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The VA doesn’t send you mortgage ads

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We’re announcing an enforcement action against a lender that wrongfully used the logos of the Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA). RMK Financial Corporation (also doing business as Majestic Home Loans) sent out ads to veterans and other VA-eligible borrowers that misled consumers to think that RMK’s products were endorsed by the VA, or even sent by the VA, and they misrepresented the terms and costs of the mortgages themselves. This is the fifth enforcement action we’ve completed in the past two months against companies using deceptive mortgage advertising.

Deceptive advertising to mislead consumers

RMK sent out mailings to over 100,000 consumers across the country. These ads used the name, seal, and logos of the VA, giving the impression that the VA had sent the ad or endorsed the product. Also, the ads misrepresented the price of the advertised mortgages, including whether the interest rate was fixed or variable. Sometimes, important disclosures about loan rates were hidden on the back of the ads or buried in fine print. Envelopes were plastered with warnings about “fines or imprisonment” under US law.

Two years ago, along with the Federal Trade Commission, we warned companies that were placing mortgage ads directed at consumers, some of which targeted those eligible for VA benefits. Since then, we’ve continued to investigate mortgage lenders, including RMK.

The VA won’t advertise to you

Mike Frueh, Director of the VA Home Loan Program, had this to say about mortgage offers that represent themselves as coming from the VA:

“VA will never email or mail out solicitations for our loan program. VA does not endorse or sponsor any particular lender; instead, we work to ensure all Veterans and Servicemembers can safely use the benefit they’ve earned, at the lender of their choice. If you have any questions about your home loan benefit, please visit the VA website, or call VA at (877) 827-3702.”

Here’s what you can do

While we may not reduce the volume of your junk mail as a result of today’s action, we hope that we’ve called attention to a significant problem. Here’s how you can avoid being taken in by similar offers:

  • Be a savvy consumer— look at everything an advertiser has to say about the product they’re selling. Today’s action involved a mortgage lender that placed flashy seals and logos front and center, but hid important disclosures in the fine print on the back of their ads.
  • Get information from trusted sources — even if an ad is plastered in official-looking seals and impressive endorsements, check with a trusted source to learn all you can about the product being advertised. Learn more about VA loans and refinances. Ask CFPB also has answers to some common questions.
  • Let us know about misleading ads— if you see an ad that looks deceptive or misleading, or just looks too good to be true, submit a complaint to us. We accept complaints about mortgages and other financial products marketed to veterans, such as consumer loans. Information you provide informs our work every day.

Consumer advisory: 3 pension advance traps to avoid

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Many retirees depend on a pension to cover day-to-day as well as occasional unexpected expenses, such as health emergencies or home repairs. We’ve heard that some retirees with pensions who are facing financial challenges have responded to ads for cash advances on their pensions. Although pension advances may seem like a “quick fix” to your financial problems, they can eat into your retirement income when you start paying back the advance plus interest and fees.

A pension advance is a cash advance in exchange for a portion, or all, of your future pension payments. Pension advance companies typically charge high interest rates and fees and often target government retirees with pensions. Former servicemembers should also be on guard. Military retirees and veterans who receive monetary benefits from the Department of Veterans Affairs (VA) have been offered pension advances even though it’s illegal for lenders to take a military pension or veterans’ benefits. Many of those companies use patriotic-sounding names or logos and even claim they are endorsed by the VA as a way of enticing potential customers.

If you or a loved one is considering a pension advance, consider your alternatives. A financial coach or credit counselor can help you weigh your options and plan for new or unexpected financial demands. The National Foundation for Credit Counseling (NFCC) provides a list of member agencies around the country. You can also search for local credit counseling agencies on the Association of Independent Consumer Credit Counseling Agencies (AICCA)’s website.

Here are 3 things you can do to protect your retirement pension:

  1. Avoid loans with high fees and interest. Pension advance companies may not always advertise their fees and interest rates, but you will certainly feel them in your bottom line. Before you sign anything, learn what you are getting and how much you are giving up.
  2. Don’t sign over control of your benefits. Companies sometimes arrange for monthly payments to be automatically deposited in a newly created bank account so the company can withdraw payments, fees and interest charges from the account. This leaves you with little control.
  3. Don’t buy life insurance that you don’t want or need. Pension advance companies sometimes require consumers to sign up for life insurance with the company as the consumer’s beneficiary. If you sign up for life insurance with the pension advance company as your beneficiary, you could end up footing the bill, whether you know it or not.

