[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                  FINANCIAL SERVICES NEEDS OF MILITARY
                      PERSONNEL AND THEIR FAMILIES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 18, 2006

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-94




                    U.S. GOVERNMENT PRINTING OFFICE
31-040                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
              Subcommittee on Oversight and Investigations

                     SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman       LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          DENNIS MOORE, Kansas
STEVEN C. LaTOURETTE, Ohio           CAROLYN B. MALONEY, New York
MARK R. KENNEDY, Minnesota           STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   EMANUEL CLEAVER, Missouri
TOM PRICE, Georgia                   DAVID SCOTT, Georgia
MICHAEL G. FITZPATRICK,              DEBBIE WASSERMAN SCHULTZ, Florida
    Pennsylvania                     GWEN MOORE, Wisconsin
GEOFF DAVIS, Kentucky                BARNEY FRANK, Massachusetts
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 18, 2006.................................................     1
Appendix:
    May 18, 2006.................................................    31

                               WITNESSES
                        Wednesday, May 18, 2006

Dawson, Cutler, Vice Admiral USN (Ret.), President and Chief 
  Executive Officer, Navy Federal Credit Union...................    10
Melvin, Valerie C., Acting Director, Defense Capabilities and 
  Management Team, U.S. Government Accountability Office.........     8
Walter, Elisse B., Senior Executive Vice President, Regulatory 
  Policy and Programs, NASD......................................    11

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    32
    Kelly, Hon. Sue W............................................    35
    Wasserman Schultz, Hon. Debbie...............................    37
    Dawson, Cutler...............................................    38
    Melvin, Valerie C............................................    41
    Walter, Elisse B.............................................    67


