[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
ALLEGED VIOLATIONS OF
THE SERVICEMEMBERS CIVIL RELIEF ACT
=======================================================================
HEARING
before the
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 9, 2011
__________
Serial No. 112-1
__________
Printed for the use of the Committee on Veterans' Affairs
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COMMITTEE ON VETERANS' AFFAIRS
JEFF MILLER, Florida, Chairman
GUS M. BILIRAKIS, Florida BOB FILNER, California, Ranking
CLIFF STEARNS, Florida CORRINE BROWN, Florida
DOUG LAMBORN, Colorado SILVESTRE REYES, Texas
DAVID P. ROE, Tennessee MICHAEL H. MICHAUD, Maine
DAN BENISHEK, Michigan LINDA T. SANCHEZ, California
ANN MARIE BUERKLE, New York BRUCE L. BRALEY, Iowa
JEFF DENHAM, California JERRY McNERNEY, California
BILL FLORES, Texas JOE DONNELLY, Indiana
TIM HUELSKAMP, Kansas TIMOTHY J. WALZ, Minnesota
BILL JOHNSON, Ohio JOHN BARROW, Georgia
JON RUNYAN, New Jersey RUSS CARNAHAN, Missouri
MARLIN A. STUTZMAN, Indiana
Vacancy
Vacancy
Helen W. Tolar, Staff Director and Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Veterans' Affairs are also
published in electronic form. The printed hearing record remains the
official version. Because electronic submissions are used to prepare
both printed and electronic versions of the hearing record, the process
of converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
February 9, 2011
Page
Alleged Violations of the Servicemembers Civil Relief Act........ 1
OPENING STATEMENTS
Chairman Jeff Miller............................................. 1
Prepared statement of Chairman Miller........................ 62
Hon. Bob Filner.................................................. 2
Prepared statement of Congressman Filner..................... 63
Hon. Gus M. Bilirakis, prepared statement of..................... 63
Hon. John Barrow, prepared statement of.......................... 64
Hon. Marlin A. Stutzman, prepared statement of................... 64
Hon. Russ Carnahan, prepared statement of........................ 65
WITNESSES
U.S. Department of the Treasury, Hollister K. Petraeus, Team
Lead, Office of Servicemember Affairs, Consumer Financial
Protection Bureau Implementation Team.......................... 44
Prepared statement of Mrs. Petraeus.......................... 75
U.S. Department of Defense, Colonel Shawn Shumake, (USA),
Director, Office of Legal Policy, Office of the Deputy Under
Secretary of Defense........................................... 47
Prepared statement of Colonel Shumake........................ 78
______
Harvey & Battey, PA, Beaufort, SC, William B. Harvey III, Esq.... 10
JPMorgan Chase & Co., New York, NY, Stephanie B. Mudick,
Executive Vice President, Office of Consumer Practices......... 27
Prepared statement of Ms. Mudick............................. 71
Richard A. Harpootlian, P.A., Columbia, SC, Richard A. ``Dick''
Harpootlian, Esq............................................... 4
Prepared statement of Mr. Harpootlian........................ 65
Rowles, Captain Jonathon, (USMC), and Mrs. Julia................. 5
SUBMISSIONS FOR THE RECORD
Jones & Odom, LLP, Shreveport, LA, Colonel John S. Odom, Jr.,
USAF (Ret.) Esq., statement.................................... 80
Reyes, Hon. Silvestre, a Representative in Congress from the
State of Texas, statement...................................... 85
MATERIAL SUBMITTED FOR THE RECORD
Post-Hearing Questions and Responses for the Record:
Hon. Bob Filner, Ranking Democratic Member, Committee on
Veterans' Affairs, to Naomi Gendler Camper, Managing
Director and Head of Federal Government Relations, JPMorgan
Chase, letter dated February 15, 2011, and JPMorgan Chase's
responses.................................................. 86
Hon. Bob Filner, Ranking Democratic Member, Committee on
Veterans' Affairs, to Hon. Robert M. Gates, Secretary, U.S.
Department of Defense, letter dated February 15, 2011, and
DoD responses.............................................. 88
Hon. Bob Filner, Ranking Democratic Member, Committee on
Veterans' Affairs, to Elizabeth Warren, Assistant to the
President and Special Advisor to the Secretary of the
Treasury, The Consumer Financial Protection Bureau, letter
dated February 15, 2011, and Treasury's responses.......... 99
ALLEGED VIOLATIONS OF
THE SERVICEMEMBERS CIVIL RELIEF ACT
----------
WEDNESDAY, FEBRUARY 9, 2011
U.S. House of Representatives,
Committee on Veterans' Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:36 a.m., in
Room 334, Cannon House Office Building, Hon. Jeff Miller
[Chairman of the Committee] presiding.
Present: Representatives Miller, Bilirakis, Stearns,
Lamborn, Benishek, Buerkle, Huelskamp, Johnson, Runyan,
Stutzman, Filner, Michaud, McNerney, Donnelly, Walz, and
Barrow.
Also present: Representative Miller of North Carolina.
OPENING STATEMENT OF CHAIRMAN MILLER
The Chairman. Good morning everybody and welcome to the
first oversight hearing of the House Committee on Veterans'
Affairs for the 112th Congress and I appreciate everybody's
attendance today. As we begin our important work on behalf of
America's veterans and our servicemembers, I would like to
point out that the veterans are well represented on this
Committee, and while Members look after the interest of 23
million U.S. veterans and their families, some 12.2 million,
over half of America's veterans reside in the States that we
represent. I am especially proud of 110,000 veterans that live
in the first Congressional District of Florida, the Florida
Panhandle.
And that responsibility brings us to the subject of today's
hearing. I know the Members on both sides of the aisle are
concerned about today's topic, but consistent with past
practice, I would like to limit opening remarks to myself and
the Ranking Member so that we may have more time to hear from
our witnesses, and of course any Member is able to submit their
opening remarks for the record.
The Servicemembers Civil Relief Act (SCRA) has existed in
various forms since the War of 1812, and each version has
shared a singular goal, to protect those who protect us.
The 2003 revision, which I cosponsored and the amendments
we have made since, continue that tradition. I am committed to
ensuring SCRA remains a relevant and viable tool and I know the
Ranking Member and the rest of this Committee share in my
commitment.
My goal for this oversight hearing is to determine whether
or not the SCRA afforded our servicemembers and their families
are meeting their needs. We are all aware of related matters
pending before the court. This is not intended to be a trial of
any sort. I am not seeking to prejudice that or any future
action in any direction, at the same time it is important to
recognize that this Committee has a duty to ensure that the law
is working for active-duty servicemembers.
I have said recently and I will say it again, our Nation's
war fighters and their families should not have to fight to
keep their piece of the American dream while fighting on
foreign soil defending the fundamental right that each and
every one of us has.
I want to thank our witnesses for appearing before us.
First I want to thank Captain Jonathan Rowles and his wife
Julia for their persistence in exercising their rights.
Second, I want to thank JPMorgan Chase for reaching out to
us, and more importantly, for admitting its mistakes and then
making efforts that it has made to rectify them.
I hope our witnesses from the U.S. Department of Defense
(DoD) will be able to assure us of the effectiveness of their
program to educate servicemembers on their rights under SCRA,
and I also look forward to hearing from the newly established
Consumer Financial Protection Bureau about how it can
contribute to preventing similar occurrences in the future.
What we have here now is what some might call a teachable
moment. For the finance services industry, the lesson is to
understand the Servicemembers Civil Relief Act and to undertake
the same sort of review as has Chase to ensure its compliance.
For DoD, it is time to review whether the military services'
SCRA training programs are getting the job done. Finally,
servicemembers are ultimately responsible for understanding
their rights and responsibility under SCRA and holding their
financial institutions accountable. Today we will be asking and
listening for ways to ensure that these goals are in fact being
met.
Before we begin I ask unanimous consent that all Members be
allowed to sit at the dais and be permitted to ask questions.
Hearing no objection so ordered.
I want to extend a warm welcome to our colleague, Brad
Miller, from North Carolina. Mr. Miller drafted legislation
last Congress on SCRA and I am happy he is here with us today.
I now recognize the Ranking Member, my good friend, Mr.
Filner, for his opening remarks.
[The prepared statement of Chairman Miller appears on p.
62.]
OPENING STATEMENT OF BOB FILNER
Mr. Filner. Thank you, Mr. Chairman, I appreciate you
holding this hearing today. I know you have a rigorous
oversight schedule and I am glad we are undertaking this issue
for our first hearing.
I would like to ask unanimous consent that Mr. Reyes may
introduce a statement for the record. Unfortunately his wife
had an accident so he is with her this morning. He planned to
be here today and has a statement to introduce into the record.
The Chairman. Without objection.
[The prepared statement of Congressman Silvestre Reyes
appears on p. 85.]
Mr. Filner. This is of course a very important issue as the
Chairman stated and we have to monitor it, especially as our
foreclosure crisis continues to unfold.
I want to thank all of the panelists here and especially
those who have traveled great distances.
We want to find out why banks such as JPMorgan Chase have
overcharged our military families who are actively engaged in
defending our Nation.
While we want to know how these charges happen, we also
want to know what is being done to prevent them from occurring
again.
As foreclosure filings continue to rise, the effect on
Americans has been acute, with my State of California having
one of the most affected populations. According to RealtyTrac,
California metro areas such as San Diego have been seriously
affected by these foreclosures. Like many of our Nation's
heroes, and most Americans, see homeownership as an integral
part of the American dream. Unfortunately, for a number of our
military families that part of the American dream has become a
nightmare when JPMorgan foreclosed on their homes.
It is my sincerest hope that JPMorgan Chase will be taking
immediate corrective steps to restore these families to their
homes as soon as possible. I have grave concerns for as you
mentioned Captain Rowles and his wife who are here. They have
been through a 5-year nightmare with this bank. It is
unconscionable that any family would have to endure this kind
of treatment, but especially a military family.
For many of our returning servicemembers and veterans, the
stress of what they have gone through by serving in a war may
still affect them, that is why the protections under the
Servicemembers Civil Relief Act are there to provide protection
for all of our military families.
So, Mr. Chairman, I thank you for your commitment to stand
up for veterans and their families by making sure that we take
all of the steps necessary today.
I look forward to hearing the testimony and I want to thank
those families who are here and have stood with our Nation. Now
it is time for our Nation to stand with you.
I yield back, Mr. Chairman.
[The prepared statement of Congressman Filner appears on
p. 63.]
The Chairman. Thank you, Mr. Filner, and I will now ask the
first panel if you would please approach the head table.
With us today we have co-counsels representing Captain and
Mrs. Rowles, Mr. Dick Harpootlian and Mr. William Harvey. They
are accompanied by Captain and Mrs. Rowles. And Mr.
Harpootlian, we appreciate you bringing the Rowleses and coming
to testify before this Committee.
Your complete written statement will in fact be entered
into the record and you are recognized. If you could real quick
right in front of you there should be a button to turn the
microphone on.
STATEMENT OF RICHARD A. ``DICK'' HARPOOTLIAN, ESQ., RICHARD A.
HARPOOTLIAN, P.A., COLUMBIA, SC; ACCOMPANIED BY CAPTAIN
JONATHON ROWLES (USMC), AND JULIA ROWLES; AND WILLIAM B.
HARVEY, III, ESQ., HARVEY & BATTEY, PA, BEAUFORT, SC
STATEMENT OF RICHARD A. HARPOOTLIAN
Mr. Harpootlian. Thank you, Mr. Chairman. It is an honor to
be here today with the Rowleses. It is an honor to have met
them and Lieutenant Colonel Sarah Letts-Smith, and Marine
Corporal Hupfl who Bill Harvey and I represent, all three of
them.
And since we have become involved in this case we have met
and talked to numerous other members of our military services,
fighting men and woman who have been through a living hell.
While they have been trying to fight our enemies, they have had
to fight a second front on the home front. They have been
subjected to some of the most degrading, intimidating conduct
that anybody--anybody that in my 40 years of practicing law
have been subjected to.
My written statement details what the Rowleses went
through, 5 years of it.
If you watched The Today Show on NBC this morning you saw
Lieutenant Colonel Letts-Smith describe what she went through.
And what they went through was not--and I have read the
statement of Chase--human error, whoops, we found out we were
taking money we shouldn't have taken, we subjected these people
to illegal conduct, we made a mistake, we are going to correct
it.
I was a State prosecutor for 12 years in South Carolina,
every person we ever caught breaking the law, taking something
that wasn't theirs was more than willing to give it back, give
a mea culpa and go the other way--beyond their way.
I made some suggestions in terms of making this law tougher
so that this isn't a debit on a balance sheet for a big bank so
that they are deterred in the future from treating our American
heroes the way they treated these folks.
Now one of those is to make it a felony rather than a
misdemeanor. The second thing is to make the sanction stiffer.
And third to give attorneys' fees. And attorneys' fees in many
of these cases--we are in a class action--many of them are
individual cases much like a 1983 case where the damages may
only be--the financial damages may only be $1,000, but you want
to incentivize lawyers to get involved in representing our men
and women in the military who have been wronged.
It is amazing to me--and I know Bill Harvey who has a son
that is a helicopter pilot for the Navy, that anybody, let
alone these folks, are treated in this fashion.
Now I talked to probably 100 military personnel that called
me or e-mailed me that have been treated much the same way, and
came to the conclusion that as you talk to corporate
representatives, as you talk to these banks--not just Chase,
but all of them--they treat our American fighting men and women
as if they are insects. I mean that may be too strong a word,
but you have seen the written statement and you can hear from
those folks in a moment, they went through hell. This guy is
deployed defending us. Sarah Letts-Smith is in Iraq, two tours.
They took her house. Put her kids and husband out on the
street.
This is like a bad movie, except they are living it. While
they are trying to defend us they are catching friendly fire,
so to speak, from this country.
Now philosophically--we talked about this at dinner last
night--and the Captain is far more gentle about this than I am.
He does believe the criminal penalty should be increased, and
he wants Chase prosecuted, and he has spoken to our U.S.
Attorney in South Carolina, Bill Nettles, and obviously I am
not privy to what the U.S. Attorney's Office and U.S.
Department of Justice (DOJ) is doing, but I can tell you that
that conversation went very well, and Bill Nettles has also
spoken to Sarah Letts-Smith.
And so there is perhaps some criminal prosecution going
forward, but the penalties need to be stiffer, the banks need
to understand that they are not going to have their way with
our American fighting men and women.
The last thing I would say is this. The United States
Supreme Court, within the last 24 months in a case called
Citizens United, decided that corporations have civil rights,
the constitutional right to free speech. Well, with the
constitutional right to free speech goes the constitutional
responsibility that every citizen has. Patriotism is defined by
the dictionary as loyalty to the country and a willing to
sacrifice.
These corporate citizens have lost--if they ever had it--
the willingness to sacrifice a penny for our fighting men and
women and to do what these folks do every day for a hell of a
lot less money than the bonuses they are getting on Wall Street
on the banks.
Thank you.
[The prepared statement of Mr. Harpootlian appears on p.
65.]
The Chairman. Thank you, Mr. Harpootlian. And Captain and
Mrs. Rowles, again, thank you for your persistence without
which really several thousands servicemembers may not have
benefited from SCRA.
In addition to questions that we are going to have for your
counsel, I may have a couple questions for you and you may
answer them if you want to. If you don't feel comfortable
answering, you are welcome to refer them to your counsel, that
would be entirely appropriate.
And I would like to ask, do you have a statement that you
would like to give us or a few words before we begin
questioning Mr. Harpootlian? Captain.
Captain Jonathan Rowles. I do not, sir. Mr. Harpootlian
said everything.
The Chairman. Mrs. Rowles.
Mrs. Julia Rowles. I am fine. Mr. Harpootlian has covered
pretty much our battle thus far.
The Chairman. Thank you.
I will ask if I can the first question of both of you, and
again, you can answer the question or Mr. Harpootlian can
answer it for you.
When did you first realize that Chase had violated SCRA?
Did you notify the Marine Corps legal staff? And if you did,
what action did they take on your behalf?
Captain Jonathan Rowles. Yes, sir. I first learned about
SCRA while I was at Officer Candidate School (OCS) and my
rights thereof.
Afterward in 2008, after lengthy letters and calls and
whatnot, I did go to the legal staff at Naval Air Station
Pensacola where I was a flight student at the time. They looked
over the case, but they were unsure of how to proceed, and due
to the volume of other cases that they had at the time they
just did not have the resources to pursue it, at which time we
were told that we were doing pretty much everything we could,
sir.
The Chairman. And you say you were first educated about it
at OCS?
Captain Jonathan Rowles. Yes, sir. We got a class while we
were at OCS there in Quantico, Virginia, on our rights to SCRA.
The Chairman. Can you give us some idea of the reaction
when you contacted JPMorgan Chase, and how they handled the
situation? And I am sure you both had conversations with them,
so feel free to elaborate.
Captain Jonathan Rowles. Yes, sir. I would characterize it
as delayed and confused. I was asked to fax my orders several
times back and forth. And being in the field you would have
to--you would fax your orders, you would go away for a week or
2, you would come back to find they would ask for it again. You
get a statement that is not correct so you call to recognize
it. They say they need your orders again. At that point, I got
a letter from my commander as well just to emphasize the point
that I was active duty and sent my orders along with that as
well, sir.
Mr. Harpootlian. Mr. Chairman, I think if Mrs. Rowles could
speak. She was pregnant with their second child, he is
deployed, the child was born prematurely. She was having to
deal with the birth of a child alone and Chase at the same
time, and she is a little more emotional about it than he is.
Mrs. Julia Rowles. Yes, sir. Chase always had a problem
with acknowledging any of our evidence or our homework I guess
you would say in our SCRA benefits.
We would instruct them that we are doing everything we
could. We did make our payments every month on time in the full
amount that they were supposed to be for, but however every
month our statements were different.
While Jonathan is away either in training, flight school,
or any of his Marine Corps duties, I was left at home to deal
with Chase and their problems.
We have two children, one of them was born prematurely and
had to have a lengthy stay in the hospital, but yet at the same
time I am dealing with Chase and getting their phone calls,
getting their harassment around the clock.
Jonathan missed 2 hours of our daughter's birthday party
because Chase simply would not hang up the phone until he made
a payment in which we had already paid our mortgage.
This constant harassment and constant ignorance for the
SCRA benefits to servicemembers is ridiculous and it is
actually--it is very upsetting that for 5 years we have had to
educate Chase as to the benefits that we are--we were privy to.
The Chairman. Entitled to.
Mrs. Julia Rowles. Entitled to, I am sorry.
The Chairman. Did they ever acknowledge the fact--I mean
obviously if they kept asking for orders they must have known
that there was something that they had to abide by?
Mrs. Julia Rowles. We were--sir, we were sending them
orders quarterly, which we later found out we did not have to
do. Once you send in orders and verify that you are indeed
active-duty military, we were acknowledged, we were granted the
permissions under the SCRA, that should have been it until his
contract expired and had he continued military service.
We had done that time and time again. And it is very--we
didn't have to do this. It was harassment even without
collection calls constantly sending them, I guess his orders
and all other paperwork, was harassment.
The Chairman. I have some other questions that I want to
ask, but I want to go ahead and turn the microphone over to the
Ranking Member, Mr. Filner.
Mr. Filner. Again, thank you for being here. I know it is
not easy sometimes to do this and talk about your personal
situation, but I think you are going to improve the lives of
tens of thousands of people, so we really do appreciate it and
we are sorry you are going through all of this.
The fact that we have some publicity for what you are going
through means we will have some changes. There are literally
tens of thousands of other people, many on active duty, who the
banks are putting through hell.
The so-called loan modification programs don't work, people
are having to provide this kind of information over and over
and over and over again.
I have been on the phone with my constituents trying to
call the major banks and they put you on hold for almost an
hour at a time and switch you around to different people. After
you think you got to right person, they take your information
and then say they are the wrong person. Or, the next time you
call, you get a different person who says, ``I don't know what
that person said, it is not in the computer so tell me your
story again.'' I mean it goes on and on and on. People get so
sick of fighting it that they just put their keys on the
kitchen counter and leave. You have fought hard and that is
important so we thank you for that.
But what is going on around the country is just tragic, it
is immoral, I think it is illegal not only for those who are
covered by SCRA, but for everyone.
The banks have packaged, repackaged, and resold so much
that nobody knows who the owner of the note is. I don't think
any court has really approved any of the foreclosures that have
come before them, but it is impossible, to know who really owns
the loan. I think people should just stay in their house,
frankly.
I know the Chairman will be very surprised that I led a
little demonstration around a house in my district that was
going to be foreclosed on--we believed illegally. The sheriff
was going to show up at 6:00 in the morning, so we had a couple
hundred people surround the house at 5:00 in the morning. I was
on the front steps just waiting to be taken away, because I
thought a ``sit in'' at a house like that would spread across
America like the ``sit ins'' during the '60s for racial
justice. But one of the biggest banks in the world and the
sheriff just backed down from all the publicity they were going
to get if they foreclosed on this woman who had two kids who
were very sick. It was a tragic story.
I think what is going on all around America is wrong,
tragic, and I am glad that you can be here to highlight some of
that.
The Chairman. Would the gentleman yield just a minute?
Mr. Filner. Yes, sir.
The Chairman. I just want to ask you a question. This may
be a question you are going to ask because you just----
Mr. Filner. Please.
The Chairman. Was JPMorgan Chase the company that you
actually got your loan through or was your loan sold to them?
Captain Jonathan Rowles. My loan was sold to them, sir.
The Chairman. Okay, thank you.
Mr. Filner. And we don't know if they sold that to somebody
else, right?
Captain Jonathan Rowles. No, sir.
Mr. Filner. I doubt if they owned it, but we will see when
they come here.
I just want to again thank the counsel. You have made some
very important and specific recommendations for us.
Mr. Harpootlian. Thank you.
Mr. Filner. I think you gave us a lot of guidance. It is
some of the best testimony I have ever heard here because you
told us what we need to do.
By the way, if we increase the penalties, and I agree with
you, can they refuse to handle loans in such a situation so
they will never be subject to punishment. Do we have to do
something about that too?
Mr. Harpootlian. Well, I mean I think obviously they don't
have to as we know now they don't loan to people they don't
want to loan to, they don't modify if they don't want to.
You know, I believe there are honest, well meaning, good
people. Many of the small banks are modifying loans.
Mr. Filner. Right, the small banks.
Mr. Harpootlian. The small banks are doing it. I mean they
are not driven by the $100 million bonuses, so the marketplace
is a wonderful place, and I think it will be--if they don't
want to loan money because they think they may be violating a
Federal law and go the jail for it then they shouldn't be in
the banking business.
Mr. Filner. But we may have to say something for an active-
duty application to be creditworthy with a lender.
Mr. Harpootlian. Well, that is certainly within your
purview.
Mr. Filner. I just am afraid that they will just take the
path of least resistance and not give loans at all.
Mr. Harpootlian. Well, remember these folks under the law
buy these houses before they go in.
Mr. Filner. I see.
Mr. Harpootlian. So they are not active duty at that time.
Mr. Filner. Okay. That's good.
I really do appreciate your recommendations and I
appreciate your persistence and your courage for the Rowleses.
Thank you, Mr. Chairman.
The Chairman. Thank you very much. We will take questions
from Members who were here as the gavel went down. So Mr.
Lamborn, you are first.
Mr. Lamborn. Thank you, Mr. Chairman, and thank you for
your service to our country, Captain Rowles and to Ms. Rowles,
thank you for your sacrifices. You make sometimes just as many
sacrifices as a spouse and mother and wife that your husband
does, so we appreciate that.
I guess for Mr. Harpootlian, to make sure that this kind of
thing doesn't happen again you said on the SCRA that you think
the criminal penalty should be increased. Should there be
anything else on the civil side that should be done as well?