You can also get a printer-friendly version of this information to share with friends or clients who are considering pension advances.

If you know someone who’s received a pension advance offer, we want to hear about their experiences, good and bad. Please ask them to share their story at consumerfinance.gov/your-story/.

Are unpaid debts a military career-killer?

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Military personnel who have trouble handling their personal finances can very quickly find their duty status, potential promotions and even military careers in jeopardy. And, over time, the lingering burden of debt can add stress to their personal relationships and damage their credit profile. But does that debt have to be a career-killer?

Servicemembers, veterans and military families have submitted more than 11,000 debt collection complaints to the CFPB since we began accepting them in July 2013 – our fastest-growing category of complaints. Among other things, we’ve received reports that some debt collectors are threatening servicemembers by claiming that they will report the unpaid debt to their commanding officer, have the servicemember busted in rank or even have their security clearance revoked if they don’t pay up.

The threat of losing a clearance is a hot-button item for servicemembers – and some debt collectors have been known to use that threat as leverage to get a servicemember to pay. Do they really have the power to get your clearance revoked?

Practically speaking, debt collectors aren’t able to contact your security manager about your debts nor do they have the authority to influence the manager’s decisions about your security clearance. However, your failing to pay your debts on time can result in negative information being reported to the credit reporting bureaus. And that negative information on your credit report may cause your security clearance to be pulled when it’s up for review.

If you find that your finances have put your security clearance in jeopardy, you should do your best to show that your financial problems resulted from circumstances beyond your control (not a pattern of irresponsible behavior) and that you acted as responsibly as you could under the circumstances. This may include showing that you’re currently living within your means, that you’re making a good-faith effort to resolve your unpaid debts, and that you’re disputing debts that aren’t yours.

When a financial problem arises, you should speak with your installation’s Personal Financial Manager (PFM) and/or JAG office to get free, expert advice and assistance. Be sure to keep documentation of all your commitments, efforts to resolve delinquencies, and any disputes about debts – it could be helpful to you later.

If you do receive notice that your security clearance eligibility is being denied or revoked, DoD regulations give you the right to a hearing before an Administrative Judge of the Defense Office of Hearings and Appeals (DOHA). This hearing is your opportunity for a face-to-face meeting with an official, independent of your chain of command, to explain your situation and the steps you’ve taken to address the issues identified in a written Statement of Reasons (SOR).

According to DoD, DOHA hearings are designed to be user-friendly. If you don’t have an attorney, you can represent yourself or bring a non-attorney representative to assist you. DOHA hearings allow you to present any statements or documents that are relevant to your situation. In other words, the DOHA hearing is your chance to present your side of the story. It’s there to make sure that your voice is heard and that you are being treated fairly.

Be alert to the deadlines in the SOR process, seek expert assistance, ask for the opportunity to appear personally before a DOHA Administrative Judge, and bring whatever documentation and character witnesses you can.

A written transcript of your testimony and the testimony of any witnesses whom you bring to the hearing will be provided to you free of charge. That transcript, along with copies of any documents you submit (such as canceled checks, receipts, bank statements, tax returns, settlement agreements, character recommendations, etc.), and the Administrative Judge’s recommendations will become a significant part of the record that is forwarded to the officials deciding your security clearance eligibility.

Check out the DOHA website for more information on hearings and process.

Managing your debts, expenses, income and other personal finance matters is more than just a tactic to guard your security clearance. It’s also a day-to-day exercise that can help lead you and your family to financial security. If you need help planning, hit a bump or need assistance with a problem you can’t fix along the way, there are a number of resources available to you.

Like your installation’s PFM, the Department of Defense’s Military OneSource offers free financial counseling that can help you better manage your money. If you need a fast and accurate answer to a money question, you can check out Ask CFPB – we have more than 1,000 answers that you can search. Finally, if you have a problem with debt collection or another consumer financial product or service, you can submit a complaint to us online or by calling (855) 411-2372. We are here to help.

Freedom Stores to provide over $2.5 million in refunds and penalties

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Today we, along with the Attorneys General of Virginia and North Carolina, announced an enforcement action against a chain of stores doing business outside military bases across the United States. Under the terms of a proposed consent order, Freedom Stores, Inc., Freedom Acceptance Corporation, and Military Credit Services LLC, as well as their owners and chief executives will be required to provide over $2.5 million in consumer redress and penalties for unfair and abusive debt-collection practices, including illegal lawsuits, unauthorized withdrawals from third-party accounts, and calls to servicemembers’ commanding officers.

