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Nevada lender's legal trouble shows perils of Internet loans

Oct. 20, 2008 - 05:23PM   |   Last Updated: Oct. 20, 2008 - 05:23PM  |  

Nevada officials have ordered the companies behind two Web sites that provide loans to military personnel worldwide — http://www.loansmilitary.com">http://www.loansmilitary.com and http://www.AmericanMilitaryLoans.com">http://www.AmericanMilitaryLoans.com — to stop making loans.

In late June, the Nevada Department of Business and Industry's Financial Institutions Division issued cease-and-desist orders to Military Funding USA Inc. and American Military Funding Inc. Both outfits also are known as World Wide Military Funding and share the same address in Nevada.

Officials say that the company is not licensed to lend money. Thus, all of its loans are void, and the company must immediately pay back every customer all principal, interest and charges from the loans, and stop any collection efforts.

But Adam Zipper, co-owner of American Military Funding Inc., said his company is interpreting the order to apply only to loans made to residents of Nevada, and said it has stopped making loans to people there.

He said the company has filed an appeal, and "right now, we are not required to do anything" — including repaying customers.

"We believe once the appeal is settled and becomes final, the order will be wiped out," he said.

Zipper contends the cease-and-desist order was issued in error. "We were under the presumption we were exempt from the kind of license they were asking us to get, and we had a pending application when they issued the order," he said.

Both Web sites state at the top of their home pages that they are not payday lenders.

Zipper said his company has been in business since April and makes installment loans, generally for a one-year term. The interest rate varies from 9 percent to 16 percent, he said.

An examiner for the Nevada agency called Military Funding USA Inc. and was told by an employee that in order to receive a loan, a person must apply through the Web site, according to the cease-and-desist order. The employee said the interest on a 12-month, $2,000 loan would be 16 percent but that monthly payments would be $248. At that payment rate, the total cost of the loan would be $2,976 — which equates to an annual percentage rate of 80.6 percent. The additional costs, the employee said, were "fees."

Martin Hymowitz, co-owner of Military Funding USA, said the company is no longer lending money, pending the appeal. Neither he nor Zipper would provide further information about their loans, pending the appeal. According to the Web sites, the companies loan from $1,000 to $3,000 for a term of 12 months.

As a result of the Military Lending Act, which prohibits payday loans to service members, "people think we are payday lenders," Zipper said. "There's a gap in understanding."

Under Defense Department regulations that narrowed the interpretation of the law, installment loans are not covered.

"Many states have said that Internet lending is exempt from state regulations," Zipper said, adding, "that's where we offer loans."

Gail Anderson, deputy director of the Nevada Department of Business and Industry, said the cease-and-desist orders mean the companies must stop providing loans, but that they also have the opportunity to request a hearing.

"I am pleased that Nevada is going after unlicensed folks," said Jean Ann Fox, director of consumer protection for the Consumer Federation of America.

Consumer advocates say installment loans also should be prohibited in the Defense Department's regulations.

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Comments? Contact staff writer kjowers@militarytimes.com?subject=Question from ArmyTimes.com reader">Karen Jowers at sgtshopper@militarytimes.com">sgtshopper@militarytimes.com.

Avoid Internet loan pitfalls

• Comparison shop for credit by analyzing both the total finance charge and the annual percentage rate.

• If an interest rate is not disclosed on a Web site, be wary before agreeing to an Internet loan.

• Ask about any upfront, origination, hidden or other fees and charges, in addition to the interest rate.

• Be wary of applying for loans online where you have to give your bank account information to receive proceeds from a loan.

• Check with your local military-affiliated banks and credit unions for programs that offer quick access to low-cost, short-term loans. Military relief societies also have launched no-interest, quick loan programs.

• Your base legal assistance or personal financial management office also can help you review loan contracts.

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