Mr. Harpootlian. Sure. Right, I mean the criminal penalties
need to be increased and Congress all the time passes mandatory
minimums for somebody that makes $100 off some crack. I suggest
that you need to look at the criminal penalties here as if they
were selling crack.
As to civil penalties I think they need to be increased,
and I have said that if they voluntarily report that they may
get some credit for that so they are not under a--I mean this
thing has been going on at Chase for 5 or 6 years at least, and
we submit--we haven't done any discovery in our case, it is
stayed pending the Fourth Circuit's decision on private cause
of action--but we submit that obviously somebody with the kind
of calls they were getting and dozens of other people were
getting and the complaints they were making had to work its way
up to somewhere, and those folks need to understand they have
an exposure to going to jail.
I was a State prosecutor for 12 years. Let me tell you
something, anybody wearing a white collar thinks about that
before they violate the law, and if you have a sanction that
sends that message I think the banking industry will look at
what they do or are doing when they get a complaint and try to
correct it immediately rather than sitting on it for 5 or 6
years.
As to civil, again, I think they need to be increased to
half a million dollars, and you need to give--if this were not
a class action, an incentive for somebody to represent the
Captain or people like him on an individual case by awarding
attorney--or allowing a court to award attorneys' fees if they
find it to be appropriate.
Mr. Lamborn. And I am not wanting to make any comment on
the ongoing action, you know, the courts will sort that out as
this action goes forward, I am just talking about
prospectively.
Mr. Harpootlian. Absolutely.
Mr. Lamborn. Yeah.
Mr. Harpootlian. Absolutely. And Bill Harvey and I have
talked about this at great length that prospectively there are
a lot of things that can be done and where we are in a case
that is pending in court waiting for the Fourth Circuit to
decide whether the amendments you all made last year indicating
there is a private cause of action are only prospective or just
a clarification. That is pending in the Fourth Circuit right
now.
Mr. Lamborn. And Mr. Harvey, would you have anything else
to add before I close on the civil side of things? You have
spoken eloquently about what you think should be happening on
the criminal side of the statute.
Mr. Harvey. Well, the penalties on the civil side we
believe need to be increased. So many people--you read JPMorgan
Chase's statement where the average damage is $70 that they are
sending back. Seventy dollars really doesn't incentivize many
attorneys to handle a private cause of action case such as us.
If you increase the civil penalties, you increase the
attorneys' fees, I think it would help people like the Rowleses
be able to prosecute their own rights.
Mr. Lamborn. Now and for either one of you, my
understanding from practicing law years ago is that the Fair
Debt Collection Practices Act doesn't allow creditors to call
in the middle of the night or keep calling when someone says
please don't call me again. There are remedies already in law
right there, including Colorado. Prospectively does this
statute need work on that front as well?
Mr. Harpootlian. Well, of course we brought a class action
and Congress for whatever reason limited class actions to a
gross of $500,000 per class. Now individually you could do that
and you can get attorneys' fees for that if they violate the
Fair Debt Collection Act. But in this context if there are
5,000 of them out there it would be, you know, $100 a piece in
damages under the Fair Debt Collection Act. And we are looking
at that, but our case is stayed and we need to see what the
Fourth Circuit says about the private cause of action under
this Act.
Mr. Lamborn. Okay. Thank you gentlemen. Once again thank
you for your service.
Mr. Chairman, I yield back.
The Chairman. Thank you. Mr. Michaud.
Mr. Michaud. Thank you very much, Mr. Chairman, Mr. Ranking
Member for having this hearing today.
I have a couple of questions. Mrs. Rowles, you mentioned
that you have had several conversations with JPMorgan. After
your several conversations, have you ever talked to anyone in
management, and if so what was their response?
Mrs. Julia Rowles. Thank you, sir, that is a wonderful
question. And yes, we have tried numerous times to speak with
anybody in management. There were occasions where we were told
we were speaking with management, and to our surprise,
management did not know how to fix our problem either.
Jonathan and I traveled to Colorado from South Carolina
briefly right before he deployed in July because we thought we
found a mortgage branch manager that said he could help us. And
after sitting with him for hours on two different dates, he
threw up his hand in the air and said I have no clue how to fix
your situation, there is nothing I can do, sorry. And that was
pretty much the consensus of every manager we spoke with.
I would spend hours trying to find people that actually
would talk to us and that would not just write down our name
and number and say that they would call us back. We have spoken
with managers in South Carolina to Texas to California, nobody
knew how to fix our problem.
Mr. Michaud. Okay, thank you.
For the attorney, it seems hard to believe that JPMorgan is
the only bank that is doing this. Are you aware of any other
institutions that are doing this?
Mr. Harpootlian. Well, there have been news reports of, I
think, other institutions. And your last witness today from
Louisiana will explain. He is suing a whole lot of banks on a
whole lot of these violations.
So we have been focused on our case which is Chase,
because, you know, I am a three-man law firm, Bill is a small
law firm, we are taking on a behemoth so we are keeping our eye
on the ball.
But again, your last witness today a gentleman from
Louisiana is suing a bunch of them and I think he can tell you
in chapter and verse who is doing what. But it seems to be an
industrywide--and that is why I talk about this corporate
citizenship--there is no sense of them having any patriotism. I
mean these folks don't care about, or at least they exhibit no
care about, our fighting men and women, and I deem that to be
unpatriotic.
So if you are going to get the rights of free speech, which
they were given by the Supreme Court, you should have the
responsibility of supporting this country when it is in need.
And by the way, when the banks needed help, everybody here
helped them, everybody here helped them, and now these folks
need them. They have enough to give them the help and now our
fighting men and women need help and they are saying we are
sorry we are going to give you back the money plus seven and a
half percent interest, no harm, no foul, and that ain't enough.
Mr. Michaud. Another question, and I don't know if it is
hard to prove, but when you look at the fact that suicide rates
among our active military personnel have increased dramatically
because of what is happening in Iraq and Afghanistan, and also
if you look at some of the concerns that those who have
committed suicide a lot of it actually deals with financial
issues and problems at home.
My question to you is since Citizens United gave, you know,
their rights to, you know, corporations, and since I am
pretty--well, I don't know for sure--but you probably could
assume that some of those suicides have been because of
financial problems that could ultimately have led to banks such
as JPMorgan and others doing what they have done to our fine
men and women who are wearing the uniform, is there any--is
this--can you comment on that as far as suicides?
Mr. Harpootlian. Well, I know this from talking to dozens
of military men and women that called me and Bill after The
Today Show ran the initial spot. Everyone of them had a story.
I know I talked to one guy who was in Afghanistan calling the
bank because his wife couldn't get any answers. Using--and they
get--I mean I am not in the military, but they get a card with
so many minutes that they can call home on. Sarah Letts-Smith,
one of the plaintiffs here, in Iraq having to use the time she
ought to be talking to her husband and four kids to call home.
Now Sarah is a tough cookie, but she even was brought to tears
when she talked about this.
So does it have an emotional impact? No question about it.
Is that what you want somebody that is in an F-18 over
Afghanistan or over Iraq, is that--you want them worried about
that, that kind of pressure or is it patrolling Afghanistan or
one of the other spots that we are in is? Is that what you want
them focused on?
I am not a psychiatrist, but I will tell you every one of
these folks, and I mean Sarah and Jon are very stoic here this
morning, but when you talk to them about what they went
through, and these are tough people and it brings them to
tears.
So I think it has an emotional impact, I think it is
deleterious to our ability to win. I mean if you get it down to
brass tacks. You don't want these folks worried about is the
wife and kids going to be on the street as Sarah Letts-Smith
found out. They evicted and threw her family on the street,
foreclosed her house. The Act is clear they could not do that.
They violated. Chase did that. And they have said they have
given or rectified it with 12 people; 12. We know now there is
maybe 15 to 20. All these folks went through hell.
And again, whether it caused suicides or not I don't know,
what I do know is when you are a weapons officer on an F-18 and
you are flying in dangerous situations you want to be focused
on that and not about whether your pregnant wife at home who is
having a baby and getting calls at 3 o'clock in the morning
from collection people is going to be thrown out on the street.
I mean it is simple. And that is what the Act is about and
this Committee has spoken clearly about that last year and
every year. I mean as I have said in my statement historically
going back to the 1919, 1918, this Congress has made it clear
they don't want that to happen, it is happening, and there is
only one reason for it, greed.
So I encourage you to take the action to make sure that
there is a consequence for that kind of conduct.
Mr. Harvey. And Congressman, if I may add, Congressman
Filner spoke about modifications, loan modifications. A lot of
times these servicemen and women, they are on their second and
third tour, the value of the house has gone down, they need a
modification. They go to these banks, you know, they are
getting paid fighting wages instead of their wages that they
can earn at home and yet the banks turn them down almost
categorically for modifications.
This Committee might consider something to do with loan
modifications for active servicemen and women.
The Chairman. Dr. Benishek, do you have a question?
Mr. Benishek. Yes, I do. I understand you went to the court
or the legal assistance that you had through the Marines?
Captain Jonathan Rowles. Yes, sir, every Marine is afforded
the opportunity to meet and talk with lawyers about various
legal situations at the base they are at.
Mr. Benishek. Did they seem to understand this bill here
that afforded you this protection, and do they offer the
services of contacting the banks for you? I mean it seems to me
you started with these people and they didn't help you, then
you had to contract your own lawyers to work it out.
Captain Jonathan Rowles. Yes, sir. We presented all the
evidence that we had there in 2008 to the lawyers at my duty
station, and I just don't think it was in their lane, sir, and
they didn't know a lot about the intricacies of it. And I had
explained what I had been doing with letters and phone calls
and searching for various people, and at that time they
believed that was about all I could do. And so for a good while
I continued to believe that that was all I could do, but I
continued to make the phone calls and letters anyway until
they--Chase threatened to affect my credit at which point--
which is a big deal when you hold a security clearance--and
that is when I took action to seek private counsel.
Mr. Benishek. All right. It just seems to me that there
should be some method through the military in order to obtain
your rights through their counsel. I am just a little bit
chagrined that you had to, you know, suffer through this
prolonged process on your own basically.
Mr. Harpootlian. Well, sir, the problem is the military
counsel, they are not really in the business of suing people
or--I mean that is what you--I mean ultimately the only way you
are going to make them do the right thing is sue them.
In the Marine Corps, Judge Advocate General (JAG) folks,
that is not what they do, and the Justice Department now is
somebody that could do that, but are they going to do that over
a, how much was it Bill, average?
Mr. Harvey. Seventy dollars.
Mr. Harpootlian. Seventy dollars, no. So, I mean these
things fall through the cracks. And I can tell you these are
very educated, very sophisticated, as is Sarah Letts-Smith,
they knew their rights and they pursued them. There is a bunch
of folks out there that never claimed it because they didn't
understand it.
So I would suggest that what could happen, I mean a simple
thing like a Web site, and Sarah and I talked about it the
other night, where you could go on and say I am getting
deployed, this is what I have, what can I do? And have a--you
don't need it at a base, you need a national--somebody that is
up to speed on it that can answer questions on a help line. I
mean if my Apple computer breaks, I get help real quick. I
don't know why our military folks can't get that same kind of
help. And this Committee would do something about that.
Mr. Benishek. Thank you.
The Chairman. Thank you, Doctor. Mr. McNerney.
And also I would like to add that we will have testimony
from the U.S. Department of Defense (DoD) in a couple of
minutes. One with a brand new program that I hope will shed
some light on what DoD is doing now to help provide this
information to our servicemen and women.
Mr. McNerney.
Mr. McNerney. Thank you, Mr. Miller. First I want to
congratulate you on your elevation to Chairman.
The Chairman. Thank you.
Mr. McNerney. I look forward to working with you on these
issues in the next few years.
I want to thank Captain and Mrs. Rowles for your service to
our country. You volunteered, you didn't get drafted, and that
just speaks a lot about what your intentions are for our
country.
My first question has to do with when did these banks know
that they were violating law? I mean did they know or is there
a difference between what the large banks know and what the
small banks know? Or were they just ignorant and wanted to
remain ignorant or where was this coming from?
Mr. Harpootlian. Well, I think you can get a chance in just
a few minutes to ask Chase about that, and perhaps they will
tell you. They are not under oath so they will tell you what
they think happened.
I have read their statement, which is oh, you know, stuff
happens. So I don't know.
If this lawsuit is allowed to go forward, I can guarantee
you we are going to find out.
Mr. McNerney. Well, I mean they were informed----
Mr. Harpootlian. Five years ago in this case.
Mr. McNerney. They were informed repeatedly.
Mr. Harvey. Constantly.
Mr. McNerney. So you really can't claim ignorance after
being informed year after year, phone call after phone call.
Well, right, we have to see what happens in the lawsuit.
Were there any of your clients that are facing
repercussions in their crediting rates and their careers with
regard to this?
Mr. Harpootlian. All of them. Sarah Letts-Smith has a
security clearance, she is a lieutenant colonel in military
intelligence. She cannot get a car loan now. She cannot get any
credit whatsoever. She has a terrible credit report and that
poses serious threats to her security clearance. So--and you
just heard from the Captain the same thing.
Mr. McNerney. So I mean this is affecting the whole
spectrum of your life. Your ratings, your career, the whole
bit.
Mr. Harvey. And I spoke with Martin Hupfl who is one of the
named plaintiffs about his auto loan. He went to buy a car last
week and could not get an auto loan and they cited Chase's
closing down of his--and reporting his prior auto loan which
they closed down while he was in basic training at Parris
Island.
Mr. McNerney. Is Chase able to take back this damage in any
way or are you stuck with it?
Mr. Harpootlian. Oh, we hope so. We hope so. We hope both
of the criminal side and on the civil side. But again, we are
pretty early in this process.
Mr. McNerney. So the lawsuit may be the sort of tool to
educate these lenders that there are laws that they need to
comply with.
Mr. Harvey. Unfortunately lawsuits tend to be that way. The
only thing that gets their attention.
Mr. Harpootlian. Well, I will say this, and that is why I
talk about these criminal penalties, you know, if you are on
the wrong side of that razor wire that is a lesson you never
forget, and I would suggest increasing the penalties and
encouraging the Department of Justice to be aggressive and
prosecuting.
Under the current law, it is a misdemeanor and you can go
to jail for a year. Put somebody in jail, then banks will stop
doing it. As long as it is a debit or a credit on a balance
sheet it is a risk whether you are buying securitized loans or
whether you are risking getting caught doing this, it is just a
risk as long as it is a financial problem, a financial risk.
Mr. McNerney. I mean there is bound to be a lot of
servicemembers that are facing this and not bringing----
Mr. Harpootlian. Absolutely.
Mr. McNerney [continuing]. I mean there is bound to be.
Mr. Harpootlian. Absolutely.
Mr. McNerney [continuing]. Thousands.
Mr. Harpootlian. Yes, sir.
Mr. McNerney. Tens of thousands, there is bound to be.
Mr. Harpootlian [continuing]. We believe so.
Mr. McNerney. Well, especially people from the National
Guard that have jobs and expect to have a certain pay and then
get pulled into service.
Mr. Harpootlian. Again, Sarah Letts-Smith was in the
Reserves, she had a great job, her husband had a great job, she
gets activated, goes to Iraq, her firm that she worked for had
less than 50 employees, they fired her, her husband lost his
job, and then, you know, she is over there trying to fight to
keep them in their home, and you know, winning the military
battle, but losing the fight at home.
Mr. McNerney. So I mean I was going to ask what took so
long for Chase to recognize this problem? But it seems to me
like----
Mr. Harpootlian. We brought a lawsuit, that is what got
them--this complaint we understand is what started the process.
Captain Rowles came forward, a complaint went to the Justice
Department, and we filed a lawsuit.
Captain Rowles is responsible for everything that has
happened as a result of the attention that has been given.
Mr. McNerney. Well, and of course Chase is the only one
that is stepping forward at this point in time; is that
correct?
Mr. Harpootlian. We pushed them. They are not stepping
anywhere. They had a big nudge.
Mr. McNerney. They are being pulled forward. So all the
other lenders are out there in this bliss that they have and
not being made to pay the price yet.
Mr. Harvey. Well, we hope that they are listening to you
all and what we are doing here.
Mr. McNerney. Okay. Well, our line has been drawn. Thank
you.
The Chairman. Thank you very much.
And so the Committee knows we have reached out to the
American Bankers Association (ABA) and will help in educating
as best we can, but that doesn't change the fact that we are
here because of what has happened in the past and your line of
questioning is right on target and I thank you.
We have a Member who would like to speak out of order
because they need to go to another hearing. Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman, and let me commend
you and the Ranking Member for this hearing. This is very good.
I guess we should clear the air here and point out that
JPMorgan Chase got $25 billion in Troubled Asset Relief Program
(TARP) funds, so for them to settle for a mere pittance of $2
million based upon, you know, not even providing economic
damages to these people, not providing pain and suffering
damages, not to mention what they did was illegal, I guess my
question for the counsel is, under the Servicemembers Civil
Relief Act, which maybe it has already been asked, were these
military people aware of this Act? Was Chase aware of this Act?
Mr. Harpootlian. Well, all these folks had to send the
orders, the ones that are members of the class, the 4,000 or
5,000, whatever today's number is--we heard several different
numbers--in our class action had to send in the orders, had to
ask for protection to be a member of the class. So they were
aware.
Mr. Stearns. Okay.
Mr. Harpootlian. And Chase got their orders and got to
documents, so they were aware.
Mr. Stearns. In your estimation just off the record, do you
think there are other institutions, financial institutions
besides Chase that are doing this?
Mr. Harpootlian. Well, in a moment you are going to hear
again from this gentleman from Louisiana, an attorney down
there that is suing, we talked this morning, Bank of America, a
number of other financial institutions, he has individual cases
and may very well have class action cases, so it is based on
what he tells me rampant.
Mr. Stearns. Is Goldman Sachs included in that list?
Mr. Harpootlian. You will have to ask him.
Mr. Stearns. Okay, okay.
Mr. Chairman, I think at some point it would probably be
useful for you and the Ranking Member, and I would be glad
obviously to sign on for a U.S. Government Accountability
Office (GAO) audit of this problem or bring some kind of
Inspector General here, which I think would corroborate all
this information, but also give it an official overlay which
the counsel could use based upon that information. I think that
would be helpful for you wouldn't it?
Mr. Harpootlian. Oh, absolutely.
Mr. Stearns. Yeah, so I would recommend at your earliest
convenience we send that letter out and get this investigation
started.
I will just conclude and thank you, Mr. Chairman, for
allowing me to speak. I have to go to another meeting.
Obviously, everybody in this room is appalled and outraged
by what happened to these military people. I think that is why
many of use serve on the Veterans' Affairs Committee because we
care so much for our servicemen and women and know the
sacrifice they are making, and so I am very glad to lend my
support to this investigation and just express my outrage of
what happened.
Thank you, Mr. Chairman.
The Chairman. Thank you, Mr. Stearns. Mr. Walz.
Mr. Walz. Well, thank you, Mr. Chairman, and I too would
like to congratulate you on assuming the chair. Your commitment
to veterans has been unquestioned and unwavering and your
ability to work with everyone on both sides of the aisle is
well known also, so thank you for holding this hearing.
To the Rowleses, you are not going to get enough
``sorries'' in this, and that doesn't cut it. What you have
gone through, and I think Ms. Rowles you brought up a very good
point on this is, the harassment that comes on birthdays and
things like that, this is your life.
And Mr. Harpootlian brought up, I think, the key issue on
this is this Act wasn't passed to give some type of bonus or a
lottery to servicemembers, it was meant to make sure you could
focus on your job while defending this Nation without the
worries back home.
I have been waiting years for something like this to happen
because I have been screaming about it. As a senior enlisted
soldier with a deployed unit who spent weeks dealing with these
things and it is not just houses, it started out with cars, it
moved to leases, and I will tell you the hardest one was cell
phone contracts. No, I don't need that contract anymore I am in
Iraq so I would like to cancel it early without the penalty.
Oh, no, oh, no, you are going to pay the full amount for that.
I, too, have expressed great outrage on this because of the
hardship it puts on the family. If the spouse at home is
unhappy, our National defense is degraded from it. I have seen
it every time it happens and it is absolutely unacceptable. So
thank you for bringing this up.
A couple things I want to focus on and I want to avoid the
gross generalization, but I think the Chairman brought up a
good point, there are some great learning opportunities here,
there is also a lot of learning opportunity on tort reform that
we are talking about and I hope we start thinking about that in
terms of what tort reform of stopping this individual's right
to get just compensation when they are wronged needs to be
toned down, and gross generalization of tort reform needs to
happen, it is out of control. Well, you have a constitutional
right to be here and we need to get this right.
My question to you, and it was brought up by Mr. McNerney,
I am very, very concerned for your military career because I
know as a senior enlisted person how bad this can damage you.
Have you felt the repercussions?
Captain Jonathan Rowles. No, sir, my command has been very
supportive of this. The most--the scariest part of this entire
thing was when I received the letter that this could go to
collections.
Mr. Walz. Yes.
Captain Jonathan Rowles. And as everyone knows in this room
collections effect a security clearance.
Mr. Walz. That is right.
Captain Jonathan Rowles. And my job requires a security is
clearance. If I don't have that, I can't fly and my career is
wasted.
Mr. Walz. I have seen careers ended because of the issue.
Captain Jonathan Rowles. Yes, sir.
Mr. Walz. And it happens all the time unfortunately.
My next question went with that chain of command and we
heard about it and I think Mr. Harpootlian brought up a great
point on where the JAG office can help in all those things.
I, as a senior enlisted soldier, was well versed on this as
early as 2004 after the Soldiers and Sailor's Civil Relief Act
was modified to servicemembers. We were well versed on this so
I was on the phone a lot. The frustration I had that you had
was that I was far more well versed than the lenders on the
other end. But I got to the point after a while was that
claiming ignorance wasn't good enough, that there was knowledge
on the other side.
My question to you is, is your chain of command well versed
in this? Do you think they did everything they could? And I am
not sure as a captain who did you go to? Did the sergeant major
do anything or is it through the JAG office?
Captain Jonathan Rowles. Well, sir, I went through several
different commands during this 5-year period. Quantico,
Pensacola, San Diego, and I visited with the JAG officer in
Pensacola just to get a feel of what my rights would be, and
every chain of command that I have expressed this with has been
supportive. I have asked them for letters of proof and so I
could further what the banks were asking for at the time, and
every chain of command has been supportive of that. Although I
don't think they are all well versed as we are now.
Mr. Walz. Well, I am going to ask a question, Mrs. Rowles
this might be you. Did you ever talk to someone on the phone
who was a veteran?
Mrs. Julia Rowles. No, sir.
Mr. Walz. It would be a lot easier wouldn't it if they
understood what an order looks like, if they understood what a
new station of duty meant and all of those things? Has there
been any efforts on the bank to maybe hire some people like an
ombudsman that was actually a veteran that would understand
what you are talking about? Have you ever had----
Mrs. Julia Rowles. I sure would hope so. It would make it,
sir, on our behalf, a lot easier talking with these people
knowing we move all the time. We have in the past 5 years, we
have been at four duty stations. Every time we have had to send
different orders in, and half the time they have lost them.
Mr. Walz. Yeah.
Mrs. Julia Rowles. So it is a problem that they don't even
know what SCRA is.
Mr. Walz. Well, I appreciate it, and I am going to leave
this for the next one because I know the Chairman is very
responsive to this. There is a whole other can of worms here as
Mr. McNerney mentioned with the National Guard, because it gets
into the sticky point of when you established the loan, when
you got deployed were you already in the service? Yes, but I
was National Guard, now I am on Title 10, now it changes my
status, and the banks are going by a strict letter of the law
denying some of those things instead of the spirit of the law.