Our investigation found that the companies illegally filed thousands of lawsuits in Virginia against consumers who didn’t live or purchase goods there: over 3,500 lawsuits in Norfolk, Virginia in two-plus years, almost all resulting in default judgments against consumers, some of whom didn’t even know they’d been sued until they discovered their bank accounts had been garnished.

The companies also buried a clause in the fine print of their contracts that supposedly gave the companies permission to contact the servicemember’s commanding officer. Freedom Acceptance and Military Credit Services then went on to tell servicemember’s chain-of-command about the debts, effectively pressuring the servicemember into paying the companies. These are unfair practices against military personnel, who are afraid of losing rank, pay, or even a security clearance if their commanding officer feels they are not living up to their financial obligations. We’ve heard from a number of servicemembers that they even paid a debt they knew they didn’t owe, just to avoid getting in trouble with their commander.

Like many companies dealing with servicemembers, Freedom Acceptance and Military Credit Services used the military allotment system as a quick and convenient way to get paid. But the companies also required customers to provide them with a back-up payment source in case the allotment didn’t go through for some reason. And if the companies’ allotment processor predicted that a servicemember’s allotment might fail, they went ahead and charged the back-up account without waiting to see if the allotment went through or not. So those servicemembers, when their allotment payment did go through after all, ended up making double payments, without their advance knowledge or consent, leading to overdraft fees, insufficient funds charges and problems paying their other bills.

Additionally, the companies’ debt collectors would sometimes simply take money from checking or credit accounts they had on file of family members or friends who had previously made a payment on the servicemembers’ behalf. These debits were made without notifying the family member or friend or getting consent for the charges – simply taking the cash because the companies had the account access numbers on file from a previous transaction.

We get more complaints about debt collection from servicemembers, veterans and their families than any other issue. This case is a perfect illustration of bad practices that are perpetrated against military personnel who owe a debt.

Our military families deserve better than the treatment they received from Freedom, and I applaud the action taken today by both the CFPB and state authorities to call Freedom Stores and its affiliates and owners to account.

If you are a commanding officer who is receiving calls from someone trying to collect a debt, or a servicemember who is getting threatened or victimized about a debt, we’d like to hear from you. Your complaints can help us spotlight and stop illegal actions like the ones in this case.

Social Security disability income shouldn’t mean you don’t qualify for a mortgage

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More than 15 million people receive Social Security disability income every year. For those relying on this income, qualifying for a mortgage can unfortunately become a challenge when lenders ask for proof of how long they will receive their benefits.

Today, we’re reminding lenders that placing unnecessary documentation requirements on recipients of Social Security disability income, including disabled veterans, may raise fair lending concerns. Following the guidelines and standards noted in the bulletin may help lenders comply with fair lending laws.

Difficult to prove your income

Generally, when you apply for a mortgage, you must show to mortgage lenders that you have a stable income. However, those who depend on Social Security disability income usually don’t have any documentation saying how long this income will continue. The Social Security Administration (SSA) normally only provides proof that consumers are currently receiving benefits.

Unfortunately, some consumers have reported that loan officers have asked them for a specific description of their disabilities or a statement from a doctor to prove that their Social Security disability income is likely to continue.

What our rules require

To verify income for Qualified Mortgage debt-to-income ratios, our rules require lenders to look at whether the SSA benefit verification letter or equivalent document includes a defined expiration date for payments. Unless the SSA letter specifically states that benefits will expire within three years of loan origination, lenders should treat the benefits as likely to continue.

Similar standards

The Department of Housing and Urban Development (HUD) has a similar standard for documenting income for FHA-insured mortgages, and emphasizes that a lender shouldn’t ask a consumer for documentation or about the nature of his or her disability under any circumstances.

The Department of Veterans Affairs (VA) allows lenders to use Social Security disability income as qualifying income for VA-guaranteed mortgages and emphasizes that it’s not necessary to obtain a statement from the consumer’s physician about how long a medical condition will last.

Fannie Mae and Freddie Mac have issued similar guidelines for loans that are eligible for their purchase, allowing consumers to use Social Security disability benefits as qualifying income for a mortgage.

Everyone deserves to qualify based on their income

Persons with disabilities should be able to qualify for mortgages they can afford based on their stable income, including from Social Security disability income. And anyone with disabilities, including disabled servicemembers, should not be prevented or hindered from buying a home by unnecessary barriers or requirements.

