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Protecting military members from predatory lending

As a lifetime military family member, I’ve seen first-hand the devastating impact financial scams and predatory lending can have on our military families. I also spent 6 years as the head of the Better Business Bureau’s BBB Military Line program, and that was an education for me about the consumer issues and scams that impact the military. Unfortunately there are still too many young troops learning financial lessons through hard experience and years of paying off expensive debt.

At the Consumer Financial Protection Bureau’s Office of Servicemember Affairs, our job is: to educate and empower servicemembers to make better-informed decisions regarding consumer financial products and services; to monitor their complaints about consumer financial products and services — and responses to those complaints; and to coordinate the efforts of Federal and state agencies to improve consumer protection measures for military families.

In support of our mission, we signed a Joint Statement of Principles with the Judge Advocate Generals (JAGs) from all the service branches. This agreement coordinates the exchange of information concerning military consumer complaints and it coordinates actions taken to protect servicemembers. We’ve also set up a working agreement with the Department of Veterans Affairs (VA). We are now referring any military personnel or veterans who call the CFPB’s hot line claiming that they are in danger of foreclosure directly to the VA Home Loan Program .

As to our educational mission, I think that it’s important to get out and hear from military families about the issues that concern them the most. I’ve visited bases all over the United States since I started my job last January. I’ve also met with the National Guard in Oklahoma, Ohio, Illinois, and Indiana.

So what are the issues that have come up? First, the housing meltdown has hit military families hard when they receive orders to move. Often they can’t sell their home for enough to pay off the mortgage; they can’t rent it out for enough to cover their mortgage payments; they’re told they can’t get a loan modification or short sale because they’re not yet delinquent; and they can’t refinance for a good rate because it will no longer be considered their principal residence once they leave. We’ve heard of a number of cases where the servicemember has opted to go alone to the new duty station, and that’s pretty tough when you consider that they may have just had an overseas deployment and the family is now facing another separation — this time for financial reasons.

We are starting to see some positive movement on this issue. The Treasury Department has issued new military-related guidance for its Home Affordable Foreclosure Alternatives program, and Fannie Mae and Freddie Mac are tweaking their own guidance, as well.

Another big issue we’ve been hearing about concerns military education benefits and for-profit colleges . There have been cases of very aggressive marketing by for-profit colleges to military personnel and their families — of both educational programs and expensive private student loans.

Another issue is car loans! Servicemembers are often sold clunkers at inflated prices with high financing charges, and when the original clunker breaks down, may be urged to roll the existing debt into another loan for yet another clunker. There is also yo-yo financing, where servicemembers drive away thinking they have qualified for financing, only to be told later that the financing fell through and they will have to pay more. Although the CFPB will only have supervisory authority over the auto dealers who write their own loans, the Federal Trade Commission and the Federal Reserve are required to coordinate with my office on military auto issues, and they have started to do that.

Finally, a continuing issue for the military is debt. Many servicemembers don’t make much money, but it’s a guaranteed paycheck and it’s subject to garnishment outside of the normal court process. That has led to a lot of businesses looking to lend servicemembers money. It can be the kiosk at the mall selling high-priced electronics at even higher financing, the rent-to-own furniture store, or the latest installment loans that manage to exist just outside the Military Lending Act definition of payday loans.

When servicemembers get behind in their payments, their debt is turned over to debt collectors. We’re concerned about potential violations of the Fair Debt Collection Practices Act . We’ve heard reports of debt collectors calling servicemembers’ units 20 times a day, threatening them with the Uniform Code of Military Justice, and telling them they’ll get them busted in rank or have their security clearance revoked if they don’t pay up. They also may call the parents and spouses of deployed servicemembers in an attempt to get them to pay the debt in the servicemember’s absence. We even heard of a debt collector telling a widow that she had to use the money from her husband’s combat death gratuity to pay the debt immediately.

A big part of my job is to educate servicemembers about their rights under existing consumer financial laws, and to give them the information they need to make wise financial decisions. I will continue to work to help identify effective consumer protection measures that will work on behalf of military servicemembers.

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