A National Guardsman deployed for 22 months is on active
duty for 22 months, but they are getting out of this by saying
you established the loan when you were only part-time, you
weren't on Title 10, and that is something the attorneys--a
whole other can of worms.
I yield back.
The Chairman. Thank you. Colonel Johnson.
Mr. Johnson. Thank you, Mr. Chairman. First of all as a 26-
plus year veteran myself, I echo what my colleague Mr. Michaud
and Mr. McNerney said, few people can relate to the sacrifices
emotionally, physically, otherwise that military members go
through and their father and mother families, and on behalf of
the grateful Nation, I want to apologize to you for what you
have gone through.
Just a couple of quick questions. What was the over all
time frame? Maybe I missed it earlier. From when this first
started till now. How long has this been going on?
Captain Jonathan Rowles. This has been going on since 2006,
sir. I was a commissioned officer on March 31st of 2006, I
first stepped on the yellow footprints January 22nd there in
Quantico. Shortly after I completed OCS after March, I sent in
my orders, at which time I was at the Basic School (TBS) in
Quantico. That took about 4 months because I kept getting
letters saying please re-verify or I would get a statement that
had an outrageous amount that I knew from experience as a
financial manager before I joined the Marine Corps was not
right, and I would call to question about it and I would get
the run around, but then I couldn't continue to pursue it
because then I would have to go to the field for a week and
then I would have to come back and start the entire process
over again of re-verifying or calling somebody and I would get
somebody else, and that has pretty much been the story since
2006, sir.
Mr. Johnson. Earlier you indicated, ma'am, that you had
talked to people in management. What level of management? And
were any of these conversations in person or were they over the
phone?
Mrs. Julia Rowles. Sir, yes. Most of them were over the
phone; however, I do not know the level of management, but we
did fly to Colorado to visit with one mortgage branch manager
that would actually sit down and schedule a meeting with us.
Mr. Johnson. So did anyone ever give you a business card
that identified them as a vice president or a director or
anyone like that?
Mrs. Julia Rowles. No, manager was all we got.
Mr. Johnson. Okay. Are you getting any help with your legal
fees now from the Act itself? I confess that I don't know what
the Act provides, but are you getting any help at this point?
Mr. Harpootlian. There is no provision for attorneys' fees
in the Act. Mr. Harvey and I are doing this on a contingency
fee. If there is a private cause of action we will be able to
recover something for the class and take a percentage of that,
which would have to be approved by a court. Judge Margaret
Seymour in South Carolina is handling this case, a district
court judge, so she would have to approve a fee.
Mr. Johnson. Yeah.
Mr. Harpootlian. But there is no provision. That is one of
the things we talk about under 18 U.S.C. 1983--or 21 U.S.C.
1983 cause of action. You can get attorneys' fees in addition
to recovering your damages. The idea being if the damages are
so small, and in these cases they may very well be, you want to
incentivize an attorney to get involved you give them the
opportunity to get attorneys' fees.
Mr. Johnson. Sure. Well, I want to applaud what the
Chairman said earlier, we are going to get an opportunity to
question the Department of Defense.
I would like to just clarify as a veteran, and I am sure
you know this too, Captain Rowles, that the legal department
within the military, they are not permitted by law to represent
us in civil cases, and so it is not maybe that they didn't want
to, it is that they are prohibited from doing so. They can
advise and I am glad to see that you did get advice. Are there
ways to improve that, perhaps.
I would just like to point out that, you know, Mr. McNerney
asked, you know, do small banks know more or less than the big
banks do? JPMorgan Chase is not a small bank. They have big
money as was pointed out in TARP. They posted a 47 percent
profit surge on January 15th, a $4.3 billion profit surge. I
think you pointed out the need for increased criminal
penalties. Obviously these folks don't understand dollars and
cents very well, so maybe criminal penalties would help in that
regard.
And Captain Rowles, I want to tell you, if your security
clearance is impacted by this I want to know because you will
get a letter of reference from me to somebody.
Captain Jonathan Rowles. Thank you, sir.
Mr. Johnson. I yield back, sir.
The Chairman. Mr. Barrow.
Mr. Barrow. I thank the Chairman, and with my thanks to
Captain and Mrs. Rowles I will yield my time for questioning
and thereby I waive opportunity and to let the other Members of
the Committee have the time. Thank you.
The Chairman. Thank you very much. Mr. Miller.
Mr. Miller of North Carolina. Thank you, Mr. Chairman. I
think all of us have thanked Captain Rowles and Mrs. Rowles
already and I want to as well, but I also want to do something
unusual and thank the lawyers. I was able to eke out a living
for about 20 years as a lawyer before fortunately enough I was
elected to Congress and got a city paycheck.
But I can imagine when the Rowleses were first sitting in
your office this case did not look like a moneymaker, and I
from time to time took cases with very uncertain damages, very
uncertain law, economically bad decisions to take the case
because the facts that presented themselves just offended my
sense of justice, and I think lawyers taking cases like that
are a service to the profession and a service to the public, so
I appreciate your pursuing this claim on behalf of the Rowleses
and so many others
Mr. Harpootlian. Thank you.
Mr. Miller of North Carolina. I did handle or introduce
legislation a couple years ago to ensure a private cause of
action because there were at that point a variety of cases
around the country that went different ways on whether there
was a private cause or action or not, and the compensatory
damages seem to be unclear, the availability of punitive
damages seem to be unclear. There was no provision for
attorneys' fees as you have pointed out.
I think there is a pretty good argument under ordinary
statutory construction principals that there should be
compensatory damages, there should be punitive damages.
Mr. Harpootlian. Right.
Mr. Miller of North Carolina. But remedies matter. What you
can do about it if you have been wronged really does matter,
and my clear impression at the time is that some of the banks
knew full well that they were pursuing legal proceedings
against people who were deployed, that that was in clear
violation of the law, and they looked at what the servicemember
could do about it and thought--made a calculation and decided
to go forward, and punitive damages is supposed to get at that
kind of conduct. And good luck with continuing this litigation.
Mr. Harpootlian. Thank you.
Mr. Miller of North Carolina. Remedies are frequently an
issue in any kind of legislation. You can fight and fight and
fight over what the law requires and then you have to have a
second fight about what you can do about it when they have been
wronged, if their rights under that statute have been violated.
Frequently the interest groups that are likely to end up as
defendants in those suits fight any kind of or a provision that
says there can be no class actions.
Would this lawsuit--would any lawyer have brought this
lawsuit if there was a prohibitional class action?
Mr. Harpootlian. Absolutely not. I mean it is one thing to
make the calculation you may not get anything because courts
are deciding it, it is another thing to try to recover $700
from a big bank and litigate that. You wouldn't even be in
Federal court, you wouldn't have the discovery mechanisms that
you have in Federal court, it would be a--it is a no brainer.
You wouldn't--I mean you could try it, but you wouldn't get
anywhere with it.
Mr. Miller of North Carolina. Well, my quick calculation is
that either you have a 40 percent contingency fee that would be
$280, that wouldn't take you real far.
And second, attorneys' fees, what role do you think
attorneys' fees will have as a deterrent? It is not just about
compensating people who have been wronged, it is about
deterring the conduct in the first place.
Mr. Harpootlian. Well, let me let Mr. Harvey answer that,
because you talked about how small these claims are.
Mr. Harvey. Well, the claims are very small. Captain Rowles
came into my office, I looked at it and the first thing I did
was contact the U.S. Attorney's Office because I went and did
some research and I found that the Department of Justice had
made this a priority, and the U.S. Attorney's Office in South
Carolina has been very helpful with regard to pursuing this on
their behalf from their standpoint.
But from the standpoint of attorneys' fees it would have
been very difficult--very difficult for me to bring a private
cause of action for Captain Rowles alone in Federal court had
it not been for the ability to pursue this as a class action.
It would have been very difficult to bring it as a single
claim.
Mr. Miller of North Carolina. Okay. You had said that you
really focused your attention on Chase, not all of the banks,
but there had been litigation, there has been litigation, there
have been news reports, this is in fact a common problem and
not just with Chase. And other banks I know that you have said
that Chase didn't jump to do the right thing, they got pushed,
and you were the one doing the pushing. Again thank you. But
there have been some other banks that have just brazened it
out.
What can we do to distinguish between the kind of remedies
that are available for a bank that maybe makes an innocent
mistake but then fixes it when it is called to their attention
and those who just brazen it out as has been the case with
Georgia Bank in other litigations?
Mr. Harpootlian. Well, we suggest in the statement that
folks that self-report be dealt with in a different way, and
that is very common in virtually every other kind of civil or
even criminal. To determine whether there is criminal conduct
there has to be willfulness.
So if they find it, they catch it, and they do something
about it quickly they shouldn't be subjected to criminal or any
significant civil penalties; however, Mr. Odom, who you are
going to hear from in just a little while who practices in
Shreveport has dealt with five or six banks and he will be I
think your last witness today, you need to ask him about the
other banks.
Mr. Miller of North Carolina. Thank you, Mr. Chairman for
the time and for being able to speak.
The Chairman. Thank you very much, Mr. Miller. Mr. Runyan.
Mr. Runyan. Thank you, Mr. Chairman, for the opportunity to
serve with you. We know it is going to be a challenge, but we
have to fight for these men and women that fight so hard for
us.
And with that Captain Rowles, thank you for your dedication
and your service to this country and I sincerely apologize to
you, your wife, and the rest of your family for having to go
through this, because it is not something--it is not a pressure
you need on you or your family especially in the high intensity
situations you volunteered to put yourself through.
I think we all share the same concerns with SCRA and quite
frankly the reason you are here.
I really want to ask a question that really says I know we
talked about, you know, maybe starting a Web site or you know
having a veteran around that can actually answer these
questions.
Going through your experience what do you think is the best
way to really get this out there and make this aware? Because
you said you obviously said you were told in Officer Candidate
School that it was there, but obviously there is not a lot of
people aware of it.
Captain Jonathan Rowles. Sir, I believe that education
first right, when they reach the schools, you know, the
recruits or the candidates that is a great place to start
because you reach everyone right then. You are not going miss a
single one who doesn't go through the military, who is not
going to go through some sort of basic training.
But I also believe that there should be a sustainment to
that because you are hose fed through basic training, you do
get a lot of classes and a lot of times, you know, you are
sleep deprived because that is how they break you down and
build you up to make you a Marine or a sailor or a soldier.
The sustainment should come from what I believe, sir, is
the sustainment should come from within the commands and from
within the representatives themselves, the family readiness
officers. Each command has one from my experience in the Marine
Corps and I just believe that it is an education mind set where
we push more information to the family readiness officers
because they are the ones who can contact the wives, the
families when we are in the field, when we are in the air, when
we are deployed, and to make them more aware of this, because
every soldier, sailor, Marine doesn't want to worry about
finances, but they worry about back home, and the Family
Readiness Counselor (FRO) has that kind of contact, the family
readiness officers.
So if we can educate them more about these benefits then I
believe that that will trigger not only the memory from basic
training, but it will also create that sustainment to continue
those benefits throughout your military career.
Mr. Runyan. Well, from your personal experience does that
conversation to that family readiness counselor continually
happen or is it just something that, you know, obviously in
your situation you will have other servicemembers that are
colleagues of yours that you can direct toward that, but was
that pathway open for you at all?
Captain Jonathan Rowles. The pathway to the family
readiness officer is quite open. They all have offices within
the commands, which is why I think it should maintain within
the command because you are a tight knit group, and as we all
know, information passes through a tight knit group very
easily. So if one person contacts the FRO and she gets in that
6 percent before they deploy I guarantee you that ever single
other lance corporal or sergeant or whatever will be talking
about that within 24 hours around their commands.
Mr. Runyan. And kind of down that same line of questioning
now moving to the family aspect, you know, is there anything
you can say to other families facing similar situations on how
to, you know, you have the family readiness counselor there,
but how to tackle it even further if nothing is happening?
Captain Jonathan Rowles. I believe it would be tough for
every single person to run to the bank and say these are my
rights, because everyone is so busy and everybody wants to keep
their personal finances close because we are strong and
prideful and we don't want to admit we need help.
But to go further I think if--it could be easier to go to
the banks and simply say I am a servicemember and I am being
deployed next month and for the banks to know the SCRA so well
that they can say, okay, great, we are going do this, this,
this, and this for you, thank you very much for your service,
have a great day, and then for that to happen it would make
things so much easier for the servicemembers instead of this
piece of paperwork here and this piece of paperwork here and
this procedure here and oh, please re-verify this, and you need
a letter from your command.
If the banks were so aware of SCRA protections that you
could just walk in and say here are my deployment orders and
for everything to be settled I think that would be best, sir.
Mr. Harvey. And as we have seen the only way to do that is
to have an enforcement arm that gets their attention. That is
the only way they are going to do what Captain Rowles has
suggested.
Mr. Runyan. Well, I thank you guys for your time and I
yield back, Mr. Chairman.
The Chairman. Mr. Donnelly.
Mr. Donnelly. Thank you, Mr. Chairman, and I too want to
say what a pleasure it is to have you as our Chairman. I have
had the honor to serve with you for a number of years and your
only focus has been what can we do to help our veterans, so I
think you are going to do a great job and I am honored to have
the chance to serve on this Committee with you.
I want to start off by saying thank you so much Captain and
Mrs. Rowles for your service to this country, to the fellows
who are with you for helping them out with these changes. The
last thing you need Captain or you need Mrs. Rowles when you
are fighting for our country and you are trying to hold
everything together back home is to have to deal with these
things.
And so one of the questions I have for you Mrs. Rowles is
your support group when these calls would come in and when you
would have them badger you, did you have any list or idea of
who to contact to try to get some help from? You know there are
folks on the base, but when you have to fly out to Colorado to
try to get this straightened out, you are raising a family, you
are trying to hold a house together, you are trying to take
care of your husband's phone calls and dealings, and then you
have to go to Colorado, it is how much can you put in a bushel
basket before it all pours over?
Mrs. Julia Rowles. Sir, there has been a lot of stressful
times with this, and the funny thing is, is that Chase has
admitted to us that we have done nothing wrong, but still from
years and years of harassment there is still not even small
problems they have not rectified.
It has been almost a year since we have received a mortgage
statement from Chase, even though we continuously pay our
mortgage. They still have not cashed our January mortgage
payment. We are here talking about the problem, but yet it
doesn't seem like even for us that they want to fix small
things.
But myself there is no--besides family there is not a large
support system, because everybody's finances in the military,
everybody has different mortgage companies, everybody has
different credit cards, there is no avenue for--to fix any of
these problems.
Mr. Donnelly. For you to go to an office there and say----
Mrs. Julia Rowles. There is no--no.
Mr. Donnelly [continuing]. Here is what they are doing to
me. Here are the hassles they are giving me. I don't know how
much longer I can try to keep holding everything together.
There wasn't an office or a place to go to on base?
Mrs. Julia Rowles. No, no.
Mr. Donnelly. Okay.
Mrs. Julia Rowles. No, sir.
Mr. Donnelly. Okay. And Captain, I know you have mentioned
it before, but I would think there is almost nothing worse than
sitting there in Iraq and knowing that your family is dealing
with this and you are being told you may lose your house and
you may lose everything you worked for. The things you are
fighting for and protecting are the things they are telling you
you may lose in the process of fighting for and protecting your
country. How did you deal with that on a regular basis?
Captain Jonathan Rowles. To tell you the truth, sir, it was
difficult. It is definitely a point of friction. Everybody
wants to be strong and upright and say nothing is wrong, but
when you call your wife at 2:00 in the morning just to see how
things are going and you spend 20 minutes talking about how we
can send another letter or how we can make another phone call
or--instead of honey, I love you, how was the day, how are the
babies, it is rough.
So you know, you spend your time trying to not worry about
home, but it is still in the back of your mind when you are
fighting, yes, sir.
Mr. Donnelly. You probably can't even sleep at night when
you were dealing with that.
Did you have anybody in particular at Chase like here is
your contact, here is the Chase veterans team at any point?
Mrs. Julia Rowles. Sir, actually the number that we were
given to SCRA was an answering machine. We would leave our name
and number and they promised to get back with us within 24
hours; however, as many people know the military is a 24-hour
job and there would be times where Jon or myself were not
around to answer a phone call and then the process began over
again. Funny you try to call that same SCRA number now and it
has been disconnected.
So no, there is no person to call, there is no special
servicing department where we can say hey, we are SCRA, help us
and funnel us to a correct department. We would have to go
through the same computer prompts that everybody with any Chase
mortgage went through.
Some days we actually found somebody who said they were
going to help us. Apparently there is probably hundreds of
pages of Chase notes on our account that they said that they
have reviewed, but Chase did not and to the best of my
knowledge currently does not have an SCRA mortgage facilitator
to handle these problems.
Mr. Donnelly. Well, I also have the privilege of serving on
the Financial Services Committee, and we promise you this will
change.
Mrs. Julia Rowles. Thank you, sir.
Mr. Donnelly. Thank you.
The Chairman. Mr. Bilirakis.
Mr. Bilirakis. Thank you, Mr. Chairman.
Captain and Mrs. Rowles, I wanted to give you an
opportunity to elaborate a little bit on Mr. Runyan's good
question with regard to what advise would you give to other
military families that are facing this situation, and then
approximately how many other families would you say are facing
this situation?
Captain Jonathan Rowles. Sir, I would say every single
servicemember that deploys or has a loan before they join has
this situation. Every single one of us who knows those rights
fills out that paperwork, and from my experience there has
never been a standard form for SCRA.
The starting point for every single time that I have dealt
with different banks in my personal experience has been simply
to call them and say I am an active-duty servicemember about to
deploy, and each bank has their own way of dealing with it.
With Chase it was a fax machine only. There was no one to
call, no one to talk to, it was here is the fax number that you
can send your things to. I never in my 6--my 5 years dealing
with this never did I ever speak to an SCRA department member.
There was a fax machine number that I had written on several
statements and that was it.
But when I dealt with other banks I would call them and say
I am a servicemember and they would say, great, when are you
getting back? And on the next statement there was my
reductions.
So each individual bank has their own, in my experience,
their own way of dealing with it, but with Chase and every
single servicemember that deserves these privileges I would say
right now the process is try and call and find someone, but
there is no single point to get to.
Mr. Filner. Mr. Bilirakis, could you yield for 1 second? I
think that line of questioning is good, but it seems to me
there are two responsibilities here.
One is our military and the other is the banks. I mean is
there a SCRA representative at the military that you can call?
Why shouldn't they also be fighting for you? There is a class
here called our fighting men and women. I guess we are going to
have someone from the DoD on the panel, but it seems to me you
can't fight this as an individual and the banks know that, why
aren't the Marines or DoD fighting for you?
Is there any SCRA office that we could call? Why shouldn't
they be calling the banks? Why should you be dealing with any
of this? I will leave that in the air because I think
legislation would require that.
The Chairman. DoD will be up in just a minute and we will
be able to ask them that question.
Mr. Filner. Thank you.
Mr. Bilirakis. I will yield back, but I also want to
apologize and I want to thank you for your service.
Captain Jonathan Rowles. Thank you, sir.
The Chairman. Mr. Huelskamp.
Mr. Huelskamp. I will yield my time. I have questions for
Chase.
The Chairman. Thank you very much.
Mr. Filner, do you want me to go? We will start the round.
I will go ahead and allow any other Member. Mr. Michaud, any
other questions? Any questions on the minority side? Majority
side?
Mr. Filner. I am looking forward to the next panel. I thank
you very much for being here. Mr. Harpootlian, are you on Fox
by the way?
Mr. Harpootlian. You guys don't watch Fox.
Mr. Filner. I never watch Fox so I didn't know how good you
were.
Mr. Harpootlian. I actually do Megan Kelly's show every
Monday at 1:30.
Mr. Filner. Well jeez, you are ruining my preconceptions.
Mr. Chairman, fair and balanced.
Mr. Walz. If I could for just 1 minute. This is a question
I know I sound like a broken record on this, but once again it
seems to me that Armed Service Committee and the collaboration
with the VA Committee, that seamless transition might be
appropriate on this issue, and I know I continue to push that
and I know we have talked and you share my concerns.
The Chairman. I concur. As a Member of the Armed Services
Committee rest assured this will be brought to their attention
as well.
I was going to say, if there are no other questions----
Mr. Filner. I just wanted to finish my thought.
Again, I think the banks are a disgrace in all this. They
are just looking--it is not that they aren't concerned with the
figures--they have taken a risk and said, hey, nobody is going
to bother us with this and it is worth it.
Again, I think our military goes beyond the base family
responsibility officer. This is a national issue and this is a
national law and these are our fighting men and women. The
military needs to have an office and the military needs to--if
the JAGs can't do it as someone pointed out by law, then
somebody else need to. They have a $500, $600, $700 billion
budget?
Mr. Harpootlian. Well, sir, that is a legislative issue and
I want to make sure that Captain Rowles takes no position on
that.
Mr. Filner. No, I understand that. I am just saying from
our perspective----
Mr. Harpootlian. Right.
Mr. Filner [continuing]. That--I mean the military should
be fighting for this and make it clear to the banks. Why are we
giving them this TARP money? They should be certifying as part
of it that they understand what SCRA is and that they are going
to abide by it and take responsibility for it.
So, I think there are two things here. We need to do what I
think you recommend about the banks, but I think we have to
have the military fight for our servicemembers--and not just on
this issue.
Mr. Harpootlian. Right.
Mr. Filner. You are facing enormous pressures and we have a
Pentagon that should be taking this stuff off of your
shoulders.
Captain Jonathan Rowles. Thank you, sir.
The Chairman. Thank you, Mr. Filner, and I appreciate the
line of questioning. We thank the Rowleses for being here. Mr.
Harpootlian and Mr. Harvey thank you for being here.
And we would like to now ask the second panel if they would
to make their way to the desk.
Mr. Harvey. Thank you, Mr. Chairman.
Mr. Harpootlian. Thank you, Mr. Chairman.
The Chairman. Our second panel will be one person, Ms.
Stephanie Mudick, Executive Vice President of the Office of
Consumer Practices with JPMorgan Chase, and I appreciate your
willingness to be here with us today, and without objection
your statement will also be entered into the record, and you
are now recognized for 5 minutes.
STATEMENT OF STEPHANIE B. MUDICK, EXECUTIVE VICE PRESIDENT,
OFFICE OF CONSUMER PRACTICES, JPMORGAN CHASE & CO., NEW YORK,
NY
Ms. Mudick. Thank you, Chairman Miller.
Chairman Miller, Ranking Member Filner, and Members of the
Committee, thank you for inviting me to appear before you
today.
My name is Stephanie Mudick, and I am the head of the
Office of Consumer Practices at JPMorgan Chase & Co. I am here
today to discuss errors that Chase discovered in our compliance
with the Servicemembers Civil Relief Act and what we are doing
about them.
The SCRA provides vitally important financial protections
to the men and women of our armed forces during active duty, a
period of personal sacrifice for them and their families.
Before I go further I would like to express to the men and
women serving our country, and to the Members of this
Committee, Chase's deepest regret over the mistakes we made in
applying these protections. I commit to you that we will get
this right.
We have identified two problems in our home lending
business with respect to certain mortgages held by active-duty
servicemembers.
First, in many instances, Chase charged SCRA eligible
borrowers interest and fees that raised their effective
interest rate above the 6-percent cap. We have begun paying
back $2.4 million in overcharges to approximately 4,500
customers.
Second, to date we have identified 18 servicemembers whom
we improperly foreclosed upon. In 12 of these cases we have
either rescinded the sale or entered into a settlement with the
borrower. We will attempt to make the remaining borrowers whole
as soon as possible. Because our review is ongoing, these
numbers could change.