                  FINANCIAL SERVICES NEEDS OF MILITARY
                      PERSONNEL AND THEIR FAMILIES

                              ----------                              


                        Wednesday, May 18, 2006

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:15 a.m., in 
room 2128, Rayburn House Office Building, Hon. Sue W. Kelly 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Kelly, Barrett, Davis, Israel, 
McHenry, Gutierrez, Moore of Kansas, Waters, and Cleaver.
    Chairwoman Kelly. This hearing of the Subcommittee on 
Oversight and Investigations will come to order. And without 
objection, all members' opening statements will be made part of 
the record.
    Today's hearing is on financial services needs of military 
personnel and their families. Since the terrorist attacks on 
September 11th, the men and women of our armed forces have been 
deployed around the world and here at home to defeat the 
evildoers and guard our country against future attack. Active 
duty, Reserve, and Guard forces have all been involved, often 
being deployed overseas for more than a year at a time.
    In my district, the 124th Airlift Wing of the New York Air 
National Guard and Marine Reserve Refueling Squadron 542 at 
Stewart National Guard Base have been deployed, along with many 
other units. Each of the men and women deployed and their 
families depend on knowing that their finances will be secure 
when they return, and that criminals and fraudsters will not 
steal the funds that they have earned in serving our country.
    The Defense Department understands that financial issues 
have an important impact on readiness and morale, and has taken 
several steps to improve the quality of financial education and 
services to military personnel and their families.
    Every member of the military is now required to take 
classes in personal finance management, and each command is 
required to have a command financial counselor to turn to for 
advice. Unfortunately, this over-reliance on the chain of 
command gives many junior enlisted personnel the feeling that 
they will hurt their careers if they come forward and ask for 
help.
    The DoD still does not seem to have a system for 
determining the financial status of its personnel, or 
calculating the impact of financial problems on recruiting and 
retention. I believe that Congress has a duty to make sure that 
our entire financial services regulatory system is geared to 
making sure that military personnel and their families are the 
primary focus of regulatory activity.
    I am disappointed that the DoD recordkeeping is poor, that 
the performance measurers are nonexistent, and that DoD has not 
used its position on the Financial Literacy Education 
Commission this committee authorized to develop systemic 
programs for protecting its most vulnerable members. In that 
gap, institutions like NASD, credit unions, and private 
financial counselors and interested members of the public work 
hard to overcome these problems.
    Today's hearing will examine what is being done to address 
these needs, and what challenges remain that need to be faced, 
and where Congress needs to act. I look forward to hearing from 
today's witnesses, and I am very pleased that we are able to 
have all of you combined on this one panel today. I think it is 
going to make this go more smoothly. I turn now to Mr. 
Gutierrez.
    Mr. Gutierrez. Good morning. Ever since I was elected to 
Congress, I have served on this committee--but it was called 
``Banking'' back then--and the Veterans' Affairs Committee. 
Today's hearing is of particular interest to me because of my 
work on both of these committees, and I thank Chairwoman Kelly 
for calling this hearing.
    At this time, I would also ask unanimous consent that our 
colleague, Steve Israel, a member of the Full Committee, be 
permitted to fully participate in this hearing, and at the 
appropriate time, make an opening statement.
    Chairwoman Kelly. So moved.
    Mr. Gutierrez. Last year, this committee passed the 
Military Personnel Financial Services Protection Act, designed 
to prevent predatory companies from using the U.S. military to 
prey on financially vulnerable service members by selling them 
insurance and investment products with little or no value.
    During consideration of the bill in the Financial Services 
Committee, I offered an amendment to extend these protections 
to abusive lenders who prey on our troops, such as payday 
lenders. These payday loans are the most abusive financial 
product being offered to our troops today. And according to 
military personnel, payday loans threaten troop readiness.
    The New York Times and other news outlets have reported 
extensively on this problem. During last year's committee 
markup, Chairman Oxley agreed to work with me to include 
provisions regarding abusive lending in the amendment for Floor 
consideration. Our work resulted in the inclusion of some basic 
but important protections for our troops against payday lenders 
and other abusive lenders who target our troops.
    Under this legislation, lenders of both payday and other 
small loans who target the military can no longer continue a 
number of egregious practices, including: requiring the 
involuntary assignment of military wages to secure payment of a 
loan; contacting or threatening to contact the borrower's 
commanding officer in the military chain of command in an 
effort to collect a loan; requiring the borrower to waive any 
rights under Federal or State law, including the Service Member 
Civil Relief Act; or using any words or symbols that create the 
impression that any department of the military endorses the 
lender or any service or product of the lender.
    I am sorry to say that all of these unconscionable 
practices are currently used by certain payday and short-term 
lenders.
    In addition, extremely high-cost loans must be accompanied 
by a disclosure notice that informs the consumer of these 
protections. And there are other options available, including 
grants and interest-free loans from the military relief 
societies in the case of a family or other emergency.
    It may not sound like a lot, and I do wish that it 
contained additional limitations on loan amount and the number 
of turnovers by payday lenders, similar to legislation recently 
enacted in my home State of Illinois, but this is a good start, 
since many of these payday and other short-term lenders 
completely evade regulation by States and the Federal 
Government.
    I look forward to continuing to work on this issue, and I 
hope that the Senate will pass this worthy legislation, perhaps 
with these improvements, before we adjourn.
    Some may say these protections are not enough. I couldn't 
agree more. However, I am very pleased that we were able to 
accomplish this first step in a bipartisan manner, and it 
passed the House overwhelmingly, 505 to 2, putting us on the 
record for the first time against exploitation of our troops by 
these abusive lenders. And I believe that it is always better 
to light a single candle than to sit and curse the dark.
    I am disappointed that the Department of Defense is not 
here to testify regarding any efforts they may be making in 
this area, but I look forward to the testimony of the other 
witnesses here today. Thank you, and I yield back the rest of 
my time.
    Chairwoman Kelly. Thank you. Mr. Davis, do you have an 
opening statement?
    Mr. Davis. Yes, Madam Chairwoman. Thank you, Chairwoman 
Kelly, I appreciate your leadership on this issue. And this is 
a personal priority for me, going back 30 years this June, and 
the anniversary of my enlistment in the United States Army. As 
a commissioned officer, as a unit commander, I dealt with troop 
credit issues at a wide number of posts around the United 
States and also overseas.
    The military community fosters a sense of trust, and this 
pervading value has led many service members, including myself 
and my wife, many years ago, to fall victim to predatory sales 
schemes. My goal in H.R. 458, The Military Personnel Financial 
Services Protection Act, was to target the financial services 
products offered by a number of predatory sales people that 
were unfairly taking advantage of this military culture of 
trust.
    I think that one thing we need to keep in mind in the 
process is the best and most practical pieces of legislation 
are those that have a narrow focus. The broader a bill becomes, 
the more difficult it becomes to get that bill passed. H.R. 458 
is not a catch-all bill. It was specifically designed to do 
certain things.
    Last June, as my Democratic colleague noted, the House 
resoundingly approved H.R. 458, 405 to 2, with only 2 members 
voting against the bill. One can only conclude that the House 
agrees that our service members should not be targeted by the 
deceptive and predatory practices that H.R. 458 effectively 
eliminates.
    I think that one other thing that we want to keep in mind 
as well is that the abuses, when we deal with payday lending--
one I have dealt with, firsthand, dealing with troop issues--
are not large financial services companies. One of the things 
that I have personally seen in this process are competition for 
market share that's taking place between financial services 
providers that are very large in scope. And frankly, what I 
don't want to see is DoD get caught in the middle of something 
with fine-sounding language that actually would create a 
tremendous problem for agencies participating directly with one 
organization eliminating market share of others.
    I think the practicality here, as those of us who have been 
platoon leaders, company commanders, and battalion commanders 
understand, is the large community financial services provider, 
the large financial services firms that are accountable and 
have internal mechanisms, are not the problem. The problem is 
the pawnshops, sole proprietorships, those who are not 
accountable to any professional organization, and take 
advantage of our troops are the ones who create the problems 
for those in the command, and for young families.
    And I think if we understand the isolation of that abuse, 
and we focus on very practical and powerful results that give 
local commanders, and local leaders, the opportunity to enforce 
State law on post and also to eliminate those pernicious sole 
proprietorships that really are the root of the problem, and 
avoid this becoming a smoke screen for competition between 
other financial services organizations, I think we will have a 
great piece of legislation.
    H.R. 458 effectively eliminates certain practices that have 
been a problem. Colleagues of mine from the military have told 
me that they would eliminate certain firms from coming on their 
post now, were this a piece of legislation. And like 
Representative Gutierrez, I am hopeful that the Senate will 
take this up. I encourage all of my colleagues to urge the 
Senate Committee on Banking, Housing, and Urban Affairs to act 
on H.R. 458 in the coming weeks.
    Thank you again, Chairwoman Kelly, and Ranking Member 
Gutierrez. Thank you to the witnesses for coming today on both 
panels, and I look forward to hearing your testimony today.
    Chairwoman Kelly. Thank you, Mr. Davis. Mr. Moore?
    Mr. Moore of Kansas. Thank you, Madam Chairwoman. And 
welcome to the witnesses who will be testifying today. Making 
decisions related to financial matters can be a difficult and 
overwhelming undertaking for any person. For our military 
service members and their families, this task can be especially 
challenging.
    With the service member away and often completely 
unavailable, military families must deal with not only 
separation from their loved ones, but increased financial 
hardship as well. Added complexities and costs frequently arise 
in household budgets with servicemen and women overseas, the 
strain of which can affect both the deployed individual and 
their families at home.
    A recent study published by the GAO found that adverse 
consequences resulting from service members' financial problems 
include a negative effect on overall unit readiness. This is a 
concern to me, as well as many of the people on this panel, and 
our colleagues.
    Increasingly, service members are faced with more frequent 
and lengthy deployments, as a result of the involvement of the 
United States in the war on terror, and our continued presence 
in Iraq and Afghanistan. Congress and the Department of Defense 
have taken steps in recent years to help decrease the 
likelihood that deployed soldiers will experience financial 
problems, including granting increases in basic military pay, 
providing special pay increases for active service members 
deployed to hostile environments, and mandating personal 
financial management programs to provide service members with 
financial literacy training and counseling.
    Additionally, in November of 2003, I introduced legislation 
with my colleague, Jim Ramstad, that would require the 
Department of Defense to pay for domestic trouble for troops 
home on R&R leave. I understand that this panel is dealing 
primarily with the financial concerns and loans, things of that 
nature, that military personnel may become involved in. But the 
hearing notice said, ``The hearing will focus on the financial 
services needs of U.S. military service members, including 
active duty personnel as well as those serving in the Reserve 
and National Guards, and their dependents,'' so I think it's 
important to mention these things, as well.
    While the DoD--and I'm talking about reimbursement for 
troop travel, now--would cover the cost of flights from the 
deployment sites to various hubs, namely Baltimore and Atlanta, 
when they were brought back on R&R after 6 months in country, 
they were brought back for 2 weeks of R&R, and I was just 
really astounded when I learned that they were required to pay 
for their own domestic travel.
    In fact, I talked to soldiers after the fact who told me, 
``Congressman, I didn't even come home for the R&R with my 
family, because I didn't have $1,000 for the domestic travel.'' 
And what an insult to the people that we say we value.
    Jim Ramstad and my bill never came up for a hearing, but I 
did talk to Secretary Rumsfeld personally, and presented him a 
copy of a letter that described the need here. And 3 weeks 
later, it became law. I think that this is a military burden 
that families should not have to bear, and I am glad that now 
our government is paying for the service members' entire trip 
home.
    I also did a bill with my friend and colleague on this 
committee--not here on this subcommittee, but on this 
committee--Spencer Bachus. When I learned that young persons 
killed in Afghanistan and Iraq and their families get three 
things from the United States government--a letter of 
condolence, ``We're sorry about the loss of your loved one,'' 
which is very appropriate; an American flag; and the third 
thing was a so-called death gratuity benefit of $12,000, which 
again, I thought was a slap in the face to a family who had 
just made the ultimate sacrifice--I filed a bill and Spencer 
and I got 243 House Members on the bill which would increase 
the benefit to $100,000.
    I contacted Senator Hagel's office in Nebraska, and he 
filed our bill in the United States Senate. Again, this never 
went through a committee, never got called up for a hearing, 
but is now the law. We made a lot of noise about this, and 
somebody in the Administration heard about this. And sometimes 
things work in strange and wonderful ways, even if it's not 
traditional.
    And I think this is another area where we owe the people 
who serve our country and their families, and I am glad that we 
are able to accomplish this. And we will get on with the 
hearing now. Thank you very much.
    Chairwoman Kelly. Thank you very much. Mr. Israel, you have 
been recognized.
    Mr. Israel. Thank you, Madam Chairwoman. Let me thank you 
and the ranking member for allowing me to sit in on this very 
important hearing.
    I am one of four members of the Financial Services 
Committee who also serve on the House Armed Services Committee. 
My friend, Mr. Davis, also has that distinction. And I am very 
proud of the work that Congress did in passing the Military 
Personnel Financial Service Protection Act. It is a very 
important step.
    I do have one concern, and that is what brings me to this 
hearing today, with respect to the credit protections that our 
service members have, which are not effectively enforced.
    I had a town meeting in my district last year, and one of 
the things that I heard consistently was that long and frequent 
deployments are actually wreaking havoc on the credit reports 
of our service members. Many of them are not aware of the 
protections that they have under the Service Members Civil 
Relief Act. In fact, some creditors are not aware of those 
protections.
    And so, you end up with situations that have been reported 
in our media nationally, soldiers who are in Humvees having 
their cars repossessed back home. Soldiers who have gone to 
fight for our country having their homes foreclosed on back 
home. Credit reports that are being seriously damaged.
    You know, it's one thing to go and fight our country's 
battles, but then when you have to come home and fight with a 
creditor because your report was adversely affected because 
somebody may not have known about the Service Member's Civil 
Relief Act, that's completely unfair, and we can do better.
    Mr. Davis and I have introduced the Service Members Credit 
Protection Act. It was introduced in consultation with our 
military, as well as folks who have been involved in the credit 
industry. And it takes the following common sense steps.
    Number one, it requires the Department of Defense to give 
the national credit bureaus a detailed description of the 
rights that a service member has under the Service Member's 
Civil Relief Act.
    Number two, it requires national credit bureaus to be 
informed of the deployment of a service member to a combat 
zone. The credit agencies would then make a notation on the 
service member's--in the service member's file, so that when a 
creditor contacts the agency, they are--they know, absolutely, 
without any doubt, that the individual that they are looking 
at, that they may want to file a complaint on, that they're 
getting a credit history on, is in a combat situation and is 
protected by Federal law in the Service Member's Civil Relief 
Act. If they still violate that and go ahead and try to 
foreclose on a property, or repossess a car, the penalty is 
doubled.
    Just a couple of final points, Madam Chairwoman. This does 
not exempt our service members from having to pay their bills 
and having to pay their bills on time. It doesn't stop 
information from being reported to the credit agencies. All it 
does is make sure that everybody knows what the Federal 
protection is, who is under the Federal protection, and if they 
still insist on violating that Federal protection by seeking to 
repossess or foreclose, or adversely affect one's credit, they 
have to pay a higher price.
    And frankly, I know we all agree on both sides of the 
aisle, if somebody is willing to pay the high price of going to 
Iraq, Afghanistan, or elsewhere in defense of this country, 
then unscrupulous creditors should have to pay a high price for 
violating the law and ruining their credit, taking their 
personal property away, their cars, and other things.
    I am hopeful that our committee and the Armed Services 
Committee will have hearings on this, and I appreciate the 
chairwoman's indulgence in letting me come today.
    Chairwoman Kelly. Thank you. We have been joined, and by 
unanimous consent, would welcome any comment by Congresswoman 
Waters.
    Ms. Waters. Thank you very much. I appreciate the 
opportunity to come today to share one of my concerns, 
something that's been nagging me for a long time.
    I am very concerned, angered even, about the payday loan 
industry, and the fact that they are--have increasingly 
targeted members of the military. They set up near the bases--
you must know about this; our service personnel don't make a 
lot of money. I almost laugh when I see a lot of talk about 
teaching them how to save and invest. They don't have a lot to 
save or invest.
    That's why they become the targets of these payday loan 
operations, who realize that they run out of money, and they 
lend them money at 400 percent interest rates. They are 
basically robbing them of the opportunity to ever get a handle 
on their finances. Because when they can't pay, they just roll 
it over and charge more interest, and it never stops.
    I have not seen any effort by the military to do anything 
about this. And I think we can do something about it. Some 
thoughts that have come to mind, Madam Chairwoman, is wondering 
about the ability of the military to set up credit unions where 
they could be responsible for assisting the military personnel, 
and/or some way by which there is a warning about these 
operations that set up near the bases and exploit military 
personnel because they don't have a lot of money.
    I have not seen anything that is being done to protect 
them, or to educate them to basically serve as a buffer between 
our military personnel and these predators with the payday loan 
industry. So I wanted to put that on the record here today. And 
Madam Chairwoman, I am hoping that one of our witnesses here 
today can address that issue.
    Chairwoman Kelly. Thank you very much. We welcome your 
presence here.
    A couple of things have been said that I want to touch on 
before I introduce the witnesses. There was some discussion 
about pawn shops and sole proprietorships and MSB's, the payday 
loans and check-cashing people. We all understand that not 
everyone who is in those businesses is predacious. And they 
serve a purpose for some people.
    So, I want to make clear to the panel, that this is--we are 
here to collect information, and in fact, a payday loan 
sometimes is cheaper than a bounced check at a bank. I think 
it's important that people understand that we're not here to 
voice our own prejudice, but to hear the facts about what 
actually is there, and what you think--we should be doing, 
about rectifying a situation which can be badly abused.
    Our first witness today is Valerie C. Melvin. Ms. Melvin is 
currently acting director of military and DoD civilian 
personnel issues within the U.S. Government Accountability 
Office, Defense Capability and Management Team. She was 
appointed to this position in October of 2005, after being 
accepted into the GAO senior executive service candidate 
development program. Prior to this appointment, she was an 
assistant director in GAO's information technology team, where 
she manages and reviews in the areas of social security, 
veterans affairs, commerce, energy, and science and technology.
    Ms. Melvin graduated from the University of Maryland, with 
a bachelor's degree in business administration, and a master's 
degree in management information systems. She is a certified 
government financial manager. Ms. Melvin has received many GAO 
awards during her career, including meritorious service awards, 
and the excellence in human capital management award. Ms. 
Melvin, we are honored by your presence, and we look forward to 
your testimony. Please begin.

