Tripoli said these companies use advertising in military newspapers to get military personnel to apply for loans.
"They cram their promotional literature with expressions of concern for military families," he said. He added that advertisements in military newspapers lead service members to believe that these national newspapers are official newspapers when in fact they are not, he said.
According to the report, what's common about businesses that offer cash advances on personal checks, or payday loans, and others often disguised as phone-card, Internet and catalog-sales companies is that they loan small amounts of cash for short terms at exceedingly high interest rates.
For example, Florida Internet offers its customers a series of instant-cash rebate options in exchange for signing up for Internet service.
One reported option is a $480 rebate when customers commit to a year's Internet service. The cost is $80 every two weeks, automatically deducted from customer's bank or credit card accounts, for up to eight hours' service. And the Internet can only be accessed at the company's handful of storefront sites.
When NCLC advocates visited two companies, they found four terminals, two at each company. However, none of the computers was in use, Tripoli said.
Although unlimited Internet access on a home computer can be purchased for about $20 a month, the report says customers buying the $480 rebate option will end up paying $2,080 ($173.33 per month) for a year of limited service (eight hours every two weeks). The result: The $480 rebate that costs $173.33 monthly for one year translates into a 421.6 percent annual percentage rate.
The report said that phone-card sales companies operate in a similar fashion. In one example, a company near Marine Corps Base Camp Lejeune, N.C., sold phone-card memberships that provide an instant $300 cash back rebate. In exchange, the borrower agrees to purchase 300 minutes worth of phone cards at a cost of $67.50 every two weeks, or $135 a month over the next year.
Tripoli said this means the $300 rebate amounts to 533 percent annual percentage rate.
Customers who use catalog-sales companies for cash advances rarely use the catalog coupons issued by the company in exchange for the advances, Tripoli noted. And he says the products offered by catalog sales companies are "very high priced" and "of low quality." He added the products are subject to outrageous shipping and handling charges that make the purchases not worthwhile.
The report also targets auto-title pawn dealers that provide short-term loans based on a vehicle's value, using its title as collateral. In many cases, if the borrower defaults on the loan, the lender claims the vehicle for a fraction of its value.
Despite unfair lending claims by the NCLC, the Community Financial Services Association, formed in 1999 to ensure fair practices in the payday lending industry, said its association of lenders helps military personnel and their families.
In a press release issued the day of NCLC's announcement, Lynn DeVault, president of the association, defended association lenders saying, "We are in the business of helping families through difficult financial times."
According to CFSA, many of its association lenders are waiving fees and suspending collection on outstanding advances of deployed military personnel. Other companies have canceled late fees on overdue loans, the release said.