With regard to the case of Captain Rowles, we have reviewed
the history of his account and we clearly made mistakes. The
customer service that we provided to him and to his wife was
unacceptable, and the fact that this was a servicemember makes
our mistakes all the more inexcusable. We deeply regret any
hardship we caused the Rowles family.
We have communicated to Captain Rowles through his
attorney, and actually this morning I met with Captain Rowles
and his wife briefly, and communicated our commitment to
resolve this matter and our genuine desire to make him and his
family whole as soon as possible.
We have made significant enhancements to our processes to
ensure that we comply fully with the SCRA going forward. We
have centralized SCRA loan set-up in a single unit located in
Florence, South Carolina, whose members received enhanced SCRA
training.
We have a daily review and reconciliation of the entire
list of SCRA protected borrowers to ensure they are properly
identified in our systems.
The calculation of the 6-percent interest rate cap now is
subject to 100 percent quality control review every billing
cycle, and we have implemented enhanced controls on foreclosure
referrals and sales through repeated checks on military status
at different points in the process.
In addition to these enhancements to our controls, we are
taking steps to better support our servicemember customers.
We are enhancing our communications with military personnel
about their SCRA rights.
Chase currently has a Web page dedicated to military
personnel, and we plan to provide a prominent link to a Web
site recommended by the Department of Defense. We will also
send a letter to borrowers whom we believe may be military
personnel advising them of the existence of SCRA protections.
We would welcome the opportunity to work with the government to
provide better information to servicemembers about their
rights.
We are following the suggestion of Holly Petraeus of the
Consumer Financial Protection Bureau that we reach out to
servicemembers who have Army Post Office or Fleet Post Office
addresses to ensure that they are aware of their SCRA rights.
We have created a hotline staffed by 30 Chase employees in
Monroe, Louisiana, who are trained on SCRA coverage to make
sure that servicemember customers can work with customer
service representatives who do understand their unique issues.
Two people in each of our 51 Chase homeownership centers
are being trained in SCRA matters so that servicemembers and
their families can have local access when they wish to speak to
a Chase representative face to face. By this summer, we will
have 76 such centers located in 27 States and the District of
Columbia, serving the vast majority of Chase customers.
I should note that the SCRA also applies to other types of
consumer loans. We are actively reviewing our other businesses
to ensure that they too, comply with SCRA.
Mr. Chairman, Members of the Committee, we are deeply
disappointed that we have let down the men and woman of our
military. We will work very, very hard to earn back their trust
and yours, and we are committed to doing so.
I would be happy to answer questions from the Committee.
[The prepared statement of Ms. Mudick appears on p. 71.]
The Chairman. Thank you for your testimony.
You talked about Chase's deepest regret over the mistakes
that were made. In those mistakes that were made do you
consider how it was handled a mistake, the phone calls that
were made, the harassment that took place? Does Chase
understand with a servicemember how critical a security
clearance is and the negative effect of not just their credit
rating but their employment opportunities and opportunities to
advance? Does Chase understand these?
Ms. Mudick. Mr. Chairman, I think we do understand these
issues, and we are working very hard to be more and more
sensitive to the issues and concerns that our servicemember
customers have.
Our focus is really on making sure that we have effective
compliance with the Act and we are really trying to make sure
that we have the proper safeguards.
The Rowleses' situation is a situation that we are not
proud of, and we think that there will be lots of opportunities
both to deal with the Rowleses and provide them with redress
and also to ensure that the enhancements that we have already
started to make on SCRA compliance really reflect best
practices going forward.
The Chairman. You were here for the testimony of the
Rowleses. There was a comment about a hotline that had been set
up for SCRA compliance and the fact that they have called it
and now it has been disconnected. Do you know anything about
that or is that the Louisiana hotline up or what happened?
Ms. Mudick. I am afraid I don't know the hotline number
that they are referring to specifically, but we have recently
set up a hotline that is staffed by 30 employees in Monroe who
are trained and specifically trained in SCRA. We actually do
have some former members of the military who are part of that
staff, and the goal is to make sure that there is one place
that servicemembers can call so that they can explain their
concerns and they can get clear answers.
The Rowleses, I think, made very clear today that one of
their issues was that they felt like they were talking to
different service people all the time and had to repeat their
story and that is something that we are really trying to fix.
The Chairman. What caused your audit and is the audit
complete? It has been represented to this Committee that you
did not begin this self-audit until legal action was
threatened. Could you expound upon that a little bit?
Ms. Mudick. Yes, sir. In the ordinary course of our
business we routinely audit all elements of our operations and
controls across all of our businesses, and we do that with SCRA
as well as other regulations that we are required to comply
with.
We actually did do an audit of our home lending business in
2008, and during that audit there were some specific issues
identified. The business worked on those issues. They tended to
be around the coding, the correct coding of SCRA accounts, and
it was not really until the period following the audit that we
began to understand that there were other elements of SCRA
compliance that we needed to look at.
We actually have made various changes over the last several
years in terms of our review of SCRA.
In 2009 we sent out an attorney alert to all of our
attorneys to make sure they were checking the DoD Web site,
because one of the things that we recognized was that we were
not checking that Web site with sufficient consistency or
regularity. We started with external advisors doing an internal
review in 2010. This all predated actually the Rowleses'
lawsuit.
So I would take exception to Mr. Harpootlian's comment
earlier that the only reason why we are looking at this is
because we have been sued.
The Chairman. Can you tell me what the results are so far
within your audit and give us some ideas of some of the things
that Chase is now doing to make families whole?
Ms. Mudick. Yes, sir. Our review is ongoing, but I will say
that we have identified several things that it is very clear we
were not doing as well as we should have.
First, we were misreading orders. We were misreading orders
and not necessarily calculating the period of eligibility
correctly, and as a result, we were not correctly ascertaining
when and how the interest rate adjustment should be made, and
we were not calculating the aggregate of interest charges and
fees below the cap.
So that was one set of problems that I think reflected the
fact that we did not have the right people looking at the
orders and we didn't have sufficient training.
So that is one reason why we now have a set up unit that is
located in Florence, South Carolina, where we are having a
group of employees look at every single SCRA request and make
sure that it is set up correctly.
We also identified problems with coding. And part of the
issue here is that much of our execution around making sure we
were complying with SCRA is manual. So we have employees who
are making decisions about what the orders say, about what the
eligibility period is, about what the right calculations are,
and we didn't have a really strong quality control process
around that. These are human beings. The orders can be very
difficult to read; every service has different orders.
Again, we take full responsibility for misreading them, but
we really needed to have some checks and balances and we did
not have sufficient checks and balances in the past. We do have
those today.
As a result of incorrect coding--and by coding I mean an
account is coded SCRA--sometimes the coding fell off the
account, and as a result of which, we did not get the benefits
correct for the servicemembers.
So again, we now have not only 100 percent quality control,
we have a daily reconciliation. If any single account falls out
of our group of SCRA coded accounts, we have several people
reviewing to understand why and how that fell off and whether
it needs to be reinstated.
So you know, we are doing a number of things now to really
try and ensure that we have full SCRA compliance.
One of the issues that I know you all are aware of is that
we have had some improper foreclosures. We now check the DoD
Web site at least three times, and often a number of other
times, before there is either a foreclosure referral or before
subsequent action is taken with respect to a foreclosure.
So from our standpoint this is very much about having a
system in which there are multiple check points and different
employees reviewing specific accounts and particular moments in
the life of an account to make sure that we get it right.
The Chairman. One quick question and then I will turn it
over to the Ranking Member for questions.
I come from a home building background, a real estate
background--how many people contact you as a lending
institution and say ``you are charging me the wrong interest''
yet continue to pay you at the rate they believe that they
legally are required to pay? And if you have people doing that
why in the world wouldn't you figure out a way to work with
them to solve their problem instead of going to foreclosure?
Ms. Mudick. Mr. Chairman, I think actually the way this was
handled was that when an individual called, an employee who was
trying to provide customer service dealt with that individual's
situation and said either, ``I will try and get back to you,''
or ``let me see if I can understand it better'' or the employee
might not have even dealt with it that way. You know, if we are
to listen to the Rowleses, they had a number of conversations
in which they didn't even get the benefit of that kind of
service, and frankly, not only do we deeply regret that, but we
are very embarrassed by that, and that is clearly an
opportunity for us.
So for us I think it is making sure that a call that raises
that kind of question for a servicemember really gets channeled
to the right place. And there is no question that somebody who
is dealing with that kind of an issue needs to have specific
training so that they know where to look and how to look and
who to go to within our organization to see whether the
interest is being charged correctly.
The Chairman. Mr. Filner.
Mr. Filner. Thank you, Mr. Chairman.
How many executive vice presidents are there at Chase? Or
let me put it another way. How high are you in the hierarchy
there?
Ms. Mudick. I am a member of Chase's Executive Committee,
which is fewer than 100 employees at JPMorgan Chase.
Mr. Filner. And what do the 100 people do? I mean, is that
the highest policy office in Chase?
Ms. Mudick. There is an Operating Committee, which is a
group of approximately 20 people.
Mr. Filner. So how many executive vice presidents are
there?
Ms. Mudick. I don't have the answer to that question, sir,
I am sorry.
Mr. Filner. But you will find out for me, right?
Ms. Mudick. I will indeed.
[Ms. Mudick subsequently provided the following:]
JPMorgan Chase has 20 Executive Vice Presidents at the
corporate level. Stephanie Mudick is one of these Executive
Vice Presidents, and is a member of JPMorgan Chase's Executive
Committee, which comprises 55 senior officers who lead our
businesses and functions.
Mr. Filner. Could you fix things if we needed to? You are
here on behalf of Chase, so I assume that means you can fix
things. Can you fix things? I mean you said you weren't aware
of that hotline number. Can you call somebody and find out what
is going on there?
Ms. Mudick. Together with my colleagues there is----
Mr. Filner. Okay, so you can't fix things.
Ms. Mudick. I would say that we try and fix whatever we
can.
Mr. Filner. Okay. The Rowleses testified that they didn't
have any statements for a year, you haven't cashed their last
mortgage check. Can you fix that today? You said you were going
to make them whole. I mean they have brought up several
questions. Can you fix those problems?
Ms. Mudick. We are trying to fix----
Mr. Filner. I don't want a we. You, can you fix that?
Ms. Mudick. I can, together with my colleagues, cause
changes to be made in our organization.
And with respect to the Rowleses, you know, we are trying
to figure out how we can come to an agreement. We have agreed
to mediate.
Mr. Filner. Come to an agreement because of a lawsuit? But
you said you were going to make them whole. As I read your
statement your average payment to make people whole is $70.
Does that make people whole who have gone through this stuff?
Ms. Mudick. The median payment is $70, and let me explain
to you how we get to that number.
Mr. Filner. Because you are just dealing with the amount of
interest that you overpaid, plus some fees. That is all you are
dealing with. You have not dealt with any human costs or any
emotional costs--pain and suffering. You are just dealing with
the amount of interest and fees that you overcharged, right? I
mean that is what it says here anyway.
Ms. Mudick. Congressman, most of the servicemembers who
were impacted by this are not even aware that they overpaid,
and in part that is because the amount they overpaid was not
material to them.
Mr. Filner. I can't believe that there is nobody else going
through what the Rowleses are going through.
But you know, you can't make the changes so you are not
making them whole. You know, you broke the law. Your bank broke
the law. Shouldn't someone go to jail for that? And who should?
Who is responsible? Are you, as the executive VP who was given
us from the bank to answer for this stuff, should you go to
jail?
Ms. Mudick. We are doing a review internally in order to
figure out----
Mr. Filner. Who is responsible?
Ms. Mudick [continuing]. Who is responsible for what
happened.
Mr. Filner. Are you going to tell us who, are you going to
give us a person or people that are responsible?
Ms. Mudick. Well, we will certainly hold those folks who
are responsible for this account----
Mr. Filner. I know, but you broke the law. How are we going
to hold someone accountable? Are we going to know who did what
when?
Ms. Mudick. As a result of our review, we will be happy to
share more information with the Committee.
[Ms. Mudick subsequently provided the following
information:]
Chase deeply regrets the mistakes we made in applying the
protections of the Servicemembers Civil Relief Act. The errors
here were not made intentionally, but our processes were not
what they needed to be. We are devoting all possible resources
to correcting past mistakes and to improving our processes and
controls to ensure that we are in full compliance with the
SCRA. Of course, if we learn that any Chase employees
intentionally engaged in wrongdoing in connection with the
application of SCRA protections, Chase will discipline them
accordingly.
Mr. Filner. I am sure you will. I think you are probably
going to have to discover all the problems before you are going
to give them to us.
It just seems to me that you all--you are not alone in
this. You all have no responsibility, everything you said was
impersonal, nobody is responsible. You know, you said the SCRA
coding fell off the statement. Nobody took it off, nobody was
responsible, it fell off? Oh, wow.
So you look at your testimony, everything is impersonal,
nobody is ever responsible, and yet these people's lives have
been turned upside down. Somebody, or some group of people,
should be held responsible. Maybe then, as the attorney said,
maybe you will take this seriously. Maybe if somebody went to
jail with a white collar. There is no more Mr. Morgan and Mr.
Chase, I take it, but somebody should take responsibility for
what is going on.
You just cannot hide, as the Supreme Court tells us now,
you are an individual, you are not just a corporation. Somebody
has to come forward and take responsibility for this. You just
cannot apologize and give people $70 and think this is over.
This is not over for them. You heard what they are still going
though and now you can't fix it anyway.
So when are they going get their mortgage statement? Just
take one thing at a time. You should be able to call somebody
right now and say get them their mortgage statements, but
apparently you can't.
I appreciate your apology, but you have broken the law, you
have ruined people's lives, and people ought to take
responsibility for that.
The Chairman. What actions has Chase taken to make the
affected homeowners whole? And are the homeowners satisfied
generally with the actions that JPMorgan Chase has taken?
Ms. Mudick. Mr. Chairman, we are in the process of sending
out checks, and in certain cases----
The Chairman. You are currently sending out checks. Have
affected homeowners been notified the checks are forthcoming? I
guess if they don't know they are coming they don't know if
they are satisfied yet, correct?
Ms. Mudick. That is correct. We have credited a number of
accounts for our home equity borrowers and we have done that
and I don't believe that we have heard any complaints,
certainly not that I am aware of, for the folks whose accounts
we credited.
And obviously in the context of the foreclosures, I
mentioned that currently the number that we have identified is
18 improper foreclosures. For ten of those, we were able to
actually unwind the sale and give the home back to the
borrower. Two of those----
The Chairman. When you say unwind the sale, had they gone
all the way through the foreclosure proceedings to the
courthouse sale or was it prior to that? I mean at what point
were they in the foreclosure process?
Ms. Mudick. Well, for those whom we foreclosed upon the
foreclosure process had been completed. Whether there was a
courtroom involved depended on the geography of course, but
since we still owned those homes we were able to return those
homes to the borrowers. In two of those situations, we settled.
And there are still six cases outstanding where we are trying
to figure out how to work with the borrowers to come to the
right resolution.
Obviously because there is a lawsuit, you know, we can't
necessarily directly engage with them, but we want to make sure
that we are able to make them whole.
The Chairman. You talked about the number that you had
totally gone through, but how many people were in the process
then, of foreclosure? Is it above the number that you have
already talked about?
Ms. Mudick. The SCRA does provide certain limitations on
what a lender can do, and that limitation really extends to
foreclosure sales. So when a borrower becomes delinquent we may
take certain actions, but we cannot go to judgment or sale.
So I can't answer your question as to how many borrowers
are currently in a delinquency process.
The Chairman. So as long as you don't foreclose you can
harass them?
Ms. Mudick. The law prevents us from foreclosing, the law
does not prevent us from engaging in what we would call loss
mitigation, which is trying to reach out to a borrower who is
not paying and engage in conversation with them. We do our best
to make sure that if we are making calls or receiving calls,
there is no harassing language in those calls.
The Chairman. How many SCRA eligible individuals are there
involved in your loss mitigation process right now?
Ms. Mudick. I can only tell you that I know we currently
have SCRA protected borrowers. I don't know the answer; I am
happy to get back to you with that information.
The Chairman. I wish you would for the record.
[Ms. Mudick subsequently provided the following
information:]
There are currently 643 SCRA-protected home lending borrowers
who are at some stage of the loss mitigation process.
The Chairman. Mr. Huelskamp.
Mr. Huelskamp. Thank you, Mr. Chairman, and I appreciate
the opportunity to ask a few questions.
Per the SCRA, on your application forms does Chase actually
have a box to check to indicate the applicant is a military
member?
Ms. Mudick. I don't know the answer to that question. I
will have to get back to you on that.
[Ms. Mudick subsequently provided the following
information:]
Chase does not ask borrowers about their military status on
our standard mortgage application form. The protections of the
SCRA apply only to debt obligations that originated before a
servicemember's active duty military service and for which the
servicemember is still obligated. Chase's policy is not to
foreclose on any active duty servicemember, regardless of when
his or her loan was originated.
Mr. Huelskamp. Okay. Do you think it would be a good idea
to have that on the application if you do not currently?
Ms. Mudick. Yes, I do.
Mr. Huelskamp. And as far as unwinding foreclosure, I find
that rather interesting, as far as how that might be done, but
more importantly, repairing the credit rating. What is Chase
doing for those situations where you have admitted or will
admit failure to follow the law? Obviously making them whole
financially doesn't necessarily change their credit rating. Can
you describe what you all do or have done in order to repair
them in terms of the credit bureaus?
Ms. Mudick. Yes, sir. Congressman, the SCRA does not
prevent any kind of credit reporting other than credit
reporting solely because somebody is asking for SCRA benefits.
As a practice, we have not engaged in negative credit
reporting in connection with our SCRA borrowers. What that
means is that in cases in which we may have made a mistake or
not treated somebody as an SCRA protected borrower--we may have
taken actions and done some credit reporting--we will reverse
all of those to the extent that the borrower is SCRA protected.
Mr. Huelskamp. So on those that you refunded about $2
million, the 4,500 families that you indicate in some testimony
here, they will be made whole on their credit reports?
Ms. Mudick. The lion's share of those borrowers will not
have had any credit reporting on them at all. And to the extent
that others have, we will definitely take action with respect
to that and reverse the reporting.
Mr. Huelskamp. And how do you reverse the reporting? Can
you strip that off there, do you admit an error on the report?
How exactly would you go about that?
Ms. Mudick. I believe we can ask the credit bureaus to
remove the reference.
Mr. Huelskamp. And are they required to do so?
Ms. Mudick. I believe that is the terms of our agreement
with them, yes.
Mr. Huelskamp. Okay. And you would do that with all the
credit bureaus in reference to these individuals?
Ms. Mudick. Yes, sir.
Mr. Huelskamp. Thank you, Mr. Chairman.
The Chairman. Mr. Michaud.
Mr. Michaud. Thank you very much, Mr. Chairman, and thank
you for coming as well.
You had mentioned earlier that there are errors and you
regretfully are sorry for the errors and you are going to pay
back what you owe these individuals. What is the interest rate
you are paying--giving the money back?
Ms. Mudick. The interest rate, sir, is seven and a quarter
percent.
Mr. Michaud. Seven and a quarter percent.
Ms. Mudick. Yes, sir.
Mr. Michaud. You heard the Rowleses went through a lot, and
you mentioned errors, and originally when I heard about--so
yeah, it is possible for people to make errors, but what the
Rowleses went through, 5 years, harassing phone calls at 3:00
or 4:00 in the morning, it is just--is beyond errors.
And you heard some of my colleagues talk about arrogance,
greed within JPMorgan, and actually Mr. Stearns mentioned the
fact that JPMorgan received, I know they paid it back, $25
billion on the TARP funding.
Mr. Diamond, the Chief Executive Officer (CEO) for JPMorgan
received an additional bonus in 2007 of $28 million, last year
almost $16 million, and you are paying these individuals seven
and a half percent interest.
I think there is a disconnect when you look at the bonuses
received by the CEOs and what you have done to individuals who
serve this country very well.
I am sure that the chief executive officer for JPMorgan has
a very nice home, he probably can cater Christmas parties,
Thanksgiving parties at his very elegant home, and he can
probably sleep very well at night, and the reason why he and
others can sleep very well at night is because there are men
and women in this country that are protecting this country so
individuals such as Mr. Diamond can sleep well at night very
easily.
However, my big concern is the fact that when you look at
the suicide rate among our active military men and women, it
has increased substantially, and part of the reason is
financial reasons where these men and women cannot support
their family. And what JPMorgan and I am sure other companies
have done is added that burden to these men and women. In some
cases, I am not saying in any cases the suicide is directly
caused by JPMorgan, but it is because of financial problems
that they are facing.
And when I hear the Rowleses' story of 5 years having to go
through this and the harassment, it is just beyond me that it
has taken this long. And the fact that it is seven and a half
percent is disgraceful. It is un-American, unpatriotic.
We heard the attorney in the first panel talk about
increasing penalties for companies such as JPMorgan. My
question is, first of all would you support increase in
penalties, number one, changing the law? And if you don't
support changing the law do you think that we should or
attorneys around the country, because of the Citizens United
cases where corporations have many rights that individuals are
now accorded, should corporations be held liable under wrongful
death if it could demonstrate that financial stress was because
of banks putting that stress on individuals because they are
not following the law?
Ms. Mudick. Congressman, we take full responsibility for
our failures here both with respect to the Rowles family and
for the other servicemembers who are impacted by this, and we
are deeply disappointed in ourselves.
I personally have a very high level of confidence that the
errors that we made were not a function of any intention to
mischarge any of these servicemembers. And to say that we
regret it is really an understatement, but I am certain that
this was not done with any intent.
With respect to whether the law should be changed, that is
certainly within the Congressional purview, and you all need to
do what you think makes the most sense and will work.
Mr. Michaud. Well, I can say as one individual and I know
my time is running out, the regret that you say that you deeply
feel does not show in your actions with seven and a half
percent for these individuals, especially when you look at a
$28 million bonus for the chief executive officer of JPMorgan
and almost $16 million last year.
Words are cheap, action is what is important. And I would
encourage you to look at your actions versus saying a seven and
a half percent so that Mr. Diamond can go home tonight and
sleep comfortably, because men and women put their lives on the
line for us each and every day, and they do not need this added
stress because of errors, especially when those errors have
been brought to light over and over again by the Rowleses, and
I am sure others as well.
So with that I yield back the balance of my time.
The Chairman. Mr. Stutzman.
Mr. Stutzman. Thank you, Mr. Chairman. I appreciate the
opportunity to ask a few questions and appreciate your
testimony and being here today.
Obviously this is one that is a situation that nobody ever
wants to see happen and I am sure you don't and I know I can't
imagine what the families have had to deal with, and especially
circumstances that we are facing with the economy and also with
the difficulties in financing today and the marketplace and
housing.
Do you feel that Chase has gone above and beyond in
correcting these errors with the families?
Ms. Mudick. What we are doing is really focusing on making
sure that we have the right processes now to ensure that there
aren't any other families who could be impacted, so that has
really been what we have been thinking about and we are trying
to ensure that we do it correctly and fully and completely.
We think with respect to a remediation to the families we
are doing what is right and what is appropriate, and obviously
in the context of the litigation, you know, which we have
agreed we will go to mediation and we hope we are going to be
able to figure out what, you know, an agreement between the
parties so that we can move forward, we can make sure that the
servicemembers and their families can move forward.
Mr. Stutzman. Do you have or does Chase have an idea of
what that might look like?
Ms. Mudick. No, I can't really speak to current discussions
around settlement or mediation. Obviously we have come up with
an approach to remediation that we think covers the losses or
the mischarges that the servicemembers have experienced.
Mr. Stutzman. Do you know if there are other entities that
may also--the same situation may arise out of other
organizations, other entities that do make the same sort of
loans that may pop their heads up that we find other problems
like this in other entities? Do you have a trade organization
that you work together with? Have you been having any
discussions with other entities so far?