   STATEMENT OF VALERIE C. MELVIN, ACTING DIRECTOR, DEFENSE 
       CAPABILITIES AND MANAGEMENT TEAM, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Ms. Melvin. Thank you. Madam Chairwoman, Ranking Member 
Gutierrez, and members of the subcommittee, I am pleased to be 
here today to discuss the financial management issues of 
military personnel and their families.
    The ability to understand and make informed decisions 
regarding the management and use of financial resources is a 
critical issue. DoD has noted that mission readiness, as well 
as quality of life, in part, depend on whether service members 
use their financial resources responsibly.
    Over the past 4 years, GAO has conducted a number of 
studies on financial management issues affecting service 
members, both active duty and Reservists. Among these reports, 
one issued in April 2005 highlighted some of DoD's efforts to 
address service members' financial difficulties. At your 
request, my testimony today will summarize the results of that 
study, as well as selected findings from other reports.
    In this regard, a fundamental message from our work is that 
service members and their families face a number of challenges 
that reflect an important and continuing need for assistance 
and education on financial matters. DoD is the largest employer 
and trainer of young adults in the United States, with many 
entry-level service members having limited experience with 
handling finances.
    Moreover, many service members move frequently, and are 
separated from their families during overseas deployments. A 
2002 study noted that 20 percent of junior enlisted service 
members reported that they struggled to make ends meet, 
financially. And another 4 percent regarded themselves as in 
over their heads with respect to their finances.
    As further evidence of their difficulties, a 2003 DoD 
survey, which asks service members whether they had experienced 
three types of negative financial events, found: 19 percent of 
deployed and 17 percent of non-deployed pressured by creditors; 
21 percent of deployed and 17 percent of non-deployed behind in 
paying bills; and 16 percent of deployed, and 13 percent of 
non-deployed who had bounced 2 or more checks.
    Both Congress and DoD, as you have noted, have taken 
important steps to decrease the likelihood that service members 
will experience financial problems. Since 1999, DoD has 
requested, and Congress has granted, annual increases in basic 
pay for all active duty service members that exceeded the 
average increases in private sector wages, as well as increases 
in special pays and allowances for deployed service members.
    Also, as you have noted, the military has developed 
personal financial management programs to provide service 
members with training, counseling, and other assistance to 
avoid and mitigate the adverse affects of financial problems.
    However, while these actions have been a necessary step in 
the right direction, achieving effective results will require 
additional efforts by the Department and the service members. 
Our study found, for example, that some service members had not 
received the required financial management training, and only 
one service, the Army, was maintaining data to show who had 
actually completed the training.
    At the same time, we found that some service members were 
reluctant to seek assistance through the programs that exist, 
often out of fear that doing so would limit their career 
progression.
    Underlying all of this is that DoD lacks an oversight 
framework with results-oriented performance measures and 
reporting requirements to evaluate the effectiveness of its 
financial management programs across the services. Without such 
a framework, neither DoD nor Congress will have the necessary 
visibility into and oversight to ensure the most effective 
delivery of financial training and assistance to service 
members.
    In closing, Madam Chairwoman, I would like to emphasize 
that DoD has recognized the importance of financial literacy, 
and the potentially adverse effects on military readiness when 
service members experience serious financial problems.
    Moreover, the programs that exist to assist service members 
are positive. Nonetheless, more effort is needed to increase 
awareness and use of these programs, and ultimately bring about 
lasting solutions in this critical area. Your hearing today 
will go far in focusing attention on this important matter.
    This concludes my prepared statement. I would be happy to 
respond to any questions that you may have.
    [The prepared statement of Ms. Melvin can be found on page 
41 of the appendix.]
    Chairwoman Kelly. Thank you very much, and thank you very 
much, Ms. Melvin, for staying within the 5-minute time line. I 
neglected to mention, if you haven't testified before us 
before, that the boxes there have three colored lights. Green 
means you have 5 minutes. When it gets to be yellow, it means 
there is one minute, sum-up period, and when it's red, that's 
obvious.
    We turn now to the--our second witness, Vice Admiral Cutler 
Dawson, president of Navy Federal Credit Union, and Elisse B. 
Walter, senior executive vie president, regulatory policy and 
programs, for NASD.
    Admiral Dawson is the president of Navy Federal Credit 
Union, and it's the world's largest credit union, from what I 
understand. Prior to his retirement from the Navy, ADM Dawson 
was the captain of four different Navy ships, the USS 
Enterprise Battle Group, and the United States Second Fleet.
    Elisse B. Walter is the executive vice president of NASD, 
and leads NASD's investor education foundation. Prior to her 
service with NASD, Ms. Walter worked for the Commodities 
Futures Trading Commission and the SEC. Ms. Walter is a 
graduate of Yale University and Harvard Law. We welcome both of 
you, and we look forward to your testimony. You may begin, 
please, Admiral.

STATEMENT OF CUTLER DAWSON, VICE ADMIRAL USN (RET.), PRESIDENT 
     AND CHIEF EXECUTIVE OFFICER, NAVY FEDERAL CREDIT UNION

    VADM Dawson. Thank you, Chairwoman Kelly. Chairwoman Kelly, 
Ranking Member Gutierrez, and members of the subcommittee, as 
mentioned, I am Vice Admiral Retired Cutler Dawson, and 
president of Navy Federal Credit Union. I am here today on 
behalf of Navy Federal, my credit union, to provide you with an 
overview of the financial products and services we provide to 
sailors and Marines and their families, worldwide.
    In late 2004, I completed 34 years of service in the Navy, 
and was chosen to take the helm at Navy Federal. During my time 
on active duty, I saw what the credit union did and continues 
to do for sailors and Marines. It is truly their credit union.
    Navy Federal began operations over 70 years ago, with a 
group of Navy Department employees, when they pooled their 
surplus dollars to make emergency loans to fellow employees. At 
the end of the first year, the credit union included 49 
members, 18 borrowers, and assets of $450. We now serve sailors 
and Marines worldwide with 112 branch offices, including 21 
overseas. Our motto is, ``We serve where you serve.''
    We have not strayed from our mission of serving those 
members who share a common bond of military or civilian service 
with the Department of the Navy.
    While we provide a full range of financial products and 
services to all of our members, we continue to focus 
specifically on our core active duty members. We recognize that 
military life is always unique, and even more so today, 
especially for the families of our sailors and Marines.
    To meet these unique requirements, we operate in overseas 
locations, where our members are serving the Nation. We conduct 
personal financial management training and pre-deployment 
counseling through Navy and Marine Corps programs in our branch 
offices. Last year, we conducted over 1,500 such sessions, 
reaching almost 100,000 members.
    We also assist members in financial difficulty through 
budgetary counseling and debt management services at no cost to 
the member. We assist survivors of deceased members, serving as 
a liaison between family members, attorneys, and the military 
service. And sadly, I will say that we have lost over 400 
members in Iraq and Afghanistan since 2001.
    We guarantee utility deposits and security deposits for 
members in areas of major Navy and Marine Corps installations, 
and we provide members remote access to their accounts, via the 
Internet worldwide, even on ships at sea.
    And we seek to offer financial alternatives to provide 
lower loan rates and higher savings dividends than are 
typically found outside the Navy and the Marine Corps 
installations. And Ms. Waters, I have visited a payday lender, 
just to see what they were all about.
    Over the years, this steady focus on active duty members 
and their families, and the affinity of our members have, for 
the Navy and Marine Corps, resulted in a very loyal membership. 
Recent member focus groups have reaffirmed that the vast 
majority of our members believe that we do support our active 
duty members, particularly in today's world.
    In summary, Madam Chairwoman, Navy Federal Credit Union 
recognizes that providing financial products and services 
needed by our sailors and Marines and their families, wherever 
they might be, is our mission. And I believe that we are 
meeting that mission.
    I thank you for the opportunity of being here today, and I 
look forward to your questions.
    [The prepared statement of VADM Dawson can be found on page 
38 of the appendix.]
    Chairwoman Kelly. Thank you very much, Admiral.
    Ms. Walter?

