Payday, auto loans now regulated, but travel loans still snare servicemembers
DETROIT (Tribune News Service) — He was just 19 years old, new to the military, and at Goodfellow Air Force Base in San Angelo, Texas, for training.
That's when he fell into a financial trap.
A little short on cash but wanting to fly home to Michigan for Christmas, the airman called Easy Military Travel. The online agency looked official, with the slogan "the largest travel assistance provider for the U.S. Military." It helped servicemembers finance their travel needs and get them airline tickets, it said.
And it did that, more or less. The December ticket got him home — but routed him from San Angelo to Dallas, then Charlotte, then Detroit, flying back in the same multistop way. The fare was $1,200. The agent said he could easily pay the fare back in $74 installments by having the money taken out of his military allotment — his paycheck — each month. The young airman gave them his bank account routing number and flew home for the holidays.
Now, five months later, the airman first-class firefighter still is paying off the loan.
"I called and asked if I could pay the loan off early and they said yes, but you still have to pay the interest," said the airman, who asked that his name not be used because servicemembers are not allowed to speak directly to media.
And it's not $74 a month, but $74 out of each paycheck (he gets paid twice a month) for 10 months, through November. At 24% interest, he will end up paying $1,480. That is for a ticket that could have been bought elsewhere for around $800.
"I could have strangled him when I found out how much it was," says his dad, Ron Spence of Canton. "I guess it was a lesson. He took everything they told him as gospel."
Loans like these are legal. The federal Military Lending Act of 2007 cracked down on predatory payday loans, auto loans and tax refund loans aimed at servicemembers. But no law prohibits selling so-called military travel loans, says Samuel Gilford, spokesman for the Consumer Financial Protection Bureau in Washington. The Department of Defense issued new restrictions last fall on the ability of finance companies to suck automatic payments out of military paychecks, but they do not specifically cover travel financing.
Other sites similar to Easy Military Travel are the Travel Now Pay Later Military Travel Store and United Military Travel. None of the sites have ties to the military. None reveal interest rates until you apply for the loan.
Still, Brandon Edmiston, managing member of Easy Military Travel in Ft. Campbell, Ky., says his company provides a needed service. As of this year, his lenders no longer take payments directly out of military paychecks, he says. Interest rates, while high, are tied to a borrower's credit rating. The application process "is a very clear process. There is nothing that would not be disclosed," he says, adding, "Our reputation for eight years now has been actively working with the military community and working hard with the airlines to offer the best rates and fares."
As far as the $1,200 cost of the airman's ticket, there was no markup, Edmiston says. His company's profit "is not a percentage, it's not a basis. There is no advantage for us to sell a higher price ticket." If the airman didn't understand the terms, he adds, " It could be that he was 19 years old, and it was the first time he ever had taken any type of credit out."
Stories like this concern the military. servicemembers' regular income stream is an attractive target for lenders of all stripes, says Gwendolyn McCarthy, manager of the financial readiness program at Detroit Arsenal in Warren, the only active military base in Michigan to handle family issues, finances, travel and recreation. New military members undergo mandatory financial training to help them avoid scams and pitfalls that target young recruits, but the training does not come until they get to their first permanent duty station.
The only travel sites that are officially approved by the U.S. military are not travel finance companies. They are the Armed Forces Vacation Club, Government Vacation Rewards and Armed Forces Recreation Centers, says Matthew Foote, manager of the Detroit Arsenal travel office.
But this does not stop other travel sellers from putting the word "military" in their company names.
"Anytime you have an opportunity to make money from people, you'll see it," says Steve Ball, Detroit Arsenal spokesman. Near bases "there are pawn shops. There are payday loan stores. They spring up around military installations because they know you're going to pay them back. We do work to educate people that while these businesses may be a source, don't use them regularly."
The hard part with web-based loan companies is "they can touch you from wherever they are."
I found out a lot more from Steve, Gwen and Matthew about other avenues for military travel and some incredible deals and flights open only to active and retired military folks and spouses, which I'll write more about next week. Meanwhile, the young airman who got taken in by a loan he did not understand is sadder but wiser. And his dad hopes other military families will take note of how military travel finance companies work.
"Given that this was his first time making travel arrangements I cut him some slack and didn't give him a hard time," says Spence.
Says his son: "It was my first time away from home, and I didn't know any better."