The Center for Public Integrity

It was a run of bad luck that put Dr. Louis Kroot and his wife, Kathie, in debt in late 2005.  

A daughter with mental illness cost them thousands in medical and related bills for treatment in hospitals from London to San Antonio. An unexpected tax bill triggered by taking money out of a retirement plan led to more than $100,000 in debts to the state of Kentucky and the Internal Revenue Service. A broken water pump caused $12,000 in damage to their home.

“We were trying to figure out, how are you going to pay these bills?” says Louis. “And we were just scratching our heads.”

But one of the Lexington, Ky., couple’s most expensive moves was answering an ad in a military magazine from a company called Retired Military Financial Services that offered quick cash backed by Louis’ pension from 23 years as a Navy doctor. Louis signed a contract with the company that gave him $91,566.37 in a “lump-sum payment” in return for eight years of pension payments.

Including fees and other charges, the deal was equivalent to a loan at an annual percentage rate of over 30.7 percent — a rate that would be illegal under usury laws in many states. That’s made the company the subject of two class-action lawsuits over the past decade, and a frequent plaintiff and defendant  in bankruptcy courts around the country.

“We needed the cash flow to pay for what we needed paid for at that point in time,” says Kathie, 59. “To us, they were a godsend. We didn’t even know that people were filing lawsuits against them.”

Retired Military Financial Services, also known as Structured Investments, says its payments are “not a loan” and therefore not subject to usury laws. The company also says it provides an important service to military retirees who could not otherwise monetize their pension payments.

Steven P. Covey, an Army veteran who is one of the founders, defends his company and says its business practices are legal.

A Chicago-based debt settlement company, Legal Helpers Debt Resolution, has been fined $314,000 for what the state financial regulator described as “exploitation of financially vulnerable families.”

The Illinois Department of Financial and Professional Regulation issued a cease and desist order saying Legal Helpers operated in the state without an appropriate license and failed to provide legal representation to consumers. The order said that Jeffrey Hyslip, who is not licensed to practice law in Illinois, improperly signed up at least 314 Illinois consumers for the Legal Helpers program.

iWatch News reported last month that Legal Helpers, which calls itself one of the largest debt settlement firms in the industry, was sued by Illinois Attorney General Lisa Madigan for stating or implying that lawyers would negotiate on behalf of clients, but then allegedly turning over the negotiations to non-law firm third parties. The company has denied any wrongdoing.

The fine was the first disciplinary action taken under a new state law, the Debt Settlement Act, which took effect in August, the Illinois financial regulator said.

“The Debt Settlement Act seeks to protect families that are struggling with debt from being preyed upon by companies posing as rescuers,” said Brent Adams, Illinois secretary of financial regulation. “The state will move aggressively whenever we learn of the exploitation of financially vulnerable families.”

A young Navy sailor walks into a car dealership and buys a Camaro.

Sounds simple. But is it?

Advocates for military consumers say financing a car or truck is often a confusing transaction fraught with the potential for fraud, including hidden fees and bait-and-switch salesmanship.

Car dealers and their advocates counter that the transaction is usually a straightforward process. Rip-offs, they say, are rare.

Those competing views clashed Tuesday in San Antonio during a Federal Trade Commission hearing on the problems that sailors, Marines and other U.S. service members encounter when they try to buy and finance cars.

As the iWatch News reported last month, the FTC hearing is an indication of the increasing attention being paid to the consumer problems faced by members of the U.S. military.

Shawn Mercer, a Raleigh, N.C., attorney who represents car dealers, told FTC officials that critics of the car industry are painting with “too broad a brush,” using examples of “isolated bad players” or citing incidents from “bygone years.”

“To the extent there is an abuse somewhere, that’s an exception, not the norm,” Mercer said. He said car dealers aren’t looking for quick sales; they want to create a “customer for life.”

Other panelists described examples of practices targeted at service members, such as manipulating them into buying nearly expired repair warranties or charging them for overpriced add-ons.

U.S. Navy Capt. Dwain Alexander II, an attorney with the Navy Legal Service Office in Norfolk, Va., described one case in which a dealership hid the costs of financing the car by preparing two sets of paperwork and charging the service member $2,700 for a GPS mapping system that retailed for only about $200.

The Consumer Financial Protection Bureau has opened for business, its mailbox piled high with wish-lists from consumer advocacy groups about what the new agency should tackle first.

While consumer groups cheer the arrival of the CFPB, the banking industry and other financial services providers such as payday lenders, debt collectors, consumer credit bureaus and credit card issuers are less enthusiastic and worry that any new regulations could be costly and burdensome. Many Republican lawmakers share those concerns and have threatened to block the Senate nomination of Richard Cordray to head the agency.

Until the CFPB has a confirmed director in place, the bureau is limited to enforcing existing consumer protection regulations and generally cannot propose new rules.

Here is a closer look at some of the most common requests from consumer groups to the CFPB:

Make credit card offers easier to compare

Searching for the best deals on a credit card is notoriously difficult. Details on rewards programs are hard to find, and comparing fees and APRs is challenging because the box containing this key information looks different on each credit card company’s marketing materials. JPMorgan Chase & Co., for example, calls this box “Pricing and Terms” and places it in the middle of the page, while Citigroup Inc. places its “Terms and Conditions” on the upper left of the page.

The CFPB could help consumers by requiring a standard, one-page credit card contract.  “The card issuers are marketing a product to consumers. Consumers shouldn’t have to hunt for information about interest rates and fees. Really, this is in the best interest of card issuers, too,” says credit card expert Beverly Blair Harzog on Credit.com.

End hidden fees on pre-paid debit cards

Debt settlement companies play the middle man between consumers and their creditors.

Clients are often advised to stop paying their creditors and instead funnel their funds through the debt settlement companies, which will try to use withheld funds as leverage when negotiating with creditors. 

Debt settlement companies also promise to handle most telephone and mail contact with bill collectors. Some companies even give their clients a script to follow when creditors call.

Morgan Drexen, Inc., a California-based company, included such a script as an attachment to a contract to hire a West Virginia lawyer to help with clients' debt settlements. The telephone script, designed for sharing with clients, advises them that if creditors “ask you questions about us, don’t try and explain the program to them, have them contact us. If they ask you for any data on your personal situation, don’t give it to them, insist they talk to us.”

Following is a copy of the Morgan Drexen script, obtained by iWatch News. The document, and the rest of the contract are posted here.

YOU: Hi, may I help you?

CREDITOR: Yes. I need to speak to Mr. or Mrs. __________ concerning this overdue amount!!!

As part of our ongoing Debt Deception series, iWatch News is publishing stories about borrower nightmares, profiling Americans from different walks of life who borrowed money with terms they didn’t understand and couldn’t afford.

To get a better understanding of issues that many consumers are dealing with, we'd like to hear from more borrowers who are having trouble repaying their debt. Do you owe money on a loan with high interest rates? Did you sign up for a cash advance, but were unclear on the terms? Are you having trouble keeping up with your monthly payments?

Tell us about your experience by taking a few minutes to fill out the form below. Your response will remain confidential to reporters in our newsroom, and trusted partners within the Public Insight Network. You can also share your debt with us on Twitter by tweeting the amount you owe, type of loan, and interest payment with the hashtag #mydebt.