STATEMENT OF ELISSE B. WALTER, SENIOR EXECUTIVE VICE PRESIDENT, 
              REGULATORY POLICY AND PROGRAMS, NASD

    Ms. Walter. Thank you. Madam Chairwoman, Ranking Member 
Gutierrez, members of the subcommittee, and of the committee, 
good morning. I am Elisse Walter, of NASD, and I am grateful to 
the committee for inviting us to testify about our efforts to 
protect members of the armed forces from abusive and misleading 
sales practices.
    We have prepared a comprehensive written statement, and 
with your permission will submit it for inclusion in the 
record.
    My focus today is on a recently launched NASD effort to 
educate service members and their families. The program is 
designed to help them make better financial decisions and avoid 
fraudulent and inappropriate products and sales pitches.
    As you know, Madam Chairwoman, America's men and women in 
uniform make great personal sacrifices to protect our Nation's 
security. They should not have to worry about the honesty and 
integrity of those who offer to help them make sound financial 
decisions for themselves and their families. In 2003, NASD 
learned that a Texas broker-dealer was targeting members of the 
armed forces with misleading sales pitches and improper sales 
tactics.
    As a result, more than a half-million of complicated and 
often extremely expensive products called systematic investment 
plans, or periodic payment plans, were sold to service persons. 
Not surprisingly, most of the service persons who bought the 
plans were young and inexperienced.
    Since this matter has come to light, as Mr. Davis stated, 
the House has passed legislation outlying the plans. We 
responded forcefully to end these practices, sanctioned those 
responsible, and ensured that victims were being compensated 
for their losses. We also are taking action to educate military 
personnel broadly about saving and investing.
    We did this first by bringing an enforcement case against 
the firm selling these plans. The firm was censured and fined 
$12 million in December 2004. That amount included restitution 
to thousands of customers who had terminated plans after 
January 1, 1999, and had paid effective sales charges greater 
than 5 percent. As of today, more than $4.4 million has been 
returned to these customers, and we are currently working with 
the Department of Defense to locate additional service members 
owed reimbursement.
    The remaining funds from our enforcement settlement, about 
$6.8 million, were transferred to the NASD Investor Education 
Foundation to be dedicated to the development and deployment of 
comprehensive financial education programs for members of the 
armed services and their families. Working closely with the 
Department of Defense, the NASD foundation has launched a 
campaign to help service members and their families manage 
their money with confidence by helping them to understand basic 
financial concepts, including saving, investing, and the 
markets.
    This program is being implemented online and in military 
installations worldwide. It encourages members of the armed 
forces to take control of their financial futures, by providing 
them and their spouses with financial information to help them 
make more intelligent saving and investing decisions.
    The multi-faceted program includes: an online resource, 
saveandinvest.org, which has had over 280,000 visitors since it 
was launched in February of this year; on-the-ground training 
to support the military's current personal financial management 
program; a spousal fellowship program that will train a corps 
of military spouses to provide financial counseling and 
education within the military community; and for our first 
training session with 200 slots--we received over 2,600 
applicants.
    A printed online publication--see it right here--which we 
put out, in combination with the National Endowment for 
Financial Education and the National Military Family 
Association, to help service members and their families deal 
with the financial issues surrounding deployment and duty 
station changes. We are working in partnership with DoD, the 
SEC, the National Military Family Association, and other 
organizations.
    In the last 2 months, NASD has conducted a series of free 
education forums at bases and duty stations around the world. I 
should add as an aside, we do financial forums for the general 
public at large, and I am pleased to see that we have done them 
with several members of the committee who are here today.
    The first of our military education forums took place in 
Honolulu. It was closely followed by three programs at two 
bases in Japan, and aboard the USS Ronald Reagan, now on a tour 
of duty in the Arabian Gulf. These events have been well 
attended. In Honolulu, we drew almost 500 members of the 
military and their families from all branches of the armed 
services.
    The other programs have drawn almost 1,300 additional 
members of the military and their families. The programming 
that we offer is designed to meet the needs of both officers 
and enlisted personnel. Our programs have included seminars on 
stock scams, predatory lending--a terribly important issue for 
members of the military--saving for retirement and investing in 
mutual funds, 529 college savings plans, bonds, and annuities.
    These events give us valuable insight into what issues are 
important to members of the military. In both Okinawa and 
Yokosuka, for example, there was a great deal of interest in 
predatory lending, and how to dig out of debt. We have also 
found there is a lack of clear knowledge about 529 plans.
    And importantly, it has become clear, from audience 
questions, that the thrift savings plan is not well understood. 
And we plan to create additional content to explain the TSP 
clearly and concisely to military personnel.
    The NASD Investor Education Foundation continues to 
schedule on-base events. The next two are at the Naval 
submarine base in Kings Bay, Georgia, in June. Madam 
Chairwoman, this concludes my statement. I thank you again for 
the opportunity to testify, and would be happy to answer any 
questions you and the committee members may have.
    [The prepared statement of Ms. Walter can be found on page 
67 of the appendix.]
    Chairwoman Kelly. Thank you so much, Ms. Walter. Yes, I--
Ms. Walter brought to my mind that I neglected to say that, 
without objection, your full written statements will be made 
part of the record. And I appreciate the fact that you did 
that, Ms. Walter.
    Ms. Melvin, I am going to start my questioning with you. I 
was distressed when I noticed that you had said that in--and 
I'm reading from the GAO report--based on DoD pay data for 
January 2005, almost 6,000 of 71,000 deployed service members 
who had dependents did not obtain their family separation 
allowance in a timely manner.
    I would like you to talk to us about this problem, and what 
has taken place to avoid a repetition of this kind of thing.
    Ms. Melvin. At the time that we did our work, what we found 
was that in talking to service members--we went to 13 
installations in the United States and in Germany--that a 
number of them had encountered problems in receiving the family 
separation allowance, difficulties that resulted largely from 
the fact that there were no procedures in place, necessarily, 
to make sure that the proper forms could get entered, the 
proper information, I should say, could be entered into DoD's 
pay systems.
    Beyond that, we also found that, in some cases, the service 
members themselves simply didn't know enough about the 
separation allowance to have taken all of the necessary steps 
to have their paperwork in order, and to make sure that their 
information was provided to DoD.
    So, it was a situation in terms of both DoD not having 
taken some steps through its policies and procedures, as well 
as the service members not having sufficient awareness in all 
cases. And I think some of that goes back to the issues that I 
have heard mentioned in the statements relative to the fact 
that many of these service members are junior enlisted 
personnel who don't have the financial literacy or the 
financial know-how necessary, to address these matters.
    In our report, we did make a recommendation--make 
recommendations, I should say--asking that DoD take steps 
toward making sure that the service members' family separation 
allowances were computed, and that they receive them. DoD did 
agree with our recommendation, and indicated that it was taking 
measures to actually have policies and procedures in place that 
would address that particular issue.
    Chairwoman Kelly. Thank you. I want to know if you can tell 
us what the DoD needs to get a results-oriented, department-
wide database put together, so that they can assess the 
effectiveness of their--the PFM's, the personal financial 
management programs. That's another thing you pointed out down 
at the bottom of one of your pages.
    I am concerned about this, because if we're doing things we 
have no metric to find out if they're effective. Can you talk 
to us about that, and tell us what you think can be a 
comprehensive approach by the DoD to cover the problem?
    Ms. Melvin. You're exactly right, that the oversight issue 
is very significant, and it is one that we take very seriously 
in looking at DoD's actions. It's pervasive across a number of 
programs that DoD has.
    In this case, our position is that DoD does need to have 
performance-based metrics, evaluation tools, and measures that 
it can use across its systems to, in fact, make more results-
oriented decisions relative to the programs that it has.
    As far as what DoD can do, I think there are a lot of steps 
that the Department will have to figure out, relative to how it 
wants to address it. One of the things I can say, though, is 
that there are a number of ways in which DoD can take some 
immediate steps toward that, through looking at some metrics, 
perhaps, that already exist, perhaps going to looking more at, 
for example, what service members have their paychecks 
garnished. There are a number of ways in which they might start 
to take incremental steps toward putting in place a framework 
that would have results-oriented measures.
    But the Department itself will have to look at this 
closely. It will have to make decisions relative to what will 
constitute the types of measures that it needs to have, and 
ultimately, to have the mechanisms, the framework, the measures 
there to make sure that it can have a results-oriented 
approach.
    Right now, much of what the Department does is output-
oriented, versus outcome-oriented.
    Chairwoman Kelly. Thank you. I would like to ask the whole 
panel what--my colleague, Ms. Waters, brought up predatory 
lenders. And I would like to ask the whole panel to answer the 
question about how the DoD and the individual services 
themselves can approach, especially the young and newly 
enlisted personnel, to help them protect themselves from 
predatory lenders and from people who are doing similar things. 
I will start with you, Ms. Walter.
    Ms. Walter. Well we, of course, are working with DoD on 
these issues. And as I noted in my opening statement, predatory 
lending is a very big concern among the audience members that 
we have seen at our onsite forums. And I guess that's the bad 
news and the good news. Bad news, obviously, because this is a 
terribly important issue, and it's frequently abused, but good 
news because it shows that people really are interested in 
learning more.
    In fact, in terms of our online resources, the page that we 
have that's entitled, ``Stay Away From Payday Lenders,'' has, 
in fact, received--it is the most popular page, other than the 
homepage on our site. So there is a great deal of interest 
among military service members in learning more about the 
practices of payday lenders, and we are more than happy to 
continue to work and to expand our efforts on that important 
subject.
    Chairwoman Kelly. Thank you. I am out of time, so I turn to 
my--I'm sorry, I asked the whole panel that, right. Good thing 
Mike reminded me. Admiral?
    VADM Dawson. I have offices in Hampton Roads, branches in 
Hampton Roads. As I mentioned to Ms. Waters, I was visiting 
them last year, and three doors down from one of our branches 
was a payday lender. I had never been in a payday lender office 
before, so I went over there to check it out.
    It was a nice office. It was clean. The people in there 
were very courteous and nice. I couldn't get up to the counter 
to talk to anyone, because there was a line.
    I read the disclosure while I was there, and it wasn't 400 
percent APR, it was 782 percent APR for a $500 payday loan. At 
my credit union, we talk about payday lending, and we say that 
payday lending is the spiral of doom for people who get 
involved with it. We do what we can to offer alternatives, so 
people do not have to take payday loans. But 782 percent is a 
big bite.
    But I also would like to say that financial education is 
not unique to the military. It's unique to our whole country. 
We talk about this at credit unions all the time, that we all 
need to do a better job at financial management education. And 
that's one of the ways that we can all get there.
    One last thing. I mentioned that I saw a very nice message 
that went out to everyone in the Navy the other day. They 
even--sometimes retired people get those. But it was from the 
chief of naval personnel, and he was discussing payday lending. 
And he was instructing all those in the Navy that counsel 
individuals to do so.
    And so, Ms. Waters, there are some things that are starting 
to be done, the Navy being one of them. And I hope that it 
continues.
    Chairwoman Kelly. Thank you. Ms. Melvin?
    Ms. Melvin. Yes. I would reiterate the financial education 
as a large piece of what can be done to help our service 
members, making sure that they're aware of what their options 
are, and having the choices to make that don't necessarily 
