home” message I teach about finances and also encourage them to use the resources they have available to them on base. Army Community Services, Airman and Family Readiness Centers, Fleet and Family Support Centers—all of these have personal finance counselors there who are ready and willing to give free financial counseling to service members and their families. It’s what I call my $300 tip, because a couple hours with the caliber of financial professional at any of these centers is equivalent to paying $300 to a CFP or CPA.

Is Congress doing anything to try and help prevent this kind of fraud that is being perpetrated against our service members?

Fortunately, yes, they are. This is, essentially, war profiteering, and it requires congressional action. They are in the process of creating a new federal Consumer Financial Protection Agency (CFPA) that would guard all Americans, including the military, against scams. Although Pentagon officials specifically requested that the CFPA oversee auto sales, car dealers argue that they should be exempt from such oversight. They say that they’re not responsible for bad loans—bad lenders are. But Consumer advocates counter that dealers are often involved in financing and sometimes work directly with loan providers. The issue is currently under debate, but there will be some kind of regulation to expose and prosecute scammers.

Ellie also took some time to answer some questions from several military members and spouses.

Q. Ellie, you came to our Army base to speak last November and I think that your message really helped me get through my husband’s deployment. Thank you for the work you are doing with military families. I did have a question about ordering items online. You showed us how to pay 40% less by using some websites, but how do I know if the website is legitimate?
Steph from Rothenburg, Germany
Submitted via online contact form

ELLIE: Steph, thanks for writing and thank you for what you do as a military family member, I admire you so much and know it’s a hard job! To avoid getting scammed online, make sure that you never respond to an email inquiry, but you find the site yourself on your own search. Then, go to BBB.org to make sure they aren’t listed and also check out the FTC.gov, plus the Internet Crime Complaint Center at IC3.gov, to investigate complaints against the company.

Q. I’m 19 and have been a soldier for 18 months. There are quite a few of my friends who regularly go to the payday loan business that is right outside our base. I keep telling them that they are losing a lot of money by getting a pay advance, but they say the interest rates are low and it’s no big deal. What do you think?
Private Benjamin from Ft Bragg
Submitted via Facebook

ELLIE: Private Benjamin, thx for your service and you’re the smart one. Tell your friends that some of these payday loan companies are charging as much as 500% interest. Even though the Defense Authorization Act of 2007 put a cap of 36% on interest loans to military members, many of these companies skirt the law by added exorbitant fees and calling the loans “revolving lines of credit” instead of payday loans in order to bypass the law.

Q. My husband’s hazardous duty pay was backlogged by red tape and didn’t arrive early enough for us to pay our bills. How am I supposed to pay things like our car loans while he is in the Middle East if I shouldn’t go a payday loan center?
Justine Long, Fort Drum, NY
Submitted via Facebook

ELLIE: In situations like yours, there are resources as near as your Army Community Services center where they can offer free financial advice. In extenuating circumstances, such as yours, you might even qualify for special programs offered by the Army’s charity, Army Emergency Relief or the AER. By going to these legitimate resources, you can avoid getting ripped off.

Q. Our community here in Alamogordo, NM is very supportive of the military and so is Las Cruces, which is a little further down the road. Many businesses carry banners that say, “we support our military.” Even so, a friend of ours bought a car from one of these places and it turns out that the dealership didn’t own the title and then went out of business. Now our friend has an $12,000 loan to pay and no car to show for it! How can we avoid being “taken” and who can we trust?

Heidi Rothenburg, Holloman Air Force Base
Submitted via blog

ELLIE: Heidi, I’m so sorry to hear of that situation, especially from a business that advertises its support of the military. Unfortunately, auto vendors are a huge source of complaints. In most cases, the salesperson will offer you “easy credit” but you pay jacked up prices, hidden fees and interest rates of 15% to 20%. Military financial counselors have files full of horror stories. Bad dealers have taken cars in trade, promising to pay them off and then they go out of business, leaving service members with two payments. Go to BBB certified dealers and if the deal sounds too good to be true, just walk away, because it usually is.