Two new laws seek to protect members of the military from being taken advantage of financially on the home front.
One aims to prevent agents and brokers from using misleading tactics to sell high-priced insurance and investments to troops. The other caps the annual interest rate that payday lenders can charge service members for advances on their paychecks.
The help is needed. Thousands of troops are so far in debt that they are losing their security clearances and, as a result, are unable to serve overseas.
Regulators say many new service members are financially inexperienced, making them vulnerable to sales pitches from those selling inappropriate or costly products.
"They are coming in many times right after high school. They are young and many times they are young marrieds. Chances are the military is their first real paycheck," said Joseph Borg, president of the North American Securities Administrators Association. "Anyone at that age, whether in the military or not, is a novice when it comes to financial education."
Concern about troops' finances has been growing in the military and Congress. A 2004 investigation by The New York Times that found young soldiers were being sold confusing, unsuitable and expensive products prompted the recent legislation.
The first, the Military Personnel Financial Services Protection Act, was signed into law in September. It targets the sale of high-priced products and abusive sales practices.
The act, for instance, requires agents selling private life policies to tell soldiers they can buy insurance from the government and at what price.
The Department of Defense must keep a list of brokers and agents barred from bases to prevent them from moving from one base to the next.
And the act bans the sale of so-called periodic payment or contractual plans. Under these plans, investors indirectly invest in a mutual fund by promising to make small monthly contributions for 15 to 20 years.
These plans haven't been pitched to civilians for decades because of excessive upfront sales commissions that could be as much as 50 percent of the first year's contributions, experts said. Yet they continued to be sold to service members with inadequate disclosures of how the fees worked, said Elisse Walter, a senior executive vice president with the NASD.
Often, too, service members did not keep up with the contributions, and wound up paying hefty surrender charges, said Jim Ludwick, an Odenton, Md., financial planner and retired member of the Air Force.
A provision of a defense bill signed by the president tackles payday lending, where workers get an advance on their paycheck through a short-term loan. Payday lenders often congregate outside military bases. Fees charged often come out to an annual percentage rate of several hundred percent.
The provision caps the annual interest rate a payday lender could charge a service member at 36 percent. This will take effect by October 2007.
Ludwick said the new laws will go a long way toward protecting troops because there will be more supervision of people soliciting on bases. And the payday lending caps will reduce "the likelihood that many service members will get in over their heads."
Eileen Ambrose is a staff reporter for the Baltimore Sun, a Tribune Co. newspaper.