include going to a particular type of creditor that might take 
advantage of them in that way.
    Beyond that, I would also go back to the oversight issue 
that I spoke to earlier. I think it's important for DoD to have 
a full awareness of what types of situations exist on and off 
its bases, relative to the use of creditors and resources of 
that nature.
    And then thirdly, there is a mechanism that DoD could use, 
and that's the Armed Services Disciplinary Control Boards. And 
while they don't exist solely to perform that function, they 
are a valuable resource.
    When we did issue our report on predatory lending, one of 
the things we noted, however, was that those boards weren't 
meeting routinely to make the types of assessments of the 
businesses that the service members were using. One option and 
a recommendation that we made was that DoD, in fact, increase 
the use of such boards to have more oversight and more insight 
into what the businesses are, and to be able to provide 
information to service members, to help them make more informed 
decisions regarding their use.
    Chairwoman Kelly. Thank you. My time is up. Mr. Gutierrez?
    Mr. Gutierrez. Thank you very much. I want to, first of 
all, thank Congressman Davis for working with me on getting the 
minimum changes and protections into the law, and hoping the 
Senate will take up the legislation, as we have heard from the 
witnesses here, including the vice admiral, about the state of 
predatory lending and payday loans.
    I am always astonished at how difficult it is to get 
action, either in this committee or the Congress, to protect 
the public in general, but in this case particularly the 
military, against those who wish to charge 700, 750, 800 
percent interest rates.
    I know that we live in a free market system, but sometimes 
those free markets need to be curbed in when there are abuses, 
especially when they look like they're from the military, and 
they use military logo and are right outside military bases.
    Anyway, let me follow up. I want to follow up on the 
chairwoman's questioning, because she is right on, and headed 
in the right direction. I would like to ask Ms. Melvin from 
GAO. In its report on predatory lending, the GAO recommended 
that the armed forces' disciplinary control boards meet at 
least semi-annually to determine whether to put offices of 
payday lenders off limits. DoD's response says it would be 
ineffectual. Do you accept the DoD response?
    Ms. Melvin. Actually, in the response that DoD made to us, 
they actually agreed with our recommendation, and at least 
informing us what their actions would be, stated that they 
would actually do more meetings--I believe our recommendation 
was that they meet at least semi-annually. And their response 
to us was that they would take action to meet at least 
quarterly, I believe.
    So, that was their intent. We have not gone back--we have 
actually gone back and followed up on a routine basis, but we 
have not seen evidence, I should say, yet as to how routinely 
they are meeting at this point.
    Mr. Gutierrez. Okay. So DoD responded that they thought 
they should meet quarterly on this issue?
    Ms. Melvin. Yes, they--
    Mr. Gutierrez. Have they ever met, to your knowledge, on 
this issue with the Armed Forces Disciplinary Control Board?
    Ms. Melvin. We have not looked at that at that level. And 
I'm sorry, but I am not able to respond to that at this 
particular--
    Mr. Gutierrez. So they said they would meet quarterly as to 
whether or not they should put the offices of payday lenders 
off limits?
    Ms. Melvin. They said that their boards would meet 
quarterly to consider the businesses, and the other practices 
of payday lenders, and also other businesses which have adverse 
effects for the military.
    Mr. Gutierrez. Does the DoD have a single point of contact 
for Federal and State enforcement officials who are 
investigating predatory lenders?
    Ms. Melvin. No, there is no single--
    Mr. Gutierrez. Do you think the DoD should have a point of 
contact so that Federal and State enforcement officials who 
have investigated predatory lending would have a communications 
level with them?
    Ms. Melvin. One of the things that we have noted in our 
work is that, especially across States, when it comes to 
certain types of lending and insurance there are concerns 
relative to the differences among States. Our work has actually 
talked to the need for more coordination across the different 
States, and with State regulators, and in that regard, to make 
sure that there are some designated offices or individuals who, 
in fact, can hear the complaints of consumers, military 
consumers, in this case and be able to share that information 
with the regulatory agencies.
    Mr. Gutierrez. So, in response to the GAO's report on 
financial product sales, DoD concurred in the GAO's 
recommendation that the DoD solicitation policy be revised to 
require that service members' complaints related to financial 
products be provided to relevant State and Federal financial 
regulators.
    DoD provided you with an estimated completion date of 
January 1, 2006. Did they meet that date? Are complaints 
actually being referred?
    Ms. Melvin. It's our understanding that the policy is still 
in draft and hasn't been issued yet.
    Mr. Gutierrez. So they didn't meet the completion date of 
January 1, 2006?
    Ms. Melvin. Yes.
    Mr. Gutierrez. Okay.
    Ms. Melvin. That's correct.
    Mr. Gutierrez. So no complaints can be referred since they 
haven't done that. I think it's going to be pretty quick--still 
got a green light--it's going to be pretty critical to get the 
DoD in here, so that we can hear from them, especially hearing 
from the vice admiral, who said that the admiral went around 
telling people--that's why I'm going back to the Armed Forces 
Disciplinary Control Board, because if they do make this an 
issue, then commanders at all levels can speak to those under 
their command about not going and forming them, actually 
instructing them not to go to payday lenders, not to go here, 
and what places they should or shouldn't go.
    I have one last question, and this one is for Elisse 
Walter. Has the DoD established a single point of contact for 
NASD to discuss enforcement and disciplinary actions? If you 
want to notify DoD that a particular individual or firm that 
targets military personnel has been subject to disciplinary 
action by your agency, who would you contact in the DoD?
    Ms. Walter. Well, we have a number of contacts in DoD that 
we could inform. What we have done, really, relates--we have 
taken action with respect to the flow of information in the 
other direction. We want to encourage complaints that come in, 
either through personal financial managers or otherwise to be 
referred either to us or to the governmental securities 
regulators for investigation.
    And we have facilitated that on our end by assuring--we 
have a centralized process for looking at complaints. So we 
have a single point of contact, a single office to contact at 
our end, and that is open and available. I'm not aware that DoD 
has established a particular point of contact with respect to 
this matter, but I think we feel that we have good channels of 
communication to provide them with information.
    Mr. Gutierrez. So the DoD hasn't established a single point 
of contact for you, in terms of enforcement and disciplinary 
actions?
    Ms. Walter. Not that I am aware of.
    Mr. Gutierrez. Okay. And if you want to discuss the matter, 
in terms of a particular targeting of personnel, you contact 
various people at DoD?
    Ms. Walter. Well, we would either--
    Mr. Gutierrez. I mean, I guess--and I will just--I guess my 
point is because you do what you do, and you protect people by 
taking action and you've got a $12 million judgement, I just 
want to know how it is when you do your work, you communicate 
to DoD so that all the--so that then DoD can do its job and 
inform all the members of our armed forces that, you know, you 
found somebody corrupt, fined them $12 million. You said 
they're still looking to distribute approximately $7 million of 
the $12 million to armed services personnel.
    So, I--it's not about you, I assure you it's not about you. 
I'm just trying to figure out, for future hearings, what kinds 
of things we might want to ask DoD to do to better do their 
job.
    Chairwoman Kelly. If the gentleman would yield, I would 
like to ask if anyone on the panel knows whether the DoJ--I'm 
sorry, DHS--the DHS, does anybody know if the Coast Guard is 
having a similar kind of problem as the DoD?
    Ms. Melvin. I'm not aware of any problems in that area, but 
we have not looked at that.
    Chairwoman Kelly. Well, perhaps in addition to getting the 
DoD, we should perhaps bring in DHS to find out if both--if 
that service, as well, is affected.
    Mr. Gutierrez. Yes, I think that's important. I wanted to--
and I want to thank you, Vice Admiral, for all you do and the 
credit union does to help service our military with good 
financial products. Thank you very much.
    Chairwoman Kelly. Thank you. Mr. Davis?
    Mr. Davis. Thank you, Madam Chairwoman. I could speak as a 
multiple decades member of what's now Pentagon Federal Credit 
Union, and also dealing with these issues.
    I hear a lot about, you know, these issues. Payday lending, 
for some reason, has come up repeatedly over and over again. 
And I think the fundamental issue that we're dealing with, the 
command is dealing with the rule of law at State level. A 
business, a legitimate business that's off post can do 
business--there are certain prescriptions--the reason that we 
tried to pass H.R. 458, dealing with insurance and mutual 
funds, is to make sure that we gave that ability to allow State 
enforcement on the Federal jurisdiction, and also to identify 
businesses for the command.
    But I hear these numbers of interest rates in the hundreds 
of percent. And I'm just curious, from having dealt with many, 
many organizations, what the basis of that is, what was the 
basis of that 782 percent insurance rate that you quoted when 
you went into the payday lending operation?
    VADM Dawson. It was simply the interest that was charged if 
someone were to borrow $500 cash advance for payday and have it 
for a week. That was the annual percentage rate that they were 
charged.
    Mr. Davis. So what you were doing was taking all of the 
fees that were associated--
    VADM Dawson. I was just reading from their disclosure 
statement on their wall of what they did at the payday lender. 
And it was quite plain. It was well disclosed, that it would be 
782 percent, with everything rolled in to what they charged for 
that $500.
    Mr. Davis. I would appreciate it if you would possibly 
submit that information for the record, so that we could see 
that.
    One of the reasons that I want to bring this up is a little 
bit deeper. When my family was hurt by a military financial 
services provider who became the subject of H.R. 458, what 
caused that hurt was not the practices that were disclosed, I 
want to make that very clear. What caused the problem was a 
perceived inter-relationship between retired military personnel 
who served as executives, as salespeople, as managers in that 
firm, and it--that was what breached the trust barrier in such 
a big way here.
    And you know, my question would come back, are you going to 
do away with ATM's? Because under the proposed--you know, we 
hear this 36 percent interest rate that's thrown around in so 
many of these dialogues around this, if you go to an out-of-
network ATM and a soldier borrows $100 a week, which I used to 
do things like that, even though ATM's were kind of a new 
concept before I was commissioned, and it was $2 a transaction 
for that out-of-network fee, you're dealing with 100 percent 
interest, automatically, on that loan on an APR basis.
    But one would come back from a bank and say that's a fee. 
And I think the thing that we need to clarify very much, 
because nobody with common sense is going to take a loan out at 
500 or 1,000 percent, or something, you know, like that. What 
they're going to do is they're going to be dealing with fees.
    And the reason that I bring this up is a question that I 
would like to ask Ms. Walter. You know, it seems that there is 
a little bit of a question on my mind. We're talking about 
payday lending. But are you aware of DoD's relationship with 
other financial services providers who have many, many fees 
that technically are not interest rates and aren't talked about 
in a lot of competing legislation, but actually if you lay that 
out side by side on the table, what you end up actually having 
is a higher fee from a firm that is allowed, publicly, to 
associate with the DoD organizations?
    Ms. Walter. I'm not specifically aware of particular 
entities. But in general, as you know, we're a securities 
regulator. One of the most important things to be disclosed to 
investors--and the same is true in consumer situations that do 
not involve securities--are not just interest rates in terms of 
payback for loans, but also the fees associated with it.
    Because, obviously, from the point of view of the consumer, 
the payment is the same. It is money that they have to pay in 
connection with the transaction. So all of that is really 
terribly important, and is something that people have to 
understand before they enter into a transaction.
    VADM Dawson. And sir, I would like to add that Navy Federal 
has a little over 300 ATM's that we own and provide a service 
to our members. And we charge no fee at all for any of our 
members that use those ATM's.
    Mr. Davis. How about for out-of-network members that use 
it?
    VADM Dawson. It's $1.50 for out-of-network--
    Mr. Davis. So 75 percent APR?
    VADM Dawson. It depends on how much they take out. But 
these are non-members. In other words, these are members that 
do not belong to our credit union. I think the industry 