Ms. Mudick. We obviously have been trying to really pay
most of our attention to making sure we get this right going
forward and to making sure that we take care of the
servicemembers who we overcharged.
That being said, we have found that the problems that we
have experienced come from both the Heritage Chase organization
and the Heritage organizations we have acquired in the last
couple of years, Washington Mutual and EMC, which was part of
Bear Stearns. Given the fact that there have been problems in
each of those organizations, it suggests that there may be
issues out there amongst other lenders.
Mr. Stutzman. I am sure others are probably watching this
situation and watching how you all are responding and handling
this situation. Is there anything that Chase feels that they
cannot only exhibit but share with other organizations for
making sure this doesn't happen anywhere else?
Ms. Mudick. I think that each organization has to do its
own internal review to figure out whether they have any issues
and what kinds of issues those are.
With respect to making this better and easier for
servicemembers, we would be happy to both work with the
Committee and with the Department of Defense to figure out how
to make the process a smoother one.
Mr. Stutzman. I mean is it possible that this happens
outside of just loans to servicemen and servicewomen? In the
other loans that you make, is there a possiblility of this
happening anywhere else?
Ms. Mudick. I think that the issues that we are talking
about today are really specifically focused on ensuring that we
are satisfying the rules of the Servicemembers Civil Relief
Act.
To the extent that the issues that have been raised
suggests that there are customer service questions or customer
experience elements, we are very much looking closely at those
and trying to make sure that we have a very positive experience
for all of our customers, including our servicemember
customers.
Mr. Stutzman. Thank you, Mr. Chairman.
The Chairman. Mr. Walz.
Mr. Walz. Thank you, Mr. Chairman. Thank you for being
here, Ms. Mudick.
I have to tell you I am a high school teacher by profession
so I am optimistic and forgiving, but I am also up for a dog
ate my homework line and I am very disappointed especially when
you talked about--you said we take full responsibility, but the
problem was orders.
I want to show you, this is my Chase credit card agreement.
I don't have time to scroll through it all, if you take a look
at that. You seem to know that. That is a military deployment
order. Let me be very clear it says, you are deployed on
temporary change of station assigned to the 10th Military
Police, number of days in determinant with proceed on the 15th
of February, security clearance secret, and that is it.
How difficult is that? I, as a 17-year-old E-1, got orders,
knew I had to be in Omaha to get on the plane and end up in
Fort Benning. You can provide me a 63-page document to
calculate interest to the exact penny, but you come in front of
this Committee--I am not an attorney, but I have to give you
some good advice, don't go to court and give that answer, that
that is the reason that these people got in trouble because you
couldn't calculate the orders, you didn't know when they went
on the service.
I came here looking for answers, I appreciate you sitting
in front of us, but I am highly, highly disappointed that that
is the reason you didn't get it right?
I suspect everything after that now to be how much you are
going to do. The question that Mr. Stutzman asked is very good,
what about your affiliates? How can we guarantee the affiliates
that fall under JPMorgan and all those other names that I can't
track down are going to follow through with this?
You told us, well, you didn't need Mr. Harpootlian and you
didn't need these folks, Mr. Harvey, you were going to do it on
your own. So we should just tell them to go away and wait and
you are going to fix that?
Are you going to stick to this that you couldn't read this?
That is a standard military order that everybody sitting behind
you has been in the military knows. Any 17-year-old kid can
read that. You deal in complex documents. My mortgage is 230
pages long. So now you come in front of us and tell us that.
I am just sorry, I am not buying the full responsibility
line. And I certainly give you the chance to respond.
Ms. Mudick. I think that we have identified a number of
problems with respect to how we handled this, and we
acknowledge that we failed here, and we acknowledge that there
were a number of different ways in which we made mistakes.
So we are trying to figure out how to fix them. We are
trying to figure out how to have effective safeguards going
forward. We are trying to make sure we have the right checks
and balances. We are trying to make sure we have the right
employees associated with making sure that we have this right.
We are trying to make sure that there is the right management
focus. There are no resources that we are not prepared to
assign to this.
Mr. Walz. Where was the original call center? That wasn't
your one in the Philippines was it? Would they have handled
that originally the one in Makati City outside Manila?
Ms. Mudick. We have service centers across the United
States and a few outside the United States.
Mr. Walz. Is there a chance that this servicemember's call
could have gone outside the United States to a non-citizen?
Ms. Mudick. There is a chance, yes, sir.
Mr. Walz. Then that is a problem, right, in your mind?
Ms. Mudick. In my mind, sir, all servicemembers would be
better off making sure that they were speaking to somebody who
had a deep knowledge of SCRA and what their rights are and that
is the way we are handling these----
Mr. Walz. Do you have a veterans hiring preference in
Chase?
Ms. Mudick. I believe the answer to that is, yes, sir.
Mr. Walz. So human resources would if I am a veteran they
have a preference on hiring veterans?
Ms. Mudick. I will have to double check on that, but I
believe the answer the yes, sir.
[Ms. Mudick subsequently provided the following
information:]
JPMorgan Chase is taking significant measurable steps to
offer jobs to veterans. Chase has partnered with 10 other large
companies to commit to collectively hire 100,000 military
members leaving active duty service and other veterans by the
end of 2020. The program, called the ``100,000 Jobs Mission,''
expects to add more partners and increase the target number
of jobs as it grows. The partnership for the 100,000 Jobs
Mission has committed to hiring 20,000 veterans by the end of
2012. To apply for a
position at JPMorgan Chase or to post a resume, veterans can go
to www.chasemilitary.com.
In addition, Chase will require all of our vendors to
disclose their military hiring practices and will make contract
decisions in part based on the strength of those programs.
Mr. Walz. Okay. And the last thing I would leave you with,
and I just can't stress it enough, I watched my friend from
Maine and they are not known for being very emotional but I
know how this touches Mr. Michaud.
I think about this as a deployed soldier, my wife has a 2-
year old, a crisis is the car won't start to get to work, and
those things upset my day in a non-combat area to the point
where you are trying to deal with them. I cannot imagine, and I
have seen it on soldiers, of what they go through. The level of
stress and what Mr. Michaud was starting to hit on on the
suicide rates, I don't think we should underestimate that and
we are certainly not drawing that there is a cause and effect
to this, but anything that is adding stress to a servicemember,
especially in a combat zone, is incredibly risky type of
behavior, and so no stone should go unturned, no lack of trying
to fix this.
And I cannot stress enough going back to this, that is the
weakest answer I have ever heard given in front of this
Committee that we couldn't read the military orders coming from
one of the largest financial institutions in the world. There
are thousands of lawyers that work for you, give it to them or
go get a 17-year-old recruit and they will interpret it for
you.
I yield back.
The Chairman. I thank the gentleman for his question, and I
think it is important that we still continue to frame this.
JPMorgan Chase keeps representing that they made mistakes. The
fact is the law was broken.
Ms. Mudick. We failed to comply with all aspects of the
law, yes, sir.
The Chairman. Mr. Miller.
Mr. Miller of North Carolina. Thank you, Mr. Chairman.
Well, I know we have all been hard on you for breaking the law
and I appreciate your expressions of contrition and I
appreciate them more because there are other banks who have
done the same thing who have not been at all contrite and have
continued to brazen it out and fight every lawsuit in every
jurisdiction over--using every procedural defense that is
available to them. But this is not an obscure provision of the
law that you really, you know, there are a lot of laws out
there, I guess we can't know all of them until--and how they
might apply to our conduct, but the 6-percent cap of mortgage
payments may be relatively new, but the stay on legal
proceedings has been in law off and on at least since the Civil
War and continuously since the first World War, and the
thinking behind it is that if you are in the service of our
country, if you are serving our Nation's military you should be
able to give your entire energy, your entire attention to the
defense of our country and not have to worry about what may be
going on in a courthouse back home, how your lives may be
affected when you are not there to defend yourself. That if you
have a claim against someone who is serving the country in the
military it can wait until they can come home and defend
themselves, and that is not an obscure law.
Now one of the Members asked the last panel if someone else
had made the mortgage and Chase had bought it, and the Rowleses
said yes, that they had got it from an independent company and
sold it to Chase. Now am I correct in assuming that it is now
in a securitized pool and that there are now investors who
really own it, it has now disappeared into the mortgage backed
securities so that you don't really own it, you service it; is
that correct?
Ms. Mudick. We do not own the loan, that is correct.
Mr. Miller of North Carolina. It is owned by a securitized
pool and you service that; is that right?
Ms. Mudick. I don't know whether it is owned by a
securitized pool or whether it is just owned by another
institution, but I know that we----
Mr. Miller of North Carolina. But you are servicing it.
Ms. Mudick. But we do service it, yes.
Mr. Miller of North Carolina. Okay. And I understand also
that the four biggest banks, you all, Wells Fargo, Bank of
America, Citibank, secured service two-thirds of mortgages in
the country; is that correct?
Ms. Mudick. I believe that is correct, yes, sir.
Mr. Miller of North Carolina. Okay, so this is not a small
business for you.
Ms. Mudick. It is not.
Mr. Miller of North Carolina. And I understand also that
your servicing unit is a separate corporation, it is an
affiliated corporation; is that correct? It is certainly a
separate unit.
Ms. Mudick. I believe it is a separate unit, yes.
Mr. Miller of North Carolina. So it is all they do. I mean
that is all they do is service mortgages, collect payments,
calculate how much people owe, give payout to people who are
selling their house or whatever, foreclose, modify, that is all
they do, right?
Ms. Mudick. Well, they are part of our home lending
business, but yes, it is a unit of our home lending.
Mr. Miller of North Carolina. Okay. So there are not that
many laws they have to keep up with; isn't that right? This is
a big deal.
Ms. Mudick. Well, there are a lot of laws that they have to
make sure that they respect and adhere to, but you are
absolutely correct, this is a very big deal.
Mr. Miller of North Carolina. Okay. This is not something
that should have escaped your notice.
Who is training your people and who is training the people
who are training them if they miss this?
Ms. Mudick. We have fairly extensive training programs,
which we have enhanced recently and will continue to look at
and enhance to make sure that they are clear and simple and
specific. And we have compliance review those programs. We have
internal auditors review those programs. And now in the context
of us looking at all this, we are having outside counsel look
at these programs also.
Mr. Miller of North Carolina. Okay. Mr. Harpootlian made
several suggestions on how the law might change. Well, first of
all, I am not clear of the status of his litigation against the
Rowleses' class representatives action against Chase. Are you--
that is still in litigation, right? There are some issues still
in litigation?
Ms. Mudick. It is still in litigation. We have just agreed
to go to mediation.
Mr. Miller of North Carolina. Okay. But you have contested
whether there is any private right of action before the law
changed; isn't that right? That is still a position that you
are taking, right? That the Rowleses and others who may have
had their houses foreclosed upon before the law changed a year
ago, they can't do anything about it.
Ms. Mudick. Congressman, I have not reviewed our papers, so
I don't know the answer to that.
Mr. Miller of North Carolina. Okay. Mr. Harpootlian
suggested that the banks might take this law more seriously and
be more careful about complying if there were attorneys' fees.
Do you think attorneys' fees would help? For attorneys' fees
for plaintiffs.
Ms. Mudick. I think that we, as a bank subject to these
rules take them very seriously, and I think our problem was----
Mr. Miller of North Carolina. Okay. Your conduct suggests
otherwise, but I understand you are saying now that you are
taking it seriously.
Ms. Mudick. Well, I think we did a bad job at satisfying
the rules, but we understood our obligations and tried to do
the right thing and to make sure that we were in full
compliance. We did a terrible job.
Mr. Miller of North Carolina. Okay. If someone has had
their rights under the SCRA violated, first of all, why should
they not be compensated for that, and why should there not be a
provision to pay their attorneys by the defendant if the
defendant violates the law, at least with respect to what are
obviously knowing violations?
Ms. Mudick. We want to make sure that we compensate the
people whose rights we didn't enforce to the fullest extent. It
is not for me to say whether and how you should amend the law
to provide for attorneys' fees.
Mr. Miller of North Carolina. My time is expired, Mr.
Chairman. Thank you for your indulgence.
The Chairman. To follow up that question, Mr. Harpootlian
said that basically they were doing it on a contingency basis.
Your answer to me would assume that if Mr. Harpootlian were
billing the Rowleses that would be something that JPMorgan
Chase should pay, but if they are not billing them then that
would not be your responsibility; is that a correct assumption?
Ms. Mudick. Sir, I don't recall saying or suggesting that.
You know, I am not a litigator so I can't tell you when we have
to pay attorneys' fees and when you don't have to.
The Chairman. And I understand, but the answer to Mr.
Miller's question just his last question----
Mr. Miller of North Carolina. Well, that is not--I mean,
Mr. Chairman, I appreciate your question, but that actually is
not the way attorneys' fees provisions work.
The Chairman. Oh, I understand.
Mr. Miller of North Carolina. Okay.
The Chairman. I understand. But her answer led me to
believe that she was concerned about making sure that the
Rowleses were made whole and we certainly expect that to be the
case, but you know, the attorneys' fees I think are part of the
discussion and in making sure that, you know, if the claim is
that the Rowleses aren't damaged because they haven't paid
attorneys' fees, if that is their position, I think that they
are making a mistake. Any other questions?
Mr. Filner. Just one last question, if I may. Ms. Mudick, a
corporation is set up to avoid personal liability and
accountability. I think the Supreme Court may have
unintentionally shattered that with its Citizens United ruling
and said that you are an individual, so it seems to me you have
responsibilities and your people have responsibilities and
accountability.
Mr. Walz said, to put Mr. Michaud's point in context, that
he wasn't suggesting cause and effect. I would go further, and
I think there is a cause and effect. People who are under
pressure we know commit suicide, and I would call it homicide
frankly because you are putting them under pressure and you are
responsible for that. You have errors and you have caused
tremendous, tremendous harm.
You are never going to make them whole with $70 I will tell
you that. You need to take responsibility, and your whole
corporation needs to understand when you are dealing with these
issues, and I don't care if they are servicemembers or not,
although that is more clear in the law, that you are putting
millions of people under incredible pressure. They have
committed suicide. Veterans and non-veterans and you are
responsible.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, and if there are no
further questions, thank you, Ms. Mudick, for being here today.
Ms. Mudick. Thank you, sir.
The Chairman. And with that I would call our third panel to
the table, and we would like to welcome back Colonel Shawn
Shumake, Director of the Office of Legal Policy for the
Secretary of Defense, and I extend a warm welcome to Ms. Holly
Petraeus in her first appearance before this Committee. Ms.
Petraeus is the Team Leader for the Office of Servicemember
Affairs of Consumer Financial Protection Bureau's (CFPB)
Implementation Team at the Department of the Treasury.
Ms. Petraeus, I have had the honor of working with your
husband and his dedication to this Nation and our troops is
beyond reproach. I am confident that you will serve America's
military families with equal distinction in your new capacity,
and without objection both of your written statements will be
entered into the record, and you are each recognized to 5
minutes.
STATEMENTS OF HOLLISTER K. PETRAEUS, TEAM LEAD, OFFICE OF
SERVICEMEMBER AFFAIRS, CONSUMER FINANCIAL PROTECTION BUREAU
IMPLEMENTATION TEAM, U.S. DEPARTMENT OF THE TREASURY; AND
COLONEL SHAWN SHUMAKE (USA), DIRECTOR, OFFICE OF LEGAL POLICY,
OFFICE OF THE DEPUTY UNDER SECRETARY OF DEFENSE, U.S.
DEPARTMENT OF DEFENSE
STATEMENT OF HOLLISTER K. PETRAEUS
Mrs. Petraeus. Thank you, Mr. Chairman, Ranking Member,
distinguished Members of the Committee, I appreciate the
opportunity to speak with you today about the Servicemembers
Civil Relief Act as well as the Consumer Financial Protection
Bureau Implementation Team's work to establish the Office of
Servicemember Affairs.
First of all, I would like to thank this Committee for its
continuing efforts to protect servicemembers, veterans, and
their families from predatory financial practices.
I have been a member of the military community my entire
life and I feel that it is very important that our military has
strong advocates working on its behalf. And it is my intent
that the Office of Servicemember Affairs be one of those strong
advocates, educating and looking out for military personnel and
their families.
I come from a military family, one that has a tradition of
service going back to the Revolutionary War. My father served
in the Army for over 36 years, fighting in both World War II
and Vietnam. Two of my brothers also served in Vietnam, and of
course, my husband is currently serving, and I am a military
mom, as well. The military is in many ways a separate community
in our Nation, and it is one that I have the privilege to know
very well.
The last time I testified before Congress was over 6 years
ago, when I spoke about deployment-related issues at a joint
hearing of two Senate Subcommittees. At that time my husband
had just begun the second of three deployments to Iraq and I
was a longtime volunteer in the military community.
As a volunteer, I had the opportunity to serve as a senior
Family Readiness Group advisor during deployment and to work
with local, State, and national legislators on issues affecting
Army families.
Five months after that testimony, I became the Director of
BBB Military Line, a program of the Council of Better Business
Bureaus providing consumer education and advocacy for
servicemembers and their families, a position that I held for 6
years.
In that role, I oversaw a national program that worked with
the Department of Defense as a partner in the DoD Financial
Readiness Campaign, and fostered outreach from the 120 local
Better Business Bureaus to military communities across the
United States.
While with the BBB, I made on-site visits to many military
installations--learning about the consumer issues that impacted
them, giving presentations on consumer scams, and working to
establish local BBB-military relationships. I guided
development of teen and adult financial curricula, taught to
over 10,000 individuals in military communities around the
United States and wrote a monthly consumer newsletter
addressing issues of interest to the military.
Professor Warren asked me to join the Implementation Team
at the end of last year, I started a little less than a month
ago, and we are hard at work building the Office of
Servicemember Affairs.
The Dodd-Frank Act, which was signed into law on July 21,
2010, established the Consumer Financial Protection Bureau and
charged it with ensuring that consumers have the information
they need to make financial decisions that are best for them
and their families.
The CFPB will work to promote fairness, transparency, and
competition in the markets for mortgages, credit cards, and
other consumer financial products and services. The CFPB will
set and enforce clear, consistent rules that allow banks and
other consumer financial service providers to compete on a
level playing field and that allow consumers to see clearly the
costs and features of financial products and services.
On July 21st of this year, many consumer financial
protection functions that are currently with other agencies
will transfer to the CFPB. I have to point out, however, that
responsibilities relating to the Servicemembers Civil Relief
Act, the focus of this hearing, will remain with the prudential
regulators and the Justice Department.
Eventually the CFPB will grow into a fully operational
financial regulator and supervisor, and it will be the primary
place where members of the public, including servicemembers,
can come with questions and complaints about consumer financial
products and services.
The Dodd-Frank Act authorizes the Office of Servicemember
Affairs to work in partnership with the Pentagon to see that
military personnel and their families receive strong financial
education, to monitor their complaints about consumer financial
products and services and responses to those complaints, and to
coordinate efforts by Federal and State agencies to improve
consumer financial protection measures for military families.
We are authorized to enter into agreements with the
Department of Defense to carry out OSA's work and to make sure
that we achieve those goals.
Within the CFPB our job is to make sure that every division
understands the unique military community and the financial
issues that impact it. I plan to work with our examiners to
ensure they are current on military-specific issues, to
encourage our enforcement team to take action against financial
providers who break the law to harm servicemembers, and to work
with the consumer response unit to be sure that it is attuned
to the military community and responsive to its concerns. We
also plan to work closely with the CFPB's financial education
team.
Right now we are focused on planning and scheduling visits
to military bases and other meetings that will help us identify
problems and determine where we can make the biggest
difference. I have already met with senior DoD officials, and
it is clear to me that the people at the Pentagon are very
supportive of our mission.
In addition, I have met with senior staff from the
Department of Justice's Civil Rights Division. The Justice
Department is eager to work with the CFPB to protect the rights
of servicemembers.
I was pleased to hear about the scope of DOJ's enforcement
activities on behalf of servicemembers, which include
authorized lawsuits against three nationwide lenders and
several other active investigations involving both foreclosure
issues and failure to lower the interest rate to 6 percent.
We are planning to coordinate closely with DOJ in light of
its enforcement responsibilities under the SCRA.
This past Tuesday I sent a letter to the chief executive
officers of the 25 largest banks that provide mortgage
servicing. This was prompted by the recent news reports
alleging that major financial institutions had violated the
SCRA, which provides financial protections for our military. I
urged the chief executive officers to take steps to ensure that
their institutions are in compliance with the law.
We have already started a conversation with the military
community. Professor Warren and I have been to Joint Base San
Antonio where we had two roundtable discussions. The first was
with military service providers, as well as the base's
leadership. We asked questions about what scams and other
financial problems these providers were seeing, and how they
thought those financial problems might be dealt with.
The second roundtable was with military personnel and
spouses from the Air Force, Army, and Navy. They felt strongly
about the need for mandatory financial training, not just in
basic training, but on a continuing basis.
The military spouses in the room also brought up the
difficulties and temporary loss of income when moving a
spouse's civilian career job, as well as the basic financial
strains of frequent moves. I could certainly relate to that as
I have moved 23 times in 36 years of marriage. We plan to do
more roundtables in the coming months.
Protecting our servicemembers from suffering devastating
financial repercussions for answering the call to service is
not only the right thing to do--it is also important to our
National security. Military personnel who are distracted by
financial problems cannot do their jobs to the best of their
abilities. In fact, hundreds of people in the military have
their essential security clearances revoked each year due to
financial problems, which then means they can't do the job they
were trained for.
A recent Department of Defense survey found that
servicemembers consider their finances to be the second largest
source of stress in their lives, ahead of deployments, health,
family, and war.
I was dismayed to learn about the recent allegations of
mortgage-related violations of the SCRA. I hope that the recent
attention to this issue will cause all lenders to take steps to
educate their employees about the financial protections that
the SCRA provides and to take appropriate proactive steps to
ensure compliance. This law was put in place to enable our
soldiers to focus on their jobs, and it is important that it be
adhered to. Servicemembers should not have to struggle to get
the protections that are due to them under law.
A National Guard wife once told me that her husband had
been activated three times, and each time she had to fight with
their bank for months to get the SCRA applied.
As you know a foreclosure is devastating for any American
family to experience, but it can be especially painful for
military families. Both the family back home and the
servicemember abroad, who feels helpless to take action to
prevent the foreclosure, are put in a terrible situation. That
is why it is so important that servicemembers receive all the
protections afforded to them under the SCRA.
Last month, I attended the White House announcement of the
Strengthening Our Military Families initiative. The President,
First Lady, and Dr. Biden all spoke at that event, affirming
their commitment to military families, and almost the entire
cabinet was in attendance as well. There is currently a very
positive feeling in this country toward the service and
sacrifice of military families, and a desire to support them.
One way is to help to enforce the laws that are already on the
books to protect them and to hold to account those who ignore
them. Another is to write new rules when needed. It is also
important to educate the military about their financial
protections and about best financial practices. That will all
be a big part of the mission of the CFPB and the Office of
Servicemember Affairs.
Thank you.
[The prepared statement of Mrs. Petraeus appears on p. 75.]
The Chairman. Colonel.
STATEMENT OF COLONEL SHAWN SHUMAKE
Colonel Shumake. Chairman Miller and distinguished Members
of the Committee, thank you for allowing the Department of
Defense to comment on the Servicemembers Civil Relief Act and
to explain how we educate our servicemembers about it.
The Department recognizes the fundamental importance of the
SCRA, which has as its lofty goal providing servicemembers
peace of mind, knowing that while they put their lives on the
line that their personal affairs and economic interests will be
protected.
The SCRA's protections are broad and diverse. The Act
protects servicemembers from evictions, default judgments, and
foreclosure. It allows them to delay judicial proceedings and
in some cases to cap their interest rates. It provides some tax
relief.
