Everyone has a choice when it comes to financial products, but those in the military community have extra options.
You have a responsibility to yourself to check out those options. You don't have to jump on a product — such as a loan — just because it appears a fellow service member or spouse is steering you toward it.
In promotional brochures and online videos created for the industry association that represents installment loan companies, a couple identified as a North Carolina Marine and his wife tout the benefits of using these companies.
The couple — named in the materials as John and Ellie Grandstaff — couldn't be reached for comment, and John's rank is never given.
In the promotions, the couple relates two incidents in which they needed loans. First, when they moved from Hawaii to North Carolina, the moving truck caught fire with their household goods inside.
"A friend of ours told us about an installment loan company we could go to because we are military," John Grandstaff says. Later, the couple needed a loan to fly John home when his mother passed away while he was deployed.
Everybody has a right to apply for a loan from whomever they wish. But remember that the military relief societies will almost always quickly provide a no-interest loan or a grant for emergencies such as the ones the Grandstaffs describe.
The Grandstaffs never mention how much their loans cost them. Under North Carolina law, licensed installment lenders can charge up to 36 percent interest on the first $600 of a loan, and after that, 15 percent on loans of up to $3,000. They can charge an additional fee of 5 percent of the loan, up to $25.
But loans could cost more under a proposal in the North Carolina legislature — one likely reason why the industry created the Grandstaff promo as one of several testimonials about the supposed importance of such loans to consumers.
The lending industry contends it must be allowed to raise fees in order to stay in business so the loans can remain available to consumers, said Everett Wallace, special counsel for the North Carolina Credit and Personal Finance Council, which represents three industry trade associations.
"The industry has not had an increase other than a small processing fee for the last 28 years," he said. "We're asking for the legislature to do its job, to realize the industry serves a real need in the community."
While an interest rate is not specified in the proposed legislation, an "installment account handling charge" of $3 per month would be assessed for every $100 borrowed — an effective 36 percent interest rate for the entire loan. A "processing" fee of 10 percent of the loan — up to $100 — would also be charged, resulting in a higher annual percentage rate, because under federal law, all fees are included in APR calculations.
Among companies offering small consumer loans around the country, there is a growing trend to avoid using the term "interest rate," said Al Ripley, director for housing and consumer affairs for the North Carolina Justice Center, a nonprofit group representing the interests of low-income people.
"The consumer will have to do a lot more work to figure out what the APR is," Ripley said. "The APR is how you compare the cost of credit." Under the legislative proposal, the APR could be more than 100 percent under certain scenarios, he said.
Wallace acknowledges the APR is higher than 36 percent when a fee is included, but said customers "come in knowing what our rates are."
Much of the Navy-Marine Corps Relief Society's $50 million in financial assistance to sailors and Marines last year "was needed to pay off high interest credit they could not afford," the society's president, retired Adm. Steve Abbot, wrote in an April 18 letter to North Carolina legislators opposing the legislation. "Raising rates and fees on these loans, and allowing additional charges and costs will only make these products more harmful."
Aside from the relief societies, there are other, better alternatives, such as banks and credit unions and even credit cards, said Michael Archer, a retired Marine who is regional legal assistance director for Marine Corps Installations East.
The industry is doing a disservice to military personnel with their promotional campaign, Ripley said. "There's no way a member of the military is better off getting a loan at a 100 percent APR, when you could go to the relief society and get a no-interest loan."
It's your choice. Make it an informed one.