standard for those charges is probably between $1.50 and $4. It 
is a fee to withdraw their own funds. It is not a loan.
    Mr. Davis. My point, Admiral, is not to challenge your 
ability to operate in the free market, it's simply when we 
bring this issue up I think it's important that we--you know, 
when we talk about these alleged high interest rates--and I am, 
again, intimately familiar with this issue, having dealt with a 
number of credit issues--that there is a difference between 
fees that are fully disclosed in a market environment, and then 
the true predatory lender--you know, like I can think of 
Victory Pawn and Gun, or whatever, on Victory Drive, outside of 
Fort Bragg, you know, other types of organizations.
    And the reason that I bring this question of breach of 
trust up, as a faithful credit union member--it has nothing to 
do with your organization, but the more pernicious aspect of 
this is what I am seeing right now in DoD is being drawn into a 
very dangerous aspect on this credit issue of true monopolistic 
competition between a very large financial services provider, 
which is, you know, seeking to avoid these types of protections 
we talk about putting in in order to gain market share.
    And that's what concerns me with former military members on 
the board, disorganization showing up at the AUSA convention, 
when in fact, the Community Financial Services Association, 
which is the legitimate payday lending open market businesses 
have sought full cooperation with DoD, and yet those--that 
cooperation has been rejected. And I personally met with Dr. 
Chu on this issue to incorporate all changes and questions.
    And I would like to just make it a matter of the record 
that the deeper issue here in credit probably ought to be 
devoted to a separate hearing. And I would ask Chairwoman Kelly 
that perhaps we consider a separate hearing on that issue 
alone, so that we can focus on the more broad-based financial 
needs.
    I think, at the end of the day, what we're dealing with 
here are issues of cash flow for families, learning to manage 
that, and often times, in the emotion of the media or those not 
connected with the service, we want an immediate scapegoat, 
somebody that we can hang something on, without necessarily 
solving the problem. And I think that what I don't want to see 
is a set of laws passed that gives unfair market advantage to 
one firm over another that actually charges the same alleged 
high fees, but it's just disclosed in a slightly different way.
    And if you would like to have some private discussion at a 
later time, we would be glad to share this information with 
you, that I think you would find particularly disturbing. I 
yield back my time.
    Chairwoman Kelly. I thank you, Mr. Davis. I agree. I think 
what we're discovering here this morning indicates that we 
should be having follow-up hearings. I would like to bring in 
DHS and the DoD. And we should look at a much more broad 
picture here. I think it would serve us well, in trying to 
figure out what needs to be done to help and protect our 
service people. I turn now to Mr. Cleaver.
    Mr. Cleaver. Thank you. My concerns are related to 
foreclosure; is there any tracking system in place whereby you 
would know the number of, or the percentage of, members of the 
military who end up in foreclosure?
    Ms. Melvin. I don't have any information that I could share 
with you, sir, regarding that.
    VADM Dawson. At my credit union I have that information. I 
don't have it with me today in that detail. But yes, we track 
delinquency. And in worst case, when it goes to foreclosure, 
our numbers are very small. Our membership--we have very few 
foreclosures. But we track it, and I would be happy to provide 
you that data from our credit union, if you would like, at any 
time.
    Mr. Cleaver. I think I would like that information. The 
Civil Relief Act prohibits an increase in the interest rates 
and the foreclosures. And I'm wondering--I was looking through 
the--this is very good, incidentally. I was looking through 
here, but I couldn't find any information related to either the 
interest rates issue or foreclosures. And I'm just wondering 
how many service men and women would even know that they are a 
victim if they don't know that the Civil Relief Act exists.
    VADM Dawson. I understand your question. It's possible they 
would probably know, but foreclosures are not conducted if they 
fall under the Serviceman's Civil Relief Act. I don't think--we 
don't do it, and I don't know about other institutions, but 
that's--members are protected under that, should they know that 
they're protected.
    Chairwoman Kelly. We would be very happy--and I just made a 
note of this, and I think it's a very good point--we will make 
sure that point gets picked up in our programs on a going 
forward basis, and so we can help to play a role in educating 
people about the rights that are available to them.
    Mr. Cleaver. Yes. I don't know if it's anecdotal or not, 
but many Members of Congress, from time to time, hear from 
servicemen and women that, after they were called up to duty, 
after a certain period of time they ended up losing their 
homes.
    And if it's happening because there is a lack of 
information going out--you know, it's an injustice in the first 
place, but I think that the second level of injustice--and 
maybe the first--is that they don't have the information.
    VADM Dawson. Sir, maybe I can give you some information 
that might be helpful to you. Just to put it in perspective, I 
ran some numbers from my credit union on how many folks fell 
under the--how many people that we have right now who have the 
protections of the Servicemen's Civil Relief Act, and it's 
about 980. And we track them very closely, and that number has 
gone down over the last couple of years. We have been running 
about an average of maybe 1,000 to 1,200.
    And we are very meticulous in following the tenets of the 
Act in regard to their rights. And we even go one step further. 
If they apply for relief, it's granted unconditionally, without 
even an explanation if it's a--if they're under a hardship, 
which the Act calls for. So they send their documentation in of 
their orders that brought them to military service, which they 
all have, and then they fall under the tenets of the Act, and 
we would not foreclose anyone while they were under that 
relief.
    Chairwoman Kelly. Would the gentleman yield for a comment?
    Mr. Cleaver. Yes.
    Chairwoman Kelly. If a service member is not in this 
country, and there is an action, a proceeding, if the family 
doesn't know to notify the local sheriff, or whatever, that 
they are protected by the Act, then the proceeding could go on 
because they don't know. And I think that's part of your point, 
is it not?
    VADM Dawson. Well, let's take our case in point, I mean, 
just what we do, if you're interested in that. Let's say they 
fail to notify us, in the very worst case. As soon as we found 
out that they were eligible, we would tell them how to do it, 
we would make everything retroactive to the date that they 
entered the service, and--or were called up, and take care of 
them.
    Mr. Cleaver. I'm not sure it's that simple, because people 
in Afghanistan and Iraq, and 122 other places around the globe, 
and I'm just not sure the information is reaching the people 
who need to know it, whether it's the military person or the 
families.
    And as I said, maybe there has never been an incident, and 
I'm just going in the wrong direction. But you hear that, you 
know. It may be like the thing that, you know, everybody--there 
is something going around the Internet that Members of Congress 
receive their salaries for life, I think, or--and so maybe it's 
one of those things. But it is out there, and it bears some 
attention.
    And if I could just close out with a question, I--before I 
was in Congress, I did a radio show on NPR, and I guess one of 
the things I kind of campaigned on the air against was the 
payday loans. One of the things I did eventually discover, and 
that is because of circumstances, people felt that was the only 
place they had to go to get financial help. And I'm wondering 
if the Navy has a payday loan program. I mean, they're going to 
go somewhere if they're in a crunch.
    VADM Dawson. I can answer that from experience.
    Mr. Cleaver. Yes.
    VADM Dawson. I suppose that it is--all service members are 
offered the opportunity--and we refer to it in the Navy as, 
``to take a dead horse.'' What that is, is you remember advance 
pay, when you make a PCS change of station, and then you pay it 
back over 2 years, and it's an interest-free loan of up to 3 
months of your base pay.
    The reason it's called a dead horse is back in the days of 
sailing ships, it was like sailing into horse latitudes where 
there was no wind, and it felt like it took forever to pay it 
back. That's why it's called a dead horse. But that's--and 
that's the expression, ``beating a dead horse.'' But that's a 
form of a loan that I think you're talking about.
    Mr. Cleaver. Well, it's not quite. I know my time is 
running out. Thank you, Madam Chairwoman.
    Chairwoman Kelly. Thank you. Mr. Barrett?
    Mr. Barrett. Thank you, Madam Chairwoman. Ladies and 
Admiral, thank you for being here today. We greatly appreciate 
it.
    Ms. Melvin, let me address this first question to you. I 
was reading in your report about personal financial management, 
PFM--love these acronyms, you Army guys, I'll tell you--the 
Army requires about 12 hours of PFM; the Navy 16; Marines and 
Air Force, I think at their first duty station.
    If this is a problem--and obviously, it might be--does it 
make sense to have a standard throughout all the services, 
whether it's at their first duty station, whether it's every 
time they change duty stations, something that is similar 
across the board, so we know that each service member is 
getting adequate training on personal financial matters?
    Ms. Melvin. Certainly it's possible that, you know, having 
a standard form of training would provide that. I think the 
bigger issue, though, is in terms of DoD needing to make sure 
that it emphasizes what the services need to do and that it has 
the mechanism to make sure that, regardless of whether the 
training is standardized or whether it's given at different 
points by different services, that it has an oversight, a means 
of knowing that that training is taking place.
    So, on the one hand, you could say that standardization 
would, in fact, provide at least an element of information that 
says it's occurring at a certain point in time. But the reality 
is that, given the circumstances that are in play and the 
number of people involved, I think it would still be 
questionable as to whether, in fact, even with standardized 
training, unless there is a reporting mechanism and a tracking 
mechanism in place to ensure that--to see that that training is 
actually taking place, it may not necessarily solve the 
problem.
    Mr. Barrett. But if you had some type of tracking mechanism 
where you followed up, I mean, I'm looking here. I was in the 
Army 12 hours, the Navy 16. I'm probably not that much smarter 
than the Navy guys--I'd like to think maybe I am--but I mean, 
it doesn't matter, I think, whether you're in the Navy or 
Marines or Air Force.
    Ms. Melvin. Exactly.
    Mr. Barrett. Financial training is financial training. 
Wouldn't you agree with that?
    Ms. Melvin. Yes, I do.
    Mr. Barrett. Okay, great. Thank you. Admiral, let's talk a 
little bit about payday lending. And I know the interest can be 
high. Let's look at a $200 loan for 2 weeks with a $30 fee. 
That's about a 391 percent APR.
    But when you weigh that versus the cost of bounced checks, 
the problems it could have with your career and other things, 
what would these service men and women do, what alternatives do 
they have--and I know you mentioned one, and I don't know if 
that is applicable in every situation, because I think you said 
when you change a duty station, and you certainly don't change 
all the time--if payday lending is outlawed, what option do 
these service men and women have? I mean, where can they go for 
help from week to week if they get in a bind, or something like 
that?
    VADM Dawson. A couple of things, sir. If they are really in 
distress, the answer to your question of where they can go, in 
the Navy and Marine Corps we have a wonderful organization 
called the Navy and Marine Corps Relief Society that is 
headquartered here in Washington, but has offices throughout 
where sailors and Marines serve.
    The head of that organization, ADM Abbot, would tell you 
that they're probably the lender of last resort. And that's a 
place that sailors and Marines and their families can turn to. 
And they can get a grant or a loan from them, if they're in 
distress. That's one place.
    I did a data--I asked my people recently to put together 
some information for me on how much could an E-4 borrow from a 
credit union, specifically, our credit union. And they ran some 
numbers for me. And essentially, let's say that they--if they 
have a good credit rating, an E-4 can essentially borrow pretty 
much up to a year of his salary.
    Mr. Barrett. Which is how much?
    VADM Dawson. About $24,000.
    Mr. Barrett. $24,000?
    VADM Dawson. Yes.
    Mr. Barrett. Okay.
    VADM Dawson. And if he bought a home and had a mortgage, it 
could be up to much higher than that, $180,000 to $200,000.
    Mr. Barrett. Sure.
    VADM Dawson. That's a lot of money. And--but what's the 
safety net after that? That's the question. And the safety net 
after that would be a payday lender, which as I mentioned 
earlier, is--I consider to be a spiral of doom, or the Navy 
Marine Corps Relief Society for, really, when they're in 
distress.
    Mr. Barrett. Well, and I'm not going to agree--I mean, I am 
going to agree with you that there probably are some payday 
lenders or some organizations out there that are not doing it 