Congress continues to play a pivotal role in protecting our
servicemembers. To ensure that the SCRA could be aggressively
enforced by those for whom it is designed to protect, Congress
passed the Veterans' Benefit Act of 2010, which clarified that
servicemembers could seek civil enforcement of the SCRA through
the courts and be awarded damages and attorneys' fees.
Although many courts had found that such a private right of
action has been implied, others have rejected that
interpretation, leading to the unconscionable conclusion that
servicemembers had benefits and protections that could not be
enforced. This is now resolved.
For the last several years, Congress has relieved may of
the burdens of military service through a number of substantive
changes to the SCRA. In 2008, Congress extended the 6-percent
interest rate cap for pre-service mortgage obligations beyond
the last day of active duty for a full year thereafter. At the
same time, Congress also amended the SCRA to extend protections
from foreclosure on pre-service mortgages from 90 days to 9
months after the servicemember leaves active duty. Under these
conditions and during this time, no servicemember can be
foreclosed on absent a court order.
In addition to amendments to the SCRA, Congress has
provided other important protections through other laws as
well.
Beginning in February 2009, it provided $855 million as
part of the stimulus package to expand pre-existing Homeowner's
Assistance Program benefits. This addresses the unique economic
pressures faced by military personnel who are required to
relocate under military orders during the adverse housing
market conditions.
Later in 2009, Congress recognized that because most
servicemembers rent and are not homeowners, they faced
particular difficulties when their landlords are foreclosed
upon. The Helping Families Save Their Homes Act of 2009
provides significant protections when such servicemembers face
possible displacement.
Although these two statutes do not amend the SCRA, they
recognize that servicemembers face challenges with their
housing that in some ways puts them at greater risk than those
not in service.
These amendments to the SCRA and the other powerful
statutory provisions discussed earlier mean little if our
servicemembers do not know about them.
The Service secretaries are directed to ensure that their
members know about the benefits and the protections of the
SCRA. This educational process involves coordinated and
overlapping efforts.
The Military Legal Assistance Program provides the first
line of defense for servicemembers; however, if they are unable
to resolve the matter, the servicemember may be referred to
civilian counsel or be directed to seek representation through
several different State and other pro bono programs.
The Department's efforts to educate servicemembers and
their families centers around the installation and around
various reserve component mobilization and demobilization
processing centers. These reserve component processing centers
are particularly critical because two of the most important
economic protections and benefits, the 6-percent interest rate
cap and the protections against foreclosure only apply to pre-
service obligations. Accordingly, those most likely to benefit
from these protections are in fact Reservists and National
Guardsmen called to active duty.
Because each of the services have the authority to best
determine how to provide the necessary training and counseling,
the Department has asked the services to set out how they
educate their members about the SCRA.
The timing of the request did not allow time to gather this
data from the services and then organize it in a way to show
how this information is presented to the servicemember;
therefore, that information will be submitted separately as
soon as possible.
I look forward to answering your questions, sir.
[The prepared statement of Colonel Shumake appears on p.
78.]
The Chairman. Thank you, Colonel, you just mentioned the
fact that each individual service was ensuring that their
members understand their rights under SCRA. I would like to
have those responses by the 28th of this month, and again
remembering that the letter to the secretary asks that the
Department's efforts to educate the servicemember and their
families in private industry about the protections afforded in
affirmative responsibilities placed upon servicemembers under
SCRA.
Colonel Shumake. Yes, sir.
[The DoD subsequently provided the following information:]
1. General Responsibilities and Overview
The Servicemembers Civil Relief Act (SCRA) states that the
Secretaries concerned are responsible for educating their members about
its benefits and protections.\1\ Their efforts are supplemented by
programs, personnel, and resources at the Department of Defense (``the
Department'') level and through close contacts between the Office of
the Under Secretary of Defense for Personnel and Readiness and the
legal and financial readiness communities for the Services.
---------------------------------------------------------------------------
\1\ Section 105, Codified at 50 USC App. 515.
---------------------------------------------------------------------------
Through these combined efforts our servicemembers receive multiple
opportunities to gain enough information about the SCRA and know when
to seek more in-depth information from those legal and financial
advisors who have more specialized knowledge. The main educational
effort, as a practical matter, falls to the legal community, although
the commander has ultimate responsibility for the mission readiness of
the troops.
Accordingly, much of this document focuses on the judge advocate
communities and their efforts and responsibilities not only to brief
the troops and make educational materials readily available online to
the force, but also to train the trainers in the school house
environment.
In addition, the Department's network of Personal Financial
Managers (PFMs) plays a significant role in the SCRA educational
process, given that many of the SCRA's provisions directly impact
finances, such as the interest rate cap of 50 USC App. 527 and the
mortgage protections of 50 USC App. 533 (hereinafter ``sections
527,'' and ``section 533''). These PFMs are trained to alert the
servicemembers about the general protections available and to refer
them to the free, confidential legal assistance services available
under 10 USC 1044. Because of the relationship between general
financial well-being and mission readiness, a general overview of the
Department's efforts to ensure the financial readiness of our
servicemembers will be addressed in paragraph 7, below.
2. SCRA Focus: Mobilization, De-Mobilization and Deployment
The provisions that are the primary focus on this hearing are found
in section 527 (interest rate cap) and section 533 (no foreclosure
without a court order for certain obligations). Both of these sections
apply only to obligations incurred before active duty (i.e., ``pre-
service''). The interest rate cap has its greatest protections with
respect to mortgages. The interest rate cap for pre-service mortgage
obligations extends during active duty and for 1 year after leaving
active duty. Because of this pre-service condition, those who most
stand to benefit from this protection are those members of the Reserve
Component--Reservists and National Guardsmen--entering active duty. The
majority of those currently involved in the ongoing war efforts are
members of the Army. Accordingly, the focus of SCRA training for these
members is at the Reserve Component processing centers.
The Army's Readiness and Deployment Checklist for members of the
Reserve Component lists SCRA training as one of the required blocks of
instructions. Every Reserve Component unit that goes through a
mobilization center run by First Army receives a briefing about the
SCRA. First Army processes virtually all Army Reserve and Army National
Guard units.
The opposite side of the coin from mobilizations and deployments is
demobilizations. This offers another important opportunity to inform
members of the force about their rights under the SCRA. Given that the
protections of both section 527 and 533 extend for a period after
active duty, these briefings are particularly important for members of
the Reserve Component.
The Army Vice Chief of Staff has directed that the Reserve
Component's mandatory demobilization briefings be standardized. Such
training will include SCRA instruction. It appears that similar efforts
are underway in the Army to standardize the mobilization briefings as
well.
Representatives from the National Guard Bureau indicate that when
considering pre-mobilization and mobilization training, both at home
station and at the reserve processing centers, that Army National Guard
units receive multiple SCRA briefings during the deployment cycle.
For the Army, both regular (Active Component) and Reserve Component
Soldiers deploying individually (as opposed to mobilizing and deploying
with a unit) will process though a Continental United States
Replacement Center (CRC). The SCRA is specifically covered in the CRC
briefings.
In all cases, deploying Soldiers must complete a DA Form 7631,
Deployment Cycle Support checklist. This form has a specific block to
indicate the Soldier has been briefed on the availability of legal
assistance and that ``counseling on civil matters'' was received.
3. Accessions (Initial Entry Training)
The military Services are tasked with providing SCRA information to
initial accessions.
The Marines provide enlistees with a copy of NAVMC 11494, a form
that explains basic SCRA benefits and protections.
The Navy provides enlistees information about the SCRA in their
Recruit Training Guides. Although there are no formal lessons covering
it, the material is testable and ensures the material is in the same
location as all formal lessons.
The Army provides SCRA training to some in basic training, although
it is not standardized. The U.S. Army Recruiting Command, however, has
indicated that it will update its training annexes to include SCRA
material. The annexes are part of the recruiting packet.
Airmen receive standardized SCRA training during basic training.
Although all opportunities to familiarize servicemembers with the
basics of the SCRA are important, the Department recognizes that the
tremendous amount of other information provided new accessions may
limit their ability to process and retain SCRA information. Therefore,
the Services also rely on additional installation and deployment
readiness training.
4. Reaching the Force: Installation/Headquarters Training
The bulk of the education of servicemembers and their families
concerning the SCRA is handled at the installation. The installation
focuses more on the regular members of the force than on the Reserve
Component, but as noted, Army Reserve Component units are well covered
during the mobilization process. Still, a number of provisions of the
SCRA and the other Congressional legislative initiatives provide
important benefits and protections for all servicemembers and are the
subject of significant educational efforts at the installation level.
SCRA education at the installation level is considered an essential
part of the command's preventive law responsibilities. Each of the
Services has the responsibility to ensure that preventive law services
are provided within their command. Realistically, this program is
implemented by judge advocates. It can take many forms.
Perhaps the most important preventive law effort is accomplished
during installation readiness exercises at which servicemembers process
through various stations, including legal assistance. Some services
provided at these stations include the preparation of wills and powers
of attorneys. Sometimes information papers will be provided, including
basic information on the SCRA. Some installation readiness exercises
involve actual SCRA briefings.
Other installation preventive law efforts include articles in the
installation newspapers on hot topics or new legal developments,
including refreshers on the benefits and protections of the SCRA.
Another example of preventive law includes ``newcomers' briefings,''
which provide basic legal information for those new to an installation.
These briefings are open to servicemembers and often their families. It
is not likely that all of these briefings address SCRA issues, but they
at a minimum alert potential clients to the availability of the local
legal resources.
Online and Service Headquarters Resources/Efforts
Local Web sites are another method of providing information to an
evolving and increasingly technologically savvy force. Many major
installations have legal assistance Web sites with some general SCRA
information. These local Web sites are supplemented by headquarters-
level Web sites and other online resources.
The Headquarters-level Air Force legal assistance policy office Web
site has been robustly pitched to its members. In 2010 alone, the Web
site had more than 133,000 visitors. This Web site contains updated
SCRA information. The Air Force legal assistance policy office also
contributed to a live blog that had almost 10,000 visitors and 219, 294
Twitter impressions. The Headquarters-level Departments of the Army and
Navy legal assistance policy offices also have online resources with
specific SCRA information available to all their members.
The Navy legal assistance policy office has developed an on-line
pre-deployment briefing that is being formatted by the Navy distance
learning staff for complete access by all Sailors from any location.
The Army is developing a similar resource and has been field testing it
at one installation with good success.
This Navy legal assistance policy office has also developed a
``legal readiness check-up'' that will direct Sailors to their nearest
legal assistance office based on a number of deployment-related legal
issues, including many that involve SCRA protections.
In addition, the Navy and Marine Corps legal assistance policy
offices provide legal assistance practice advisories to the field to
alert it of changes in law. These go to all Naval Judge Advocates and
have included recent advisories on the Helping Heroes Keep Their Homes
Act of 2009 and the Veteran's Benefit Act of 2010.
The Army legal assistance policy office publishes periodic
electronic newsletters and conducts video training conferences with the
field. Those have addressed SCRA and mortgage foreclosure issues. All
the Services' legal assistance policy offices regularly push new
developments to their installation-level legal offices.
Department of Defense Office of Legal Policy
This office meets regularly with Chiefs of Legal Assistance for the
Services and shares new developments to ensure consistent, across-the-
Services awareness of all types of legal assistance issues. The Office
of Legal Policy meets informally with staffers from the House and
Senate to share information and respond to requests for comments on
legislative proposals, many involving the SCRA. These proposals are
staffed with the Chiefs of Legal Assistance for the Services for expert
advice and dissemination.
In 2009, this office drafted and submitted the private right of
action language as part of the Department's proposed draft
authorization bill for FY 2010. In only slightly modified form, that
proposal became the Veterans' Benefit Act of 2010.\2\ This provision
ensures that those whose protections and benefits under the SCRA have
been violated or denied can actually bring legal action and recover
monetary damages and attorneys' fees. This is likely the most important
change to the SCRA since the sweeping changes in 2003.
---------------------------------------------------------------------------
\2\ Section 303, Public Law 111-275, October 13, 2010, amended the
Servicemembers Civil Relief Act (50 USC App. 501 et seq.) by adding
at the end new title VIII, Civil Liability.
---------------------------------------------------------------------------
In January 2011, the Office of Legal Policy worked with experts on
the SCRA from the private sector who had written an article addressing
the new private right of action language enacted as part of the
Veterans' Benefit Act of 2010. The Office of Legal Policy was able to
obtain a commitment from the editors of the Army's Judge Advocate
General's Legal Center and School to publish a scholarly article in The
Army Lawyer. The article was drafted by Professor Gregory M. Huckabee,
a former Army judge advocate who teaches at the University of South
Dakota, and who served as the Army representative and Chair of the
1991-1992 Department of Defense Task Force responsible for revamping
the Soldiers' and Sailors Civil Relief Act, the precursor to the
current SCRA; and by Colonel (Retired) John Odom, U.S. Air Force
Reserve, a nationally recognized expert on the SCRA who currently is in
private practice in Shreveport, Louisiana.
As part of its general outreach responsibilities, the Office of
Legal Policy has participated in a number of print, blog, and televised
interviews on various legal topics such the SCRA, the Homeowner's
Assistance Program,\3\ the Military Spouses Residency Relief Act,\4\
and the Helping Families Save Their Homes Act of 2009.\5\ These efforts
focused on getting the information to the individual servicemembers and
alerting them to the availability of help from the military legal
assistance offices across the country and the world.
---------------------------------------------------------------------------
\3\ Section 1001, Public Law 111-5, February 17, 2009, codified at
42 USC 3374.
\4\ Public Law 119-97, November 11, 2009, amended section 511 of
the Servicemembers Civil Relief Act (50 USC App. 571).
\5\ Sections 701, Public Law 111-22, May 20, 2009.
---------------------------------------------------------------------------
The Department of Defense, though the Office of Legal Policy, has
reached out directly to the force through direct e-mails to alert them
to new developments in the law impacting their financial and legal
well-being.
In September 2008, as the mortgage crisis worsened and before the
Homeowner's Assistance Program became law as part of the February 2009
stimulus package, over one million servicemembers were informed by e-
mail drafted by the Office of Legal Policy of a change to the Joint
Federal Travel Regulations that allowed servicemembers to be relocated
at government expense if their landlord was foreclosed on. That
protection preceded the Helping Families Save Their Homes Act of 2009,
which provided protections applicable to everyone--not just
servicemembers--whose landlord was foreclosed on.
This e-mail assures them that protections and resources for dealing
with the financial difficulties that were sweeping the country in late
2008 were available. It mentioned general SCRA protections against
evictions and that legal proceedings could be delayed. It referred the
servicemember to installation family readiness and support centers, to
Military OneSource counselors, and to the local legal assistance
offices.
This across-the-force-message was supplemented by a series of
postings on every servicemember's pay statement (the Leave and Earnings
Statement) throughout 2009. These messages were concise and to the
point:
``RENT, MORTGAGE, EVICTION, OR FORECLOSURE DIFFICULTIES? GET FREE,
CONFIDENTIAL HELP. VISIT YOUR MILITARY LEGAL ASSISTANCE OFFICE OR CALL
MILITARY ONESOURCE AT 1-800-342-9647.''
An alternative message said:
HOUSING DIFFICULTIES? SEE YOUR MILITARY LEGAL ASSISTANCE OFFICE OR
CALL MILITARY ONESOURCE AT 1-800-342-9647.
The Chairman. Ms. Petraeus, the press release that Treasury
sent out announcing the Bureau talked about a hotline that was
going to be set up for consumers, and I guess the question is
has the hotline been established? And if it is, is there an
option for servicemembers to ask questions about SCRA?
Mrs. Petraeus. We have taken the first step, which is to
get our Web site up and running, so you can contact us that
way, and I have just been in discussions to make sure that we
do ask that question, are you military, so we can be sure to
address their particular issues. That is as far as we have
gotten so far. We are just still in the process of building the
organization.
The Chairman. How many people will staff the hotline or do
you even know at this point?
Mrs. Petraeus. Don't know at this point. We are just--we
are still figuring out a lot of these things.
The Chairman. Since the SCRA statute doesn't provide for
enforcement authority to the Bureau, what role would you find
yourself playing with SCRA?
Mrs. Petraeus. I think our role is definitely going to be
an educational one. Although we don't enforce it, we can
certainly educate about it and that is a big part of our
mission, really, to educate the military, to provide them the
best possible financial education, and obviously one part of
that can be to talk about the SCRA.
So we will be working with the Department of Defense to see
if we can find ways to get that information out there so it is
retained.
You heard Captain Rowles mention that sometimes the basic
training is not the best time to get all this financial
information because you are stressed, you are tired, you are
worried about the next chow call and your next formation and
you just don't absorb it, so we have to work with them and see
if we can find a way to teach it so people do retain it and
really understand it.
The Chairman. Colonel, how does DoD measure the level of
knowledge of its servicemembers of their rights and
responsibilities under SCRA?
Colonel Shumake. Sir, it is difficult to tell how any one
person understands it or in fact at those pre-deployment
briefings whether it is sinking in. You really don't know until
they kind of show up in your office as a legal assistance
attorney and you start going through it.
Certainly there are provisions that I think people don't
grasp. I think there is a lot of misunderstanding about even
the main topics today with respect to the interest rate cap,
for instance that it only applies to pre-service obligations.
Many times folks don't know that.
Likewise, I would say that with some of the latest changes,
you know, you have to keep pushing it out, you have to be sure
that those changes such as I mentioned where we have extended
it from 90 days to 9 months on the foreclosure protections that
prevent a foreclosure, again on a pre-service mortgage
obligation only, that cannot happen without a court order.
So we are always--we have to stay on top of that because
even that was extended in the last--about the last act of the
last Congress where that sunset provision that would have taken
that 9 months back down to 90 days was changed.
And so it is a constant effort in part on my office working
closely with the chiefs of legal assistance for the services to
make sure everyone understands it and we push that information
out to the field through a number of different ways.
But again, sir, it is hard to measure what any one person
understands or how they perceive it, we just have to keep
training on it.
The Chairman. If a servicemember notified a base legal
officer that they thought there were potential violations of
SCRA, what actions would you expect the legal staff to take?
Colonel Shumake. Well, sir, I would. You know, a lawyer is
always going to be hesitant unless perhaps they are sitting
across the table in litigation from saying bad things about
what another lawyer has done, but in listening to Captain
Rowles' testimony, I have to say that I was very disappointed
if our legal assistance attorneys says, ``Jeez, I just don't
know this or I don't think I can help you.''
You know, I don't know everything about the law and no one
does, but I know how to pick up the phone, and I would expect
that our folks would pick up the phone and take some of that
pressure off these folks, particularly if the client happened
to be Captain Rowles' wife while he is deployed, I would hope
that we would fight for her. And sometimes that is just wading
through the bureaucracy and it is just getting them to the
point where, you know, you can get somebody to listen by
saying, ``No, I need to talk to somebody who understands the
SCRA, I need to talk to your boss.'' That is what I would
expect.
You know, hard again to say what happened and what
information was passed, but I know that is how I would do
business if I was a legal assistance attorney and they came to
me.
The Chairman. I appreciate you bringing up the fact that
the base legal officer in Pensacola or the JAG that he went to,
basically said it was out of his lane, and I don't think that
is an appropriate response.
Colonel Shumake. Sir, it is not, this is their lane, this
is what we do, and we have--we don't need to set up a SCRA
office specifically, we have legal assistance offices, we need
to train, we need to make sure they are trained. We have to
take care of our folks and represent them zealously, that is
what our responsibility is. It is not any different when we put
on this suit.
The Chairman. Mr. Filner.
Mr. Filner. Like the Chairman I appreciate that strong
statement of what you should be doing.
I would take it a bit further. For example, when this story
broke and it was clear there were problems did you talk about
sending letters to the banks about SCRA laws? As we heard there
are only four banks that do 70 percent of the mortgage
business, did you talk about that?
Colonel Shumake. Sir, what we did was I made sure that the
information got out and I had talked to JPMorgan Chase and I
had their hotline, I made sure that that got down through all
the chiefs of legal assistants down to the lowest level.
Mr. Filner. Yes, but did you tell JPMorgan Chase or
Citibank or Bank of America or Wells Fargo what SCRA required?
Colonel Shumake. Sir, not in this case.
Mr. Filner. Okay, you didn't. Did Secretary Gates think
about calling in the presidents of those 20 institutions or 10
institutions or 4 and say, hey, is what occurred ridiculous.
This was a major story and it still is?
Colonel Shumake. Yes, sir.
Mr. Filner. Did Secretary Gates say we have to protect our
people and make sure the banks know? Did that happen?
Colonel Shumake. Sir, I can't really comment on what
Secretary Gates thought about that, sir. I don't know.
Mr. Filner. It didn't happen.
I just would go beyond the pure legal matter because the
fact that this is not known, and that this is your
responsibility. As you said, to take the pressure off these
military families. That means going further. I heard from this
hearing several things that we should be doing, but you should
have recommended these actions.
Look, the simple fact of having on a bank application a box
to check that you are protected by SCRA--I don't know how you
phrase that, but you could figure it out--it should be on every
mortgage application. So everybody has a check mark to make.
Why shouldn't banks have to certify their awareness of this
when they get these $25 billion checks from the government? I
think the banks ought to contribute to a fund to set up the
SCRA office or an ombudsman. You are taking a very bureaucratic
approach, the banks are taking an ultra bureaucratic because
nobody is responsibility in a bureaucracy.
Instead of taking what I will call a political stance, get
the damned presidents of JPMorganChase and the Bank of America
into a room and say you have responsibility here. Don't send us
the 150th ranking executive vice president, but take
responsibility for this. Bring them into the room. Tell
Secretary Gates I said that.
I won't ask you how high you are up in the chain of command
because there are probably thousands between you and the
Secretary.
We have to protect these people. The banks aren't doing
their job, we can expect that, but we could pass laws that make
them do their job. We are their protectors, we should be doing
our job, and if that means that you--I mean I don't know how
you are going to relate to Justice or DoD, Mrs. Petraeus, but I
mean the enforcement has to be done, and these banks will not
respond as we have heard unless there is some legal consequence
to their action. Nobody is responsible.
You know, the SCRA code fell from the applications. All
these codes are sitting around waiting to fall down? This is
ridiculous.
I think we have to pinpoint responsibility--I mean you have
to talk to these guys directly. Put them on the spot, have them
take responsibility for what is going on in their own bank.
I suspect that the President of JPMorgan Chase still
doesn't even know what SCRA means, because somehow it is going
to be taken care of and they are going to send out their $70
checks and make people whole.
So I think you said a very strong statement, Colonel, but
you have to expand that into the existing way we learn things
and the way we do things.
I don't know but I assume the military could have
everybody's e-mail address. Send out an e-mail that says do you
know what SCRA is? Here it is in writing. If you don't
understand it call us at this number. We could do that to the
vast majority of our troops. We have the Rowleses, the tip of
the spear for tens of thousands of others, so let us notify the
tens of thousands of others. They don't know what is going on.
I can't believe from the testimony that there are only 18
soldiers who have been foreclosed on by Chase mortgage. That is
inconceivable to me with their millions of loans.
Talk to Secretary Gates and tell him to bring in these
presidents and do something.
Colonel Shumake. Sir, if I might point out we have sent out
e-mails to every single servicemember active and reserve on the
foreclosure issues.
Mr. Filner. Could you give me a copy of that?
Colonel Shumake. Yes, sir, absolutely.
[The DoD subsequently provided the following information:]
Below is the email that was sent out in September 2008 to every
Active and Reserve member. It deals with financial problems in general
and evictions related to foreclosure of landlords specifically.
