Marine Corps Staff Sergeant David Green’s* finances started falling a part after his divorce.
The legal fees and traveling from the West to East Coast to see his son proved costly. He fell behind in his credit card payments, messed up his credit, such that when he needed money he turned to what he called, "bad military loans, loans that are based on your allotment." He got into a cycle of relying on those loans that came with interest rates from 35-80%, and the debt multiplied. "I paid $5,000 for one $2,700 loan," he laments.
His fortune turned when he discovered on Facebook, SimpleFi, co-founded by Dino Setiawan, CEO, a former vice president at Morgan Stanley and Adam Potter, president, and a veteran Marine Corps officer and Stanford University Graduate School of Business. SimpleFi’s mission is to financially empower active duty military personnel by offering accessible and affordable financial resources. It is adapted from the Navy Marine Corps Relief Assistance Program.
Not only did SimpleFi consolidate his debt with a $10,000 loan at 6%, he got financial counseling. For starters, they walked him through his credit report and helped him fix two negative things on his credit report. "They even offered to call the collection agency with me to resolve my issues," says Green.
Today, he says the financial stress has been reduced, he’s tracking his spending, budgeting and saving, instead of borrowing. "I am in a much better place."
Military life brings financial challenges
Green says his financial predicament isn’t unique, many military personnel are struggling.
According to data from SimpleFi, more than half of active duty military members experience financial stress, which in turn has debilitating effects, not only on work performance, but also in their relationships and mental health. In 2012, only 13% of active duty soldiers who committed suicide saw combat. Financial distress is one of the top three biggest factors leading to suicide.
There are plenty of unscrupulous lenders out there to take advantage of military personnel. "They know we are in a tough spot, and that they can get the security of our paycheck. In order to get the loan they ask you to waive the right to the Military Lending Act," says Green. The MLA prohibits military personnel from being charged more than 36% interest on some consumer loans.
A new report from The Pew Charitable Trusts, Checks and Balances, Stars and Stripes, evaluated traditional financial institutions, on-base banks and credit unions and found that 42% of banks and 17% of credit unions do not provide any disclosure information online, making it difficult for deployed service members to access critical information about the terms and conditions governing their accounts. Yet, of those banks that provide account information online, almost three-quarters of banks offer a summary disclosure box and half of the banks offer boxes that meet Pew’s criteria for effective disclosure. Most of the institutions studied do not protect their customers by automatically declining transactions at an ATM or the point-of-sale that would overdraw an account. More than half of banks and 75% of credit unions reorder some transactions in a manner that can create more overdrafts. The median overdraft fee for banks was $35 and $29 for credit unions. However, two-thirds of the banks do not charge an overdraft fee for a de minimus withdrawal or purchase, typically $5.
Military personnel and their families face unique challenges the impact their finances. Repeated deployment, frequent relocations, often on short notice, the spouse may have difficulty getting a new job --- there are a number of issues.
"During a deployment, service members often have to focus on the task at hand," says Melissa Tidwell, associate vice president of product management for USAA Bank, which primarily serves those affiliated with the military. Finances may not be on the top of the agenda and fall by the wayside.
Financial literacy is an issue, "The focus tends to be solely on earning money with little or no information on how to handle the income once it’s earned," says Randy Satterfield, military education specialist with ClearPoint Credit Counseling Solutions.
To bridge the gap, many banks, credit unions and non profit organizations are reaching out to the military community. ClearPoint offers counseling programs (budgeting and credit, bankruptcy, housing, debt management) for active duty and veterans. There are also financial literacy classes for active duty, guard/reserves, veterans and their family members, in person and online. ClearPoint sponsors the Financial Field Manual, published by the BBB Military Line and Kiplinger’s Personal Finance.
USAA permits service members to apply by cell phone for loan account benefits at 4% and on existing and new credit card balances. Credit cards quality for a 4% rate for one year of deployment/PCS (permanent change of station). "This benefit also helps the families of service members who are already under the stress of handling other matters for their family members who is away," says Tidwell.
Because members are often given short notice to move from one post to another, their families face the hurdle of having to go through the selling and buying process quickly, and a spouse may have to handle the moving process alone while the service member starts his or her duty at another post. USAA’s Home Circle helps members to find homes to buy or rent, get a USAA preferred real estate agent and access personalized advice, financing options, insurance and other discounts.
Navy Federal Credit Union’s Active Duty Checking offers members up to $20 in ATM fee rebates and free military checks. They receive access to their military pay one day earlier. They receive special discounts and fixed-rate loans terms on car loans, mortgages and personal loans. There is the nRewards Secured Credit Card to help members who need to build credit. Navy Federal also offers online resources, counseling and on-base seminars on personal financial management.
Service Credit Union has an array of products and services, as does PenFed, including its Financial Hardship Center and Deployment Guide. Wells Fargo, Citi and Bank of America, and other large institutions offer special benefits for military members.
Says Green, "I’ve learned a lot. Stay away from high interest places and stick to a budget so you don’t get into a hole. You have to do right, be fair to your family."
Note: * David Green is a pseudonym used for privacy reasons.