like they're supposed to be doing. I think that's a given, and 
I think that's one of the reasons why we're here today.
    Would you agree, Admiral, that in any legislation that 
moves forward we need to make sure that we cover how to deal 
with, for lack of better words, unscrupulous payday lenders, or 
organizations that are trying to really take advantage of 
servicemen and women?
    VADM Dawson. For sure. But 782 percent APR is pretty high. 
And I have no idea whether that office that I went into was 
scrupulous or unscrupulous. It's just the way it was.
    I would like to make another point, though. I have made 
some discoveries over this year. I didn't know anything about 
payday lenders before I started looking at it this year. We 
have 27 financial budget counselors. If our members are in 
trouble, they can call these folks, and they will work them 
through their difficulties. And they will help them work with 
other creditors and organize their affairs. And we do that at 
no charge to the member.
    I talked to my folks about payday lenders one day, and I 
said, ``How do you find them to deal with when you go to 
organize someone's debts?'' And they--very interesting 
observation. They said, ``We find that folks have multiple 
payday lenders that they use. And when we go to call them, we 
end up talking to a back shop that covers a whole network of 
different storefronts that have different names.''
    And also, we find that they very much know their members. 
They know who they're dealing with. They know them by name, and 
they know them by situation. But it's still a very high 
percentage that people have to pay when they go into that path.
    Mr. Barrett. And--
    Chairwoman Kelly. Mr. Barrett?
    Mr. Barrett. Yes, ma'am?
    Chairwoman Kelly. I'm sorry, but you're out of time.
    Mr. Barrett. Thank you.
    Chairwoman Kelly. You may submit that in writing, or if we 
have time, we will try to go back to it. Mr. McHenry?
    Mr. McHenry. Thank you, Madam Chairwoman. Thank you so much 
for having this committee hearing, and thank you for your 
leadership on this issue.
    And thank you for your testimony. I was able to listen to 
your testimony before I had to step out. And so I have missed 
some of the questions. So just nod and smile if I ask a similar 
one. That never happens on Capitol Hill, of course, asking 
similar questions.
    But I want to commend my colleague, Geoff Davis, for the 
legislation he has filed--and I am proud to be a co-sponsor of 
it--dealing with predatory lending of sorts against military 
personnel.
    You know, Ms. Walter described cracking down on a company 
that was putting into practice some unethical behavior that was 
really going beyond the bounds with military personnel, and I 
want to commend you for doing that. That's a proper role that 
you play, and I appreciate you stepping up to do that.
    It's also come to my attention that certain lending 
institutions, or certain financial institutions, are requiring 
service members to waive their rights under the Servicemembers' 
Civil Relief Act. And I wanted to see if any of you three could 
address that as something that is ethical or legal. Any of you 
three?
    Ms. Melvin. I am not aware of the circumstances of them 
waiving their rights. What I would say, though, is that my 
understanding of the Servicemembers' Civil Relief Act is that 
there are specific rights that they do have, and I believe that 
the legislation that is being put forward to attempt to 
strengthen that hopefully would go a long way toward, in fact, 
preventing that type of situation from occurring.
    As I understand, the intent is to achieve more awareness, 
more information on the part of both the service member, as 
well as the actual lender. And in that case, hopefully that 
would lead to those kinds of circumstances not occurring.
    Mr. McHenry. Admiral?
    VADM Dawson. I discussed this with my folks before I came 
here, and to the memory of everyone in the credit union, we 
have never had an issue with the SCRA. And I just don't--I'm 
not aware of other instances where it's occurred. I just don't 
have any knowledge on that. But we meticulously follow the 
tenets.
    Mr. McHenry. Ms. Walter?
    Ms. Walter. I don't have any specific information about 
that, either. I will say that in the securities industry, which 
of course is of limited scope, we have a rule that requires 
people who operate in the securities industry to adhere to high 
standards of commercial honor and just and equitable principles 
of trade.
    And the advantage to having that kind of standard applied 
is that if people behave in a way that violates it, we have the 
ability to fine them, or in the extreme, to actually kick them 
out of the industry entirely. And I don't think, in other 
industries, there are comparable protections, so you would be 
relying more on common law principles in those kinds of 
situations.
    Mr. McHenry. Okay. Ms. Melvin, actually, if I could come 
back to you about this, if this were occurring--how about I 
approach the subject this way--if this were occurring, where a 
financial institution is asking a service member to waive their 
rights under this Act, is that lawful?
    Ms. Melvin. I would suspect not, but I would respectfully 
like to defer to our attorneys to make sure that I understood 
all of the requirements. My understanding is that there are 
specific rights that the service members have, and that the law 
protects them against violations of those rights.
    Mr. McHenry. And so it's something that's really protecting 
a class of people, and as an individual you can't simply waive 
that right?
    Ms. Melvin. I'm sorry, waive the right to be protected?
    Mr. McHenry. Yes.
    Ms. Melvin. Again, I would want to consult with our legal 
attorneys on whether, in fact, they would. I'm not sure I 
would--
    Mr. McHenry. Perhaps I could send that to you in written 
form, and you and your staff could respond.
    Ms. Melvin. Most certainly. We would be glad to.
    Mr. McHenry. I would appreciate that. You know, 
additionally, as the chairwoman said, this isn't really about 
payday lending, this hearing, but you know, I do have concerns 
that some institutions, non-payday lenders, for instance, are 
able to get around the APR limits, or in order to get around 
disclosing what the APR is for a member of the military or the 
general public, but specifically the military, that by getting 
around that, they have all these hidden fees in there, such as 
insurance policies you have to purchase in order to gain 
lending.
    And I wanted to see if you could address that in any way, 
shape, or form. Admiral, you made a fatal error at testifying 
on Capitol Hill. You actually acknowledged my question. So I 
will direct it towards you.
    VADM Dawson. I don't really have any experience on that. I 
read some material the other day that said the average bank 
makes 50 percent of its income on fees. And--but as far as 
schemes to move around and manipulate people, I'm just not 
familiar with it.
    Mr. McHenry. Well, it's probably a helpful thing, running 
your credit union.
    VADM Dawson. Well, we don't do it. And as Mr. Davis said, 
the biggest thing that we hold of value is our trust of our 
members. And if you violate that trust, it would be a terrible 
thing. So we work very hard at that.
    Mr. McHenry. Thank you, Congresswoman Kelly.
    Chairwoman Kelly. Thank you. Ms. Waters, would you like to 
ask some questions?
    Ms. Waters. Yes.
    Chairwoman Kelly. We recognize you for 5 minutes.
    Ms. Waters. I have a number of questions. Let me ask VADM 
Cutler Dawson whether or not credit unions are afforded space 
on every base.
    VADM Dawson. I believe probably they are. There are a 
variety of credit unions that serve DoD, and there may be some 
exception to that, but I would say that on the majority of 
installations, a credit union is welcomed and has a 
relationship on the base.
    Ms. Waters. And are the new service members given this 
information when they first come to the base, to let them know 
that there are credit unions on the base and financial services 
assistance to help them to understand lending and interest. Is 
something disseminated to them that would help them to know 
where to go to get help?
    VADM Dawson. I don't know for sure. I would say that it 
probably varies from base to base. We participate with many 
bases where we're located. We're on 22 Navy and Marine Corps 
bases, and we participate in financial seminars to answer those 
questions you just posed.
    Ms. Waters. Well, let me just say this, Madam Chairwoman 
and Members, the payday loan operations and other sharks and 
predators that operate around bases usually have big, gaudy 
flashing signs. They are called green money stores, they are 
called, ``Rapid Money,'' I mean, all kind of names that attract 
attention. They have neon lights and sometimes they will offer 
a few other services to go along with it, to attract business.
    What I find is, oftentimes, people don't know where the 
credit union is, but some bases have 50 payday loan operations 
surrounding the base. And they can't miss them, even if they 
tried. And so, it becomes very attractive to someone who is 
making $24,000 a year, who runs out of money, to go to one. And 
when they find out how they operate, they may go to one, two, 
three, or four and pick up this $100 or this $200. And when 
they can't pay it back, it gets rolled over, and it gets rolled 
over, and it gets rolled over again.
    And while our chairwoman made it quite clear we're not here 
to criticize anybody--I, of course, appreciate the opportunity 
to be here, but I reserve the right to criticize anybody that I 
want to criticize. And I criticize payday loan operations and 
the way that they operate, and the amount of interest that they 
charge.
    Now, having said that, I am talking about any predatory 
lender. I don't care what shape or form it comes in, whether 
it's rent to own, or these people who allow, you know, people 
to pawn their automobile titles or these tax refund loan types. 
I think it's the responsibility of the military to protect our 
servicemen and women, and I don't think we're doing a good 
enough job of it.
    We have young people who leave home at 18 or 19 years old. 
They've never had a checking account. They don't know anything 
about borrowing money or managing money. And so, I think it's 
the military's responsibility to not only embrace credit unions 
and to--these boards, disciplinary control boards have to get a 
little bit stronger.
    I think they should make it off limits some of these 
predatory operations, and I think they should be very 
aggressive in doing so. In addition to the disciplinary boards 
exercising their power and meeting and understanding what's 
going on around them, I really do believe that the military can 
be more aggressive in helping to protect these young men and 
women from predators.
    I don't care what shape or form they come in. I don't care 
about limiting competition with these predators. If the credit 
unions are able to take over all of these financial services 
operations and literally close out these predators, I don't 
care. I mean, you know, free market only goes so far.
    And to say that you have somebody who is exploiting and 
undermining the very people that we say we care so much about, 
who are preparing to go off to war, or who may be returning 
from war, or may be on active duty, to say, ``Well, you know, 
let the market place work.'' I think that's irresponsible.
    So, I am pleased to be here today, and I am awfully 
appreciative for the opportunity, Madam Chairwoman, to be able 
to voice my opinion and to raise these questions. It's an area 
that I am going to spend a little bit more time studying.
    And let me just close by saying we discovered that these 
predatory lenders come in all shapes, forms, fashion, and 
they're more creative. One veteran, we read, received $80,000 
in exchange for 10 years of his benefits worth $300,000, 
according to the Law Center Study. Somebody found a way to buy 
the benefits of a veteran.
    So, you have people who don't give a darn about the future 
of these people, they don't give a darn about these young 
people who come with very little knowledge or understanding.
    And I'm not talking about young people from any one area of 
the country. We have young people from the urban areas, but God 
bless some of those who come from the rural area, I mean, who 
have never interacted with some of these operations.
    So, I just want my members to feel a little bit more 
passionate about it, as we talk about these things, and I want 
the military to feel more responsible and take stronger steps 
to do something about these issues.
    And having said that, Madam Chairwoman, I will thank you 
for the time, and I yield back the balance of my time.
    Chairwoman Kelly. We welcome your being here. When I opened 
this hearing, I spoke of the fact that we were focused on 
getting information. We need information from you about whether 
or not we should take a deeper look. I think that question has 
been answered. The needs of the service people are there. And 
the things we're talking about are the needs for the very 
people who are at the margins of what--of being involved in a 
standardized financial service in this Nation.
    So, I believe we will probably be holding a second hearing 
on this. So right now, let me just note that some members have 
additional questions for this panel, and they may wish to 
resubmit them in writing.
    So, without objection, the hearing record will remain open 
for 30 days for the members to submit their written questions 
to these witnesses, and to place the responses in the record.
    And with that, we thank you. We are very grateful for your 
presence here today. And thank you for being here. This hearing 
is adjourned.
    [Whereupon, at 4:35 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                              May 18, 2006