----------Original Message----------
From: AFLA2008
Sent: Tuesday, September 16, 2008 11:49 PM
To:
Subject: Information about Armed Forces legal assistance for
financial matters (00317711 32)
If you are struggling financially, you are not alone. You can get
help.
Recently the economic news across the country has not been good.
Consumer prices are rising. Real estate prices are falling.
Foreclosures are up. Often this impacts renters too, who are forced
to relocate when their landlords are forced into foreclosure.
Military members face many of these same challenges.
A new law allows the government to pay for some local moves when
military members or their dependents are forced to move because their
landlord is facing foreclosure. There are also a number of laws
specifically designed to help military members when they face economic
or legal difficulties.
Legal proceedings can be delayed. Military members generally cannot
be evicted unless a court orders it. Mortgages can be renegotiated.
Grants or low cost loans may be available.
If you are having problems making ends meet or are being forced to
move from your rented home, you can get free, confidential help from a
number of sources:
-- Your Installation Family Readiness/Support Center can
provide financial counselors.
-- Your military legal assistance office can provide a licensed
attorney. This Web site will identify the military legal
assistance office closest to you: http://
legalassistance.law.af.mil/content/locator.php
-- Military OneSource can provide financial counselors--24/7--
by calling, toll-free, 1-800-342-9647.
P.S. Responses to this email will not be answered. Please direct
your ques-
tions to your legal assistance office or the Military OneSource Web
site at www.MilitaryOneSource.com
Mr. Filner. Okay.
Colonel Shumake. We have also put it on their LES's.
Everybody gets that, everybody looks at that.
Mr. Filner. Tell me what an LES is.
Colonel Shumake. I am sorry, leave and earning statement.
Your paycheck or basically your pay receipt. We have put the
information on that. And so you have to be careful on how much
you can----
Mr. Filner. All right, I would like to see what you are
doing, because----
Colonel Shumake. Yes, sir.
Mr. Filner [continuing]. Sometimes this stuff becomes so
bureaucratic that nobody either pays attention or understand
them.
I would have put a big red notice in there that says stop,
are you a homeowner? Then you may be having problems. I doubt
that is what you did. You probably put a little line that says
don't forget that the SCRA, which you learned in school, should
be applied. But listen, these kids learn in different ways, you
need to hit them on the head in different ways, and this stuff
is serious, and we just can't assume that they are going to
have the responsibility to read a little bureaucratic line on
there.
Thank you, Mr. Chairman.
[The DoD subsequently provided the following information:]
There were two different Leave and Earning Statement (LES) remarks
used in 2009 for the housing/mortgage crisis--both including the
Military ONESOURCE number. They are listed below:
RENT, MORTGAGE, EVICTION, OR FORECLOSURE DIFFICULTIES? GET FREE,
CONFIDENTIAL HELP. VISIT YOUR MILITARY LEGAL ASSISTANCE OFFICE OR CALL
MILITARY ONESOURCE AT 1-800-342-9647.
HOUSING DIFFICULTIES? SEE YOUR MILITARY LEGAL ASSISTANCE OFFICE OR
CALL MILITARY ONESOURCE AT 1-800-342-9647.
We also ran a MILITARY PAY NEWSLETTER Article in September 2008
(this is specific to members who are renting private housing that is
foreclosed and they are not the owner):
``Foreclosure''
An armed forces member who relocates from, or whose
dependent(s) relocate from leased or rented private housing by
reason of a foreclosure action against the landlord, is
authorized a short distance move (this provision does not apply
if a member and/or dependent(s) are the homeowner).
The household goods move is to another dwelling from which
the member is to commute daily to the permanent duty station
(or at a location at which the dependent(s) reside).
Before using this authority, a member is encouraged to
exhaust remedies available under the Servicemembers Civil
Relief Act (50 USC, Appendix 531) and State law. The
Servicemembers Civil Relief Act limits evictions of
servicemembers or their dependents to court orders during
periods of military service. It also empowers the courts to
stay proceedings for a period of 90 days (may be shorter or
longer if the judge determines it is needed) or adjust the
obligation under the lease. Consult your legal office for
specific situations.
The Chairman. We have votes coming up in just a few
minutes, so Mr. Michaud.
Mr. Michaud. Thank you very much, Mr. Chairman.
Ms. Petraeus, in your statement did you say that for the
military families that the second issue of stress is financial?
Mrs. Petraeus. Yes, the Department of Defense did a survey,
I don't have the details of that survey, but I did say--it was
of servicemembers, I believe, not family members--and I said
that they considered their finances to be the second largest
source of stress, and that was ahead of deployments, health,
family, and war, so.
Mr. Michaud. Colonel, and I want to get back to the whole
suicide issue because I know, you know, finances are very
stressful and what the Rowleses went through is just
unbelievable, and for suicides within the military, do you
follow up on why a suicide occurs--had occurred?
Colonel Shumake. Sir, I would have to get back with you on
that. I don't have the visibility on that followup in the
suicide world.
[The DoD subsequently provided the following information:]
There is a general consensus based on recent studies that bad
economic times contribute to increases in suicides. From that broad
conclusion, one could more narrowly conclude that an individual's own
financial difficulties could be a stressor contributing to suicide.
Department of Defense Task Force on the Prevention of Suicide by
Members of the Armed Forces Report, August 2010. This report at pages
11 and 12 notes many historical factors affecting suicide rates,
including exposure to trauma and access to lethal means, but it goes on
to note that a number of additional layers of complexity require
consideration. Two of those are noted: the impact of multiple
deployments and the use of Internet-based communications with family
while deployed. The report at page 44 also states that failed
relationships and mental health diagnoses were primary stressors. This
report does
not specifically note economic factors, but they might reasonably be
considered
to arise as an effect of multiple deployments. (http://www.health.mil/
dhb/downloads/Suicide%20Prevention%20Task%20Force%20final%20report%208-
23-10.pdf)
Army Health Promotion Risk Reduction Suicide Prevention Report,
2010. This report concludes that economic difficulties are potentially
magnified for servicemembers. It suggests that is a stressor
potentially impacting the suicide rates. (http://www.apd.army.mil/
pdffiles/p600_24.pdf) Rand Study: The War Within, Preventing Suicide in
the U.S. Military. This report at page 35 does mention financial
hardships as a stressor that could affect suicide rates. (http://
www.rand.org/content/dam/rand/pubs/monographs/2011/RAND_MG953.pdf)
Department of Defense Suicide Event Report for 2008. This report
at page 23 indicates that excessive debt or bankruptcy was reported for
10 percent of suicides. (https://dodser.t2.health.mil/)
Department of Defense Suicide Event Report for 2009. This report
at page 2 indicates that excessive debt or bankruptcy was reported for
11 percent of suicides. (https://dodser.t2.health.mil/)
``Relationship between Economy, Unemployment and Suicide,''
prepared by the Suicide Prevention Resource Center, November 12, 2008.
It notes that a review of the last two decades of literature suggests
``a strong relationship exists between unemployment, the economy, and
suicide.'' This article did not focus
on the military. (http://www.sprc.org/library/Economy_Unemployment_and_
Suicide_2008.pdf)
Mr. Michaud. If you could I would appreciate it, because I
can't help but believe with the number of suicides in the
military that it has not been caused by, you know, financial
stress.
Colonel Shumake. And you mean specifically a report that
goes back and tries to characterize kind of an autopsy if you
will in what happened?
Mr. Michaud. Well, I mean has there been a conclusion or
been suicide notes, you know, I just can't stand it anymore
because I can't make my mortgage payments or stuff like that.
Has there been any reports done on suicide rates in the
military of why they have occurred? If you can follow up.
Colonel Shumake. If we have it I will find out.
Mr. Michaud. Yeah. Because my concern is, and we heard the
representative for JPMorgan this morning apologize and they are
going to pay seven and a half percent interest, which I think
is just unbelievable when you look at the chief executive
officer of JPMorgan a $28 million bonus in 2007.
I guess my concern, and I come from the manufacturing
sector of the paper industry, and unfortunately some of the
paper industry they violate a lot of environmental laws, and
when I asked actually one of them why they do it and they said,
well, you know, it is cheaper to violate the law, it is just
the cost of doing business. And that is a concern that I have
when you look at the violations that we heard this morning and
the fact that seven and a half percent.
Actually what I would like to see is the Justice Department
find someone who actually had committed suicide and it is
related to financial stress and actually hold a corporation
liable under the Wrongful Death Act and that is when we
actually will start seeing companies really follow the law
versus paying a penalty because of the cost of doing business,
and that is really where we are going to actually get the law
followed is if we do have a hammer there to do that.
So I want to thank you both for coming this morning. I
appreciate your testimony.
Colonel Shumake. Thank you, sir.
The Chairman. Mr. Walz.
Mr. Walz. Thank you, Mr. Chairman, and again, I thank you,
you are certainly starting out with the promises you made when
you assumed the Chairmanship of this Committee and holding
pointed, important hearings for your veterans and their
families, so thank you for that.
To the Ranking Member your passion is also there, Mr.
Ranking Member, and I appreciate it. I have to tell you though
having been an enlisted soldier for 24 years I have to tell
these guys to wear their helmet at times, and it becomes really
hard. Those are the things I want them to focus on, the things
like how do you set that head spacing timing on that .50
caliber, how do you get your mission done? And it becomes quite
burdensome to try.
And you know, this is where I think there is a shared
responsibility in the country and a corporate ethic to go a
little above and beyond. And I am not absolving those soldiers
of personal responsibility, Lord knows, they can get themselves
into some of that, they can help get out of some of it, but I
have to tell you one thing for you Colonel that I said, it is
hard for them to remember it all.
I know when I was able to resolve some of these and they
were specifically car loan issues with young soldiers of doing
that on a deployment. A senior NCO on the phone who has had a
little more experience with talking to people cutting through
the bureaucracy really made a difference.
My question to you is do you get reports on that? I never
filed a report on that and I did a bunch of these where there
were issues of they were violating the rules of the law, we
went in, we corrected them, and I will give credit in most
cases these auto financers were pretty good about working it
out and were being pretty good citizens, but no one reported
that. So do you think you have an actual number? Do you think
you have a grasp of how big a deal this is?
Colonel Shumake. Sir, it is hard to tell, particularly when
you are looking at the fact that you have attorneys, and
usually it is going to be the attorneys. Of course if it is a
senior NCO doing it, no, sir, we are not going to hear about
that. We are not going to know, they are going take care of
business like they do.
Mr. Walz. Would you guess that is more common? I mean that
is my personal experience, I can't say if that is an----
Colonel Shumake. Sir, I kind of--I guess I come from a, you
know, the legal focus and so I don't hear so many cases of
that.
Mr. Walz. Okay.
Colonel Shumake. I kind of hope that first sergeant sends
them to legal assistance and I kind of hope that legal
assistance attorney is doing what I described earlier.
And we do get reports--of course, you know, you can't tell
exactly what is going on in the attorney/client world, but the
services will report the number of clients they see overall and
they break it down into certain categories, and one of the
categories generally is SCRA.
I know that for the Marines they--I think it is the
Marines--they have the Uniformed Services Employment and
Reemployment Act----
Mr. Walz. Right.
Colonel Shumake [continuing]. Which is the re-employment
rights, they kind of mixed categories, so I just kind of have
to guess on that.
But there is a general overall report that you could track
depending on how good their system is in the past. I do know
that right now I can get a snapshot of how many----
Mr. Walz. So you feel fairly comfortable that you are
getting a--least a--how did you come to know about the JPMorgan
issue? Did they come to you?
Colonel Shumake. Sir, I got a call from a Senate staffer
who asked if I heard anything about it, and I then called my
friends in the American Bankers Association and my office does
have contacts with----
Mr. Walz. That is great.
Colonel Shumake [continuing]. With the ABA. I have given
Webinars for those guys on two occasions.
Mr. Walz. That is great.
Colonel Shumake. Gone out to the banking----
Mr. Walz. So this work--I mean as far as the reporting and
stuff you wouldn't want it--we never want it to happen, but you
think the followup afterwards works?
Colonel Shumake. I think it was good, sir.
Mr. Walz. Okay.
Colonel Shumake. Because it was the ABA, after I made the
call to the ABA the next thing I know I got a call from one of
their attorneys who said JPMorgan Chase would be giving me a
call. So once I got that----
Mr. Walz. I think that needs to be noted because there is a
help and I know the Chairman mentioned about ABA and reaching
out to them, that is smart. Because what we want to do is we
want to alleviate this, we want to make sure that it doesn't
happen, put safeguards in, but the biggest thing is never to
have it happen in the first place.
Colonel Shumake. Yes, sir. And so I think from that
information we can then--my office could push it down and we
had the hotline out because the JPMorgan Chase piece ran on The
Today Show on the 17th.
Mr. Walz. Great.
Colonel Shumake. We had it out that weekend.
Mr. Walz. Colonel, can you tell me, and just maybe as an
example of how this is--the difficulty of this as you
mentioned. I think of myself in my situation. I signed up when
I was 17, I didn't buy my first house until I was 33, I
deployed 7 years after that. I actually wouldn't have been
covered then, correct, because I had the loan during service?
Colonel Shumake. That is correct. The mortgage protection
on first the interest rate cap is pre-service and so is the
foreclosure piece. And again, all the foreclosure piece says is
that you have to have a court order to do it.
Mr. Walz. So for a National Guard soldier like me my life
situation obviously changed greatly from 17 to 40 when I am
deployed, children, home, all of that, but because of the
nature of the way this is set up, I was not afforded those
protections because I would have already been in the service
when I got the loan.
Colonel Shumake. Well, it has to be a pre-service, so I
think if you had some gaps in there you might be able to make
your argument.
Mr. Walz. But if you are National Guard the whole time the
way I understand this you are not; is that correct?
Colonel Shumake. Well, no, sir, if you left--it is not so
much that you are in active service in the National Guard, it
is that you are on active duty.
Mr. Walz. Yeah.
Colonel Shumake. That is the key.
Mr. Walz. But if you were a technician or any of these
people do they----
Colonel Shumake. The technician--I am going to pass on the
technician because that is about as complicated as it gets.
Mr. Walz. Well, I appreciate it, but I do think your point
is right about explaining this out.
My last question, Mrs. Petraeus on this is, I have to tell
you I talk with a lot of my bankers. The CFPB is not their
favorite organization at this point even though it is brand
new.
How are you going to get beyond that to say we are not here
to persecute, we are here to help the consumers and you can
help us make that happen? Are you feeling that? I mean are you
feeling cooperation from these institutions?
Mrs. Petraeus. Yeah, I think so. I mean part of our goal is
to make a level playing field for consumers, and that doesn't
mean, you know, that we are anti-business.
Mr. Walz. Right.
Mrs. Petraeus. And we do want to convey that message. And
Professor Warren has been hard at work doing that.
Mr. Walz. Okay. I just know that, you know, that perception
is there, just wanted to know.
Thank you, Mr. Chairman.
The Chairman. Thank you very much. Thank you to everybody
for being here today, those that testified.
Let me assure you if changes need to be made to the SCRA,
we will work across the aisle with our colleagues to see that
they are done. No servicemember in a fox hole or serving on the
front line should have to worry about the roof over their
family's head back at home, and we will do everything we can to
make sure that they are protected.
With unanimous consent, all Members shall have 5
legislative days to revise and extent their remarks or
extraneous material, and I thank all the Members for
participating today, and this hearing is adjourned.
[Whereupon, at 1:29 p.m., the Committee was adjourned.]
A P P E N D I X
----------
Prepared Statement of Hon. Jeff Miller,
Chairman, Full Committee on Veterans' Affairs
Good morning and welcome to the first oversight hearing of the
House Committee on Veterans' Affairs of the 112th Congress.
As we begin our important work on behalf of America's veterans and
servicemembers, I would like to point out that veterans are well-
represented on this Committee. While our members look after the
interests of all 23 million U.S. veterans and their families, some 12.2
million--over half of America's veterans--reside in the States we
represent. I am especially proud that 110,000 of those heroes reside in
Florida's First Congressional District.
And that responsibility brings us to the subject of today's
hearing.
I know the Members on both sides of the aisle are concerned about
today's topic, but consistent with past practice, I would like to limit
opening remarks to myself and the Ranking Member so that we may have
more time to hear from our witnesses. Of course, Members are welcome
and encouraged to submit their opening remarks for the record.
The Servicemembers Civil Relief Act has existed in various forms
since the War of 1812 and each version has shared a singular goal: to
protect those who protect us. The 2003 revision, which I cosponsored,
and the amendments we have made since, continue that tradition. I am
committed to ensuring SCRA remains a relevant and viable tool and I
know the Ranking Member and the rest of this Committee share in my
commitment.
My goal for this oversight hearing is to determine whether the SCRA
afforded our servicemembers and their families are meeting their needs.
We are all aware of related matters pending before the court. This is
not intended to be a trial of any sort. I am not seeking to prejudice
that or any future action in any direction. At the same time, it is
important to recognize the obligations that exist under the law, and
that this Committee has a duty to ensure that the law is working for
active duty servicemembers.
I have said recently, and I will say again now, that our Nation's
war fighters--and their families--should not have to fight to keep
their piece of the American Dream while they are on foreign ground
defending that fundamental right for all of us.
I want to thank our witnesses for appearing before us. First, I
thank Captain Jonathon Rowles (ROLLs) and his wife Julia, for their
persistence in exercising their rights. Second, I thank JPMorgan Chase
for reaching out to us, and more importantly, for admitting its
mistakes and then making the efforts it has at rectifying them.
I hope our witness from the Department of Defense will be able to
assure us of the effectiveness of their program to educate
servicemembers of their rights under SCRA. I also look forward to
hearing from the newly established Consumer Financial Protection Bureau
about how it can contribute to preventing similar occurrences in the
future.
What we have here is what some might call a ``teachable moment.''
For the financial services industry, the lesson is to understand the
Servicemembers Civil Relief Act and to undertake the same sort of
review as has Chase to ensure compliance. For DoD, it is time to review
whether the services' SCRA training programs are getting the job done.
Finally, servicemembers are ultimately responsible for understanding
their rights and responsibilities under SCRA and holding their
financial institutions accountable. Today, we will be asking and
listening for ways to ensure that these goals are met.
Before we begin I ask unanimous consent that all Members be allowed
to sit at the dais and be permitted to ask questions. Hearing no
objection so ordered. I also want to extend a warm welcome to Mr. Brad
Miller of North Carolina. Mr. Miller drafted legislation last congress
on SCRA and I am happy that he is here today.
I now recognize the Ranking Member, Mr. Filner, for his remarks.
Prepared Statement of Hon. Bob Filner,
Ranking Democratic Member, Full Committee on Veterans' Affairs
Good morning, everyone. I'm glad you all could join us for this
very important hearing today on overcharges by JPMorgan Chase on
military families. I would also like to thank the Chairman for holding
this hearing today.
I believe this is a very important issue and is something that we
should continue to monitor as the foreclosure crisis continues to
unfold. I also want to thank all of our distinguished panelists for
participating in today's Committee hearing. I know that some of our
panelists have traveled far distances to be here today.
Today's hearing seeks to examine why banks such as JPMorgan Chase
have overcharged our military families who are actively engaged in
defending our country.
While we want to know how these overcharges happened, I also want
to know what they are doing to prevent this from occurring again.
As foreclosure filings continue to rise, the effect on Americans
has been acute, with California having one of the most affected
populations. According to RealtyTrac, California metro areas such as
San Diego have been seriously affected by the foreclosures.
Like most Americans, many of our Nation's heroes see homeownership
as an integral part of the American dream. Unfortunately, for a number
of military families, that part of the American dream became a
nightmare when JPMorgan foreclosed on their homes. It is my sincerest
hope that JPMorgan Chase is taking immediate corrective steps to
restore these families to their home as soon as possible.
I personally have grave concerns for Marine Captain Rowles and his
wife. They have been through a 5-year saga with the bank.
It is unconscionable that any family would have to endure this kind
of treatment--especially a military family. I strongly urge JPMorgan
Chase to move as quickly as possible to do the right thing for them and
all of the other military families who are affected.
For many of our returning servicemembers and veterans, the stress
of what they have gone through by serving in a war zone may still
affect them. This is why the protections under the Servicemembers Civil
Relief Act are there to provide protection for all of our military
families.
Mr. Chairman, I hope you and everyone else on the Committee will
make a commitment today to stand up for veterans and their families by
joining me in making these protections permanent for the military
families.
I look forward to hearing the testimony of all our panelists so
that we may better understand the problem and see what preventive
strategies can be implemented to address the overcharges and
unnecessary foreclosures on our Nation's military families.
Again, I would like to thank you, Mr. Chairman, for holding this
hearing and I thank all of our panelists for being here with us today.
Your dedication to our Nation's servicemembers and veterans is
extremely important as we seek to identify and improve lending
practices to protect military families, while continuing to allow
opportunities for home ownership.
Thank you and I yield back my time.
Prepared Statement of Hon. Gus M. Bilirakis
Mr. Chairman, Ranking Member Filner, I want to thank you for
promptly holding this hearing to delve into allegations of violations
of the Servicemembers Civil Relief Act (SCRA). Those serving in the
uniform of the United States Military make tremendous sacrifices in
their personal lives. The nature of their service often does not afford
them the same opportunities that civilians have in managing their day-
to-day lives.
I was distraught to learn that financial institutions were remiss
in providing servicemembers with the benefits the law affords to them.
It is frustrating to learn of the unnecessary burdens that many
servicemembers, such as Captain and Mrs. Rowles, have faced as they
have answered the call of service to our Nation.
It is my hope that this hearing will bring light to the overall
impact of alleged violations and their prevalence in the financial
sector. In addition I hope that sufficient remedies will be implemented
and serve as a model to ensure that servicemember's requesting
protections under SCRA will be realized without delay. Today's hearing
serves as an opportunity to identify shortfalls in implementation of
this law and move forward in a productive manner so that we can better
serve those who serve our Nation.
Prepared Statement of Hon. John Barrow
Thank you Chairman Miller and Ranking Member Filner.
This is my first hearing as a Member of the Veterans' Affairs
Committee, and I would like to express the honor and humility with
which I serve on this Committee. We owe an extraordinary amount of
gratitude to those who have served our country, and we still have a lot
to do before we can say we have kept the promises we made to our
veterans when they first joined up. Better enforcement of the
Servicemembers Civil Relief Act is an important step in the right
direction to keeping those promises.
Proper adherence to the Servicemembers Civil Relief Act makes our
country safer and protects the families of our troops. Servicemembers
should be able to devote themselves completely to the defense of the
Nation. With the very real dangers they face in war they cannot be
distracted by the thought of losing their home while serving and
leaving their family on the street. But they will be distracted if the
few times they hear from home they discover that their family is in
danger of losing their home to an illegal foreclosure. The families of
our troops already face undue stress while their loved ones serve
abroad on active duty.
I understand that JPMorgan Chase has taken steps to correct the
accounting problems that violated the Servicemembers Civil Relief Act,
but we have to do better in the future. I look forward to hearing
specifically how and why the protections under SCRA were not followed.
More importantly, I want to hear specific suggestions on how we can
improve the application of SCRA through oversight so that no one has to
worry about losing their home because they have been called to active
duty.
Prepared Statement of Hon. Marlin A. Stutzman
Thank you, Mr. Chairman. This is my first full Committee hearing
and I am very honored to serve on this Committee to serve our veterans
who have so honorably defended this Nation.
In addition to the honor of serving on this Committee, I have the
additional honor of serving as the Chairman of the Subcommittee on
Economic Opportunity. The Servicemembers Civil Relief Act (SCRA) falls
under the oversight of my Subcommittee. Over the past few days and
weeks I have been learning about SCRA and the benefits and protections
it affords to our servicemembers. I commend the work of previous
Congresses on this legislation.