Together, these standards and guidelines should help lenders avoid unnecessary documentation requests and help individuals who receive Social Security disability income receive fair and equal access to credit.

Submit a complaint

If you are having an issue with a financial product or service, you can submit a complaint online or call (855) 411-CFPB. We can assist people in over 180 languages. We’ll forward your issue to the company, give you a tracking number, and keep you updated on the status of your complaint.

Veterans: Take advantage of student loan forgiveness, but don’t let it damage your credit

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For some veterans, their time in uniform caused a severe service-connected disability. This dramatically impacts their life after transition out of the military.

For 100-percent service-disabled veterans who have student debt, the Department of Education offers a valuable benefit to help them avoid financial distress – the chance to have their loans discharged (forgiven). Under federal law, veterans can seek federal student loan forgiveness if they receive a 100 percent disability rating by the Department of Veterans Affairs (VA). Private student lenders are not required to offer this benefit, but some do on a case-by-case basis, so be sure to ask.

We encourage all consumers to check their credit report regularly, but we want to especially encourage veterans who use this benefit to be sure that their student loan servicer (the company that collects payments) is providing correct information about their loan discharge to credit bureaus (the companies that compile and sell credit reports).

We continue to hear from veterans and servicemembers about the unique servicing obstacles they face as they seek to pay off student loan debt. We are concerned that, in some circumstances, when veterans are able to discharge their student loans due to their disability, they may experience damage to their credit report if their student loan servicer provides incorrect information to the credit bureaus. These mistakes, if uncorrected, can result in a negative entry on their credit report that makes it harder and more expensive for these disabled veterans to get credit, buy a car or take out a mortgage.

For example, one service-disabled veteran submitted a complaint to us describing how his credit score fell by 150 points as a result of this type of error. His score went from a nearly perfect “super prime” credit score to a much lower score simply because he received loan forgiveness.

I can’t get anyone to listen to me! I am a 100 percent disabled Veteran who has had his credit score ruined by a broken credit scoring system. I had my student loans…discharged…in August 2013…I went from 800 to 650 in less than 2 months. I am fighting to survive because a company from my own country is killing me.

Consumers are harmed when companies furnish inaccurate information to credit reporting agencies. An error in a credit report could make a big difference in whether someone receives a loan, qualifies for a low interest rate, or even gets offered a job. These credit-reporting problems, if uncorrected, can hurt veterans in this situation for decades.

For example, here’s what could happen if a veteran tried to buy a home after a credit reporting error caused similar damage to her credit profile and score and this damage went uncorrected. If she used a VA home loan to buy a $216,000 home, she could pay more than $45,000 in additional interest charges over the life of her mortgage (depending on the length and terms of the mortgage), since this error would cause her to qualify for a much more expensive loan.

Here are two important reminders for service-disabled veterans who have discharged their federal student loans:

1. Check your credit report.

If you received loan forgiveness due to your service-connected disability, your credit report should not state that you still owe the debt. Other borrowers who receive a disability discharge are monitored for three years by the Department of Education. But if you received a discharge based on VA documentation, you don’t have to worry about this step and your credit report should show that you no longer owe the loan, not that it was “assigned to government” for monitoring. And remember, you can check your credit report for free.

If you have discharged older federal loans made by banks, pay even closer attention.

Most federal loans taken out before 2010 – loans generally made by banks and other private entities but guaranteed by the federal government – require your lender to update the information on your credit report after your loan has been discharged. Even though no new loans are issued under this program, there are still millions of borrowers repaying this type of loan. Veterans who have discharged these loans should be sure to check their credit report regularly, since the rules regarding disability discharge changed in 2013.

2. If something doesn’t seem right, contact the credit reporting company and dispute the error.

Understanding how discharged loans show up on your credit report can be complicated. If you file a dispute and it still doesn’t get corrected, submit a complaint with us and we’ll work to get you a response from the company. You can call us at (855) 411-2372 or submit a complaint online.

Last year, we put companies on notice that they must investigate disputed information in a credit report, and that we will take appropriate action, as needed. We will also continue to closely monitor complaints from veterans and other disabled student loan borrowers to make sure student loan servicers are furnishing correct information to the credit bureaus about disability discharges. All financial services providers that serve veterans should redouble their efforts to ensure that veterans are not penalized for receiving the benefits they earned and deserve for their sacrifices.

Holly Petraeus is Assistant Director of the Office of Servicemember Affairs and Rohit Chopra is the CFPB’s Student Loan Ombudsman.