[GRAPHIC] [TIFF OMITTED] T1040.001

[GRAPHIC] [TIFF OMITTED] T1040.002

[GRAPHIC] [TIFF OMITTED] T1040.003

[GRAPHIC] [TIFF OMITTED] T1040.004

[GRAPHIC] [TIFF OMITTED] T1040.005

[GRAPHIC] [TIFF OMITTED] T1040.006

[GRAPHIC] [TIFF OMITTED] T1040.007

[GRAPHIC] [TIFF OMITTED] T1040.008

[GRAPHIC] [TIFF OMITTED] T1040.009

[GRAPHIC] [TIFF OMITTED] T1040.010

[GRAPHIC] [TIFF OMITTED] T1040.011

[GRAPHIC] [TIFF OMITTED] T1040.012

[GRAPHIC] [TIFF OMITTED] T1040.013

[GRAPHIC] [TIFF OMITTED] T1040.014

[GRAPHIC] [TIFF OMITTED] T1040.015

[GRAPHIC] [TIFF OMITTED] T1040.016

[GRAPHIC] [TIFF OMITTED] T1040.017

[GRAPHIC] [TIFF OMITTED] T1040.018

[GRAPHIC] [TIFF OMITTED] T1040.019

[GRAPHIC] [TIFF OMITTED] T1040.020

[GRAPHIC] [TIFF OMITTED] T1040.021

[GRAPHIC] [TIFF OMITTED] T1040.022

[GRAPHIC] [TIFF OMITTED] T1040.023

[GRAPHIC] [TIFF OMITTED] T1040.024

[GRAPHIC] [TIFF OMITTED] T1040.025

[GRAPHIC] [TIFF OMITTED] T1040.026

[GRAPHIC] [TIFF OMITTED] T1040.027

[GRAPHIC] [TIFF OMITTED] T1040.028

[GRAPHIC] [TIFF OMITTED] T1040.029

[GRAPHIC] [TIFF OMITTED] T1040.030

[GRAPHIC] [TIFF OMITTED] T1040.031

[GRAPHIC] [TIFF OMITTED] T1040.032

[GRAPHIC] [TIFF OMITTED] T1040.033

[GRAPHIC] [TIFF OMITTED] T1040.034

[GRAPHIC] [TIFF OMITTED] T1040.035

[GRAPHIC] [TIFF OMITTED] T1040.036

[GRAPHIC] [TIFF OMITTED] T1040.037

[GRAPHIC] [TIFF OMITTED] T1040.038

[GRAPHIC] [TIFF OMITTED] T1040.039

[GRAPHIC] [TIFF OMITTED] T1040.040

[GRAPHIC] [TIFF OMITTED] T1040.041

[GRAPHIC] [TIFF OMITTED] T1040.042

[GRAPHIC] [TIFF OMITTED] T1040.043