With the amount of servicemembers currently deployed, it is of
utmost importance that servicemembers and the financial institutions
that handle their affairs are fully educated on the intricacies of the
SCRA. Servicemembers must be fully focused on the mission abroad, not
worrying about their personal affairs at home and wondering if they
will come back to a foreclosed home.
It is the duty of financial institutions to serve all their clients
with the utmost respect and customer service but there is an increased
responsibility to those clients who are serving overseas. Should
mistakes be made by the financial institution, in this case JPMorgan
Chase, steps must be taken to correct the problem and make it right for
the men and women in uniform who were mistakenly charged a higher
amount of interest rates and fees, or, in the worst cases, faced
foreclosure on their homes while deployed.
While I do not stand here today in judgment of any of the involved
parties, I do have a strong interest in identifying any weaknesses in
the SCRA and learning more about how servicemembers are informed of the
rights and privileges afforded to them by the SCRA. Additionally, I am
interested in learning more about the vulnerabilities in JPMorgan
Chase's SCRA compliance and the steps they are taking to correct their
mistakes for servicemembers involved in wrongful interest charges on
their mortgages and home foreclosures.
I would like to thank our witnesses for being here today. Many of
you have served our Nation honorably in many different capacities. I
look forward to hearing your testimony.
Thank you, Mr. Chairman.
Prepared Statement of Hon. Russ Carnahan
Mr. Chairman, thank you for holding this important hearing on
alleged violations of the Servicemembers Civil Relief Act by JPMorgan
Chase Bank.
Since the passing of the Soldier's and Sailor's Civil Relief Act in
1940, Congress has continuously recognized the importance of providing
protections to servicemembers and their families to help relieve them
of the civil and financial burdens they face while on active duty. The
Servicemembers Civil Relief Act simply expanded upon that original law
by providing a broader range of protections including provisions that
would reduce interest rates to 6 percent on mortgage loans and
foreclosure projections.
Upon hearing of these allegations, I was deeply troubled to know
that one of the Nation's largest financial institutions possibly
disregarded the very Act that was put in place to protect our Nation's
heroes and their families. Although I am pleased to know that JPMorgan
Chase has begun the process of refunding money to the more than 4,000
affected servicemembers that were overcharged and putting 14 families
back into their wrongfully foreclosed homes, I remain concerned that
there may be more servicemembers and families affected by this matter.
In this climate, in which the housing market is still struggling to
stabilize, it is particularly important that all financial institutions
adhere to the safeguards put forth to protect those very individuals
that sacrifice so much for the good of our Nation. It is my hope that
today's hearing gives JPMorgan Chase the opportunity to explain their
wrongdoings, to inform the Committee of their plans to quickly resolve
these matters and ensure us that they will adhere to the protections
under the Servicemembers Civil Relief Act moving forward.
To all the witnesses today--thank you for taking time out of your
busy schedules to appear before us. I look forward to hearing your
testimony.
Prepared Statement of Richard A. ``Dick'' Harpootlian, Esq.,
Richard A. Harpootlian, P.A., Columbia, SC
EXECUTIVE SUMMARY
The Committee has invited testimony on the facts and circumstances
surrounding the class action lawsuit filed in the District of South
Carolina as Rowles v. Chase Home Finance, LLC. The testifying witness,
Richard A. Harpootlian, is an attorney representing three members of
the Armed Forces who serve as putative class representatives
representing servicemembers who allegedly were denied benefits to which
they were entitled under the Servicemembers Civil Relief Act by Chase
Home Finance, LLC and Chase Auto Finance Corp.
Whereas the lawsuit is still in its infancy, all facts are not yet
known to the servicemembers. However, in statements to the press
JPMorgan Chase has confirmed that at least 4,000 servicemen and
servicewoman were denied the 6-percent interest cap on preexisting
debts. Also, Chase Home Finance, LLC foreclosed on the homes of
numerous servicemen and servicewomen (the exact number of which is not
yet known).
The individual plaintiffs in this case are Captain Jonathan Rowles
of the United States Marine Corps, whose family was denied the 6-
percent interest cap while he was deployed on active duty, Lieutenant
Colonel Sarah Letts-Smith of the United States Army Reserve, whose home
was foreclosed on while she was serving in Iraq, and Lance Corporal
Martin Hupfl, whose automobile installment loan was terminated and
placed into collections while he was in basic training.
The damage to the servicemembers as a result of the SCRA violations
not only financially harms the soldiers but also negatively affects
their ability to serve in the military. Each of the plaintiffs in the
Rowles case was forced to wrestle with debt collectors and threats of
loan acceleration, foreclosure, and/or repossession while he or she was
on active duty. This pressure cannot be overstated as it represented a
threat not only to the financial well-being of the servicemembers, but
to the physical well-being of the families that they left behind.
Whatever facts this lawsuit may reveal, thus far it is clear that a
systematic failure to adhere to the requirements of the SCRA has
occurred. Congress should consider three areas in which the SCRA may be
strengthened to deter future violations: (1) stronger criminal
penalties for knowing violations; (2) civil fines for all violations
with an incentive discount for self-reporting; and (3) an attorneys'
fee provision for successful plaintiffs seeking to enforce their rights
as servicemembers under the SCRA.
__________
Mr. Chairman and Members of the Committee,
I thank you for the invitation to speak on behalf of my clients--
Captain Jonathan Rowles of the United States Marine Corps, Lieutenant
Colonel Sarah Letts-Smith of the United States Army Reserve, and Lance
Corporal Martin Hupfl of the United States Marine Corps. I represent
these fine men and women in uniform along with my co-counsel, William
Harvey and Graham Newman.
As the Committee is aware, our law firms have filed a class action
complaint against subsidiaries of JPMorgan Chase alleging systematic
violations of rights guaranteed to our men and women in uniform under
the Servicemembers Civil Relief Act that have harmed thousands of our
soldiers and their families. This litigation is in its earliest stages.
No discovery has been conducted and I am limited by law as to what
comments I may offer regarding the merits of these claims or any
defenses thereto. I may, however, share with you the facts giving rise
to my clients' complaints, the difficulties they have suffered while
serving our country, and suggestions that the Committee might entertain
in hopes of preventing such occurrences in the future.
The opening words of the Servicemembers Civil Relief Act establish
that the purpose of the law is ``to provide for, strengthen, and
expedite the national defense through protection extended by this Act
to servicemembers of the United States to enable such persons to devote
their entire energy to the defense needs of the Nation.'' The venerable
nature of these goals is undeniable. But to truly grasp the importance
of the Act to our Nation as a whole, one must examine the history of
the legislation through the last two centuries.
I. History of the Servicemembers Civil Relief Act
The roots of the Servicemembers Civil Relief Act lie in the
Constitution itself. Article I, section 8 of the Constitution expressly
grants to Congress the authority to build and maintain our Armed Forces
in order to guarantee the security of this Nation. With this in mind,
as early as the Civil War Congress recognized the need to enact
legislation placing certain restrictions on civil actions that would
hinder the abilities of an individual soldier or sailor to dedicate all
of his efforts to defending this country. In 1917, as the United States
became embroiled in World War I, our government employed the services
of Major John Wigmore--then Dean of the Northwestern University Law
School and author of the famous treatise Wigmore on Evidence--to draft
the first modern version of the SCRA, then known as the ``Soldiers' and
Sailors' Civil Relief Act.'' This Act instituted many of the
regulations that are central features of the modern law, including a
stay of civil actions and a prohibition of foreclosures upon the homes
of those on active duty.
Major Wigmore's Soldiers' and Sailors' Civil Relief Act expired 6
months after the end of World War I due to a sunset provision included
in the initial draft. Thus, in 1940, as conflicts throughout the globe
again escalated into World War, Congress reenacted Major Wigmore's bill
with some amendments. At the time, Congressman Overton Brooks of
Louisiana reiterated the vital role the Act played in preserving the
Nation's defense and recognized the concerns the Act was intended to
address.
This bill springs from the desire of the people of the United
States to make sure as far as possible that men in service are
not placed at a civil disadvantage during their absence. It
springs from the inability of men who are in service to
properly manage their normal business affairs while away. It
likewise arises from the differences in pay which a soldier
receives and what the same man normally earns in civil life.
The Soldiers' and Sailors' Civil Relief Act has been in effect
since it was reenacted by Congressman Brooks and others in 1940.
In April of 2003, as Operation Enduring Freedom in Afghanistan
progressed, this Committee took the lead in the 108th Congress to style
a complete restatement of the Act. The bill that originated in this
Committee received broad bipartisan support, boasting as its sponsors
then-Chairman Christopher Smith of New Jersey and Ranking Member Lane
Evans of Illinois. In its Report to the House, the Committee expressly
noted the following:
Congress has long recognized that the men and women of our
military services should have civil legal protections so they
can ``devote their entire energy to the defense needs of the
Nation.'' With hundreds of thousands of servicemembers fighting
in the war on terrorism and the war in Iraq, many of them
mobilized from the reserve components, the Committee believes
the Soldiers' and Sailors' Civil Relief Act (SSCRA) should be
restated and strengthened to ensure that its protections meet
their needs in the 21st century.
Among the protections recognized as necessary in modern society
were four rights directly implicated in the pending litigation
involving my clients: (1) a 6-percent cap of interest chargeable on
debts incurred prior to military service; (2) a prohibition of
derogatory reports to credit agencies due to eligibility of SCRA
protection; (3) limitations upon the ability to foreclose upon
servicemembers' homes; and (4) limitations upon the ability to
terminate installment contracts or otherwise repossess personal
property purchased via installment contract.
Once favorably reported to the House, the bill gained thirty-nine
(39) co-sponsors from both parties and was passed by the full House by
425-0. The Senate passed similar legislation with the leadership of
Senator Lindsey Graham from my home State of South Carolina and the
differences between the two bills were negotiated without need of a
conference committee. On December 19, 2003, President George W. Bush
signed into law the now-restyled ``Servicemembers Civil Relief Act.''
II. EXPERIENCES OF THE ROWLES PLAINTIFFS
The litigation in which we are involved began only after Jonathan
Rowles and his wife, Julia, endured several years of frustration
regarding their home mortgage with Chase Home Finance, LLC. Our law
firms filed this lawsuit on behalf of Captain Rowles in July of 2010.
Over the past several months, we have been contacted by numerous
military personnel who have experienced similar denials of SCRA
protection from Chase's subsidiaries. Last week, we filed an amended
complaint, adding allegations on behalf of Lieutenant Colonel Sarah
Letts-Smith of the United States Army Reserve and Lance Corporal Martin
Hupfl of the United States Marine Corps.
Our research has revealed systematic failures in the maintenance of
SCRA protections pertaining to four classes of military men and women:
(1) those denied the 6-percent maximum interest rate on debts incurred
prior to military service; (2) those who received a blighted credit
report as the result of their invocation of SCRA protection; (3) those
whose homes were foreclosed upon despite SCRA protection; and (4) those
possessing installment contracts that were cancelled or resulted in
repossession of personal property such as automobiles despite SCRA
protection.
A review of the facts pertaining to each plaintiff is helpful in
explaining how these violations came about.
In February of 2004, Jonathan and Julia Rowles entered into a
purchase money mortgage with BNC Mortgage, Inc. In May of 2004, Chase
Manhattan Mortgage Corporation purchased this loan and, from that point
in time, the Rowleses made all payments to Chase. After a year of
making payments on this mortgage, Jonathan Rowles executed a United
States Marine Corps Reserve contract on August 16, 2005 and received
Assignment to Active Duty Orders which became effective on January 22,
2006. Shortly thereafter, Rowles requested in writing that Chase reduce
the interest rate on the loan to 6 percent pursuant to the SCRA. In
this letter, Rowles specified January 22, 2006 as the date he entered
active duty and produced two sets of orders to verify his current
status. Again on May 2, 2006, Rowles wrote to Chase to request the 6-
percent rate protection under the SCRA. This letter also specified
Rowles' active duty date and included additional copies of his orders
and a copy of his previous letter.
On May 8, 2006, in response to this series of correspondence, Chase
requested that Rowles provide ``orders and/or an enlistment agreement
showing the date of original call to duty.'' Again Rowles sent faxes to
Chase customer service representatives that included handwritten cover
sheets explaining his active duty orders as well as copies of his
letters of April 14 and May 2. In a letter dated July 27, 2006--7
months after Rowles received his active duty orders--Chase informed
Rowles that because he had qualified for the protection of the SCRA,
the company had adjusted the interest rate on the loan to 6 percent
effective with his May 1, 2006 payment. However, Chase failed to apply
the statutory interest rate to the loan until August 17, 2006, which
was the date of the first statement received by Rowles that reflected
the 6-percent rate. The July 27 letter also informed Rowles that his
``loan is protected against late fees, adverse credit reporting, and
default activities. These protections will remain in effect for 90 days
following your return from active duty.''
Though Rowles' SCRA protection had been in place for less than 4
months, Chase mailed Rowles a letter on December 1, 2007 which it
characterized as a ``required quarterly verification.'' The letter
included a form which Rowles was instructed to complete and sign in
order to continue to receive the protection of the SCRA. Rowles duly
completed the form and returned the letter to Chase. Chase sent
additional verification letters on December 17, 2008, March 25, June 22
and December 29 of 2009 and March 22, 2010. In addition to the periodic
verification letters, no fewer than four times per year since July of
2006, Rowles has had to call various Chase customer service
representatives after being verbally informed or receiving
documentation indicating that the interest rate on the loan was going
to be adjusted above 6 percent if he failed to do so. In March of 2008,
Rowles was forced to request that his commanding officer at Training
Squadron Eighty-Six in Pensacola, Florida, write to Chase on his behalf
in order to confirm that he was in fact an active duty Marine.
In a letter dated January 16, 2007, Chase again informed Rowles
that he had qualified for the protection of the SCRA and that the
company had accordingly extended the adjustment on the 6-percent
interest rate effective February 1, 2007. On April 2, 2008, Chase
informed Rowles in writing that the company was ``in receipt'' of his
``request for relief'' under the SCRA and that he should allow 3 to 4
weeks for review of the request. A subsequent letter dated April 25,
2008, again informed him that his rate adjustment would be extended
effective October 1, 2008.
From the time that Chase applied the 6-percent interest rate to the
loan until April 2009, Chase would send loan statements to the Rowles
family indicating the interest rate charged on their loan was, in fact,
substantially above 6 percent. On information and belief, during this
time Chase would use various formulas and accounting methods to
reconcile the higher stated interest rates while effectively only
charging Rowles at 6 percent.
Beginning in April 2009, the Rowleses' loan was to shift from
``interest only'' to an amortized loan over remaining 25 years per the
terms of the original agreement. On Rowles' April 2009 statement and
each subsequent statement, Chase not only failed to accurately
characterize the interest rate on the loan as 6 percent but also ceased
to employ any formula or accounting method to effectively provide
Rowles with the benefit of the 6-percent protection under the SCRA.
Each month between April 2009 and the time of the filing of the
lawsuit, Rowles made a payment to Chase in the original contractual
amount, which is the last correct amount billed by Chase reflecting
interest at 6 percent. Despite this fact, Chase repeatedly failed to
credit Rowles for payments made and began to pursue aggressive
collection methods for what it characterized as a past-due balance on
Rowles' account.
Chase's collection methods during this time included repeated phone
calls and correspondence to Rowles from Chase debt collection
departments in various locations. These calls often came at a rate of
three per day and included calls to his mother who lives at a different
address and his workplace as well as calls made to his residence after
midnight, and as late as 4:00 a.m. In telephone conversations,
voicemails and correspondence during this time, Chase representatives
repeatedly threatened to report Rowles to the credit bureaus and to
initiate foreclosure proceedings on their house.
This pattern of conduct by Chase caused Rowles to spend
considerable time communicating with Chase via telephone, email and
written correspondence. This time included leave from his unit which
was spent traveling to meet with Chase representatives in an effort to
preserve his 6-percent interest rate under the SCRA and to prevent
Chase from taking threatened actions which are unlawful under the SCRA.
Finally, in June of 2010, Chase denied Rowles electronic access to his
account. Thereafter Rowles brought this suit.
United States Army Reserve Lieutenant Colonel Sarah Letts-Smith
Lieutenant Colonel Sarah Letts-Smith is an intelligence officer
with the United States Army Reserve. On July 26, 2005, LTC Letts-Smith
and her husband, Rory Smith, jointly purchased a house located in
Temecula, California. At the time of the purchase, Lt. Col. Letts-Smith
was not on active duty. The purchase was financed by Washington Mutual
Bank, FA, popularly known as ``WaMu.'' For the first 3 years, the
Smiths made all mortgage payments on time for the 44200 Sunset Terrace
home.
On January 29, 2008, the Department of the Army ordered LTC Letts-
Smith to active duty, instructing her to report to Fort Leavenworth,
Kansas for a training period of 120 days to be followed by deployment
to Iraq. LTC Letts-Smith soon thereafter faxed letters to all of her
creditors--including WaMu--informing them of her active duty status and
requesting any and all protection afforded under the SCRA.
During the summer of 2008--while LTC Letts-Smith was serving in
Iraq--Rory Smith was laid off from his job, leaving his wife as the
sole wage earner in the house. On August 5, 2008, Rory Smith sought
assistance from WaMu in modifying the Smith family's mortgage so that
payments could continue to be made. Smith informed WaMu in writing that
he had been laid off from his job, that his wife was on active duty in
Iraq, and that the family was having difficulty making their mortgage
payments.
On September 25, 2008, in the largest bank failure in American
history, Washington Mutual Bank was closed by the Federal Government's
Office of Thrift Supervision and the Federal Deposit Insurance
Corporation was named receiver. Regulators simultaneously brokered a
deal selling nearly all of WaMu's assets and liabilities to JPMorgan
Chase. On October 11, 2008, WaMu--now owned by JPMorgan Chase--
responded to Rory Smith's earlier request for ``Borrower Assistance''
as follows.
This letter is in response to your request for assistance on
the above referenced loan. Washington Mutual received and
reviewed documentation regarding a potential workout. Based on
the financial information received, it does not appear we are
able to offer you assistance at this time, therefore your
request for a loan workout Modification has been denied.
On the same date, WaMu and Chase informed the Smiths via a separate
letter that their line of credit was suspended. In addition to this
information, the WaMu/Chase correspondence contained the following
warning.
WE MAY REPORT INFORMATION ABOUT YOUR ACCOUNT TO CREDIT
BUREAUS. LATE PAYMENTS, MISSED PAYMENTS OR OTHER DEFAULTS ON
YOUR ACCOUNT MAY BE REFLECTED IN YOUR CREDIT REPORT.
Several weeks later on December 1, 2008--and despite the fact that
the bank was fully aware of Letts-Smith's active duty status and
request for assistance--WaMu/Chase issued a ``Notice of Collection
Activity'' to the Smiths. Contained in this notice was a threat of
foreclosure.
Failure to cure the default within the 30-day period may
result in Washington Mutual Bank declaring the entire
outstanding principal balance, accrued interest and any other
fees and charges due under the terms of the Note and Security
Instrument to be immediately due (``Acceleration''). If this
amount is not immediately paid at such time, Washington Mutual
Bank may exercise any and all remedies available under the
terms of the Note and Security Instrument and applicable law,
including the commencement of foreclosure proceedings which may
result in the sale of your property.
On March 26, 2009--with LTC Letts-Smith still stationed in Iraq--
WaMu/Chase initiated foreclosure actions against the Smith family. Lt.
Col. Letts-Smith was released from active duty on August 4, 2009. Three
days later, on August 7, 2009, the foreclosure trustee sold the Smith
family's home for $934,150.00--approximately $800,000 less than the
original purchase price of the home.
United States Marine Corps Lance Corporal Martin Hupfl
Martin Hupfl is currently a Lance Corporal in the United States
Marine Corps stationed at NAS Jacksonville. In July of 2007, Hupfl--
while still a civilian--purchased a 1999 Dodge Ram truck. LCpl Hupfl
financed the purchase with 72 month installment loan from Defendant
Chase Auto Finance Corp. The interest rate on the Chase loan was
approximately 12 percent.
In July of 2008, LCpl Hupfl enlisted in the Marine Corps. LCpl
Hupfl recruiter informed him of the protections offered by the SCRA.
With the recruiter's assistance, LCpl Hupfl completed a SCRA Advice and
Statement of Understanding that he signed and faxed to Defendant Chase
Auto Finance Corp.
LCpl Hupfl entered boot camp at Parris Island, South Carolina on
July 21, 2008. From boot camp Hupfl was transferred to Camp Lejeune, NC
for further entry level training. During this period of training, LCpl
Hupfl's mother received a letter from Defendant Chase Auto Finance
dated December 11, 2008 stating that Chase had finally ``processed''
his SCRA request and that Chase had ``reduced the interest rate to 6
percent and discontinued all fee accruals from the date of your
military orders.''
LCpl Hupfl completed his entry level training on March 5, 2009 and,
from there, was assigned to his first duty station in Philadelphia,
Pennsylvania. Hupfl telephoned Chase Auto Finance to resume his loan
payments at the original contracted amount. However, Hupfl was advised
by Chase Auto Finance that it had terminated the installment loan
contract in December of 2008 and therefore was unable to accept any
payments from him. Soon thereafter, Chase Auto Finance assigned LCpl
Hupfl's account to a collection agency that began sending him
collection letters and making collection calls to his mother's house.
Chase Auto Finance also reported to various credit bureaus that Hupfl's
account had been ``charged off as bad debt.''
III. Practical Effects of the Failure to Recognize SCRA Protections
The immediate effect of SCRA violations on our military men and
women are obvious. Unlawful foreclosures force families from their
homes. Illegal repossessions strip families of their cars, appliances,
and other essential household items. Derogatory reports to credit
agencies damage the ability of our soldiers and sailors to enter into
future financial agreement. Excessive charges of interest demand monies
which are not owed.
Perhaps more damaging than these immediate effects, however, is the
financial stress endured by military families while their loved ones
serve on active duty. As the stories of Captain Rowles and LTC Letts-
Smith show, the spouses, parents, and children of our military men and
women are those that inevitably bear the brunt of SCRA violations.
While her husband was deployed to Korea, Julia Rowles was forced to
negotiate with Chase representatives while caring for a small child and
pregnant with another. While his wife was surviving the Iraqi war zone,
Rory Smith prepared his children to move from their home as foreclosure
crept closer.
I began this written testimony by referring to the stated policy of
the SCRA: ``to enable [servicemembers] to devote their entire energy to
the defense needs of the Nation.'' Violations such as those suffered by
our clients directly defeat this purpose. While on active duty, our
soldiers have limited time to so much as contact their families. Sadly,
according to public statements made by JPMorgan Chase to the press, it
appears that over the past few years several thousand men and women
like Captain Rowles, like LTC Letts-Smith, and like LCpl Hupfl were
forced to spend what personal time they did have on the phone with
banking officials seeking an explanation why their families were being
overcharged interest, why their car was being repossessed, or why their
home was being foreclosed.
IV. Suggestions for More Diligent Enforcement of SCRA
The systematic failure of SCRA protections in the Rowles litigation
is evidence that the enforcement provisions of the SCRA deserve
reconsideration. In our review of the law and its application over the
last 6 months, we believe that there are three areas Congress may
improve to strengthen the SCRA in hopes of preventing such failures in
the future.
a. Criminal Penalties for Violations of the SCRA
Criminal indictment is the ultimate sanction provided by the SCRA.
Yet such punishment is extraordinarily rare as it carries the burden of
proving one ``knowingly'' inflicted upon servicemembers the hardships
prohibited by the SCRA. But even if such proof exists, the potential
criminal penalties available, for example for intentionally foreclosing
upon the home of a soldier serving in Afghanistan, are very limited. Of
the sections directly pertaining to the Rowles litigation, three
prescribe misdemeanor criminal penalties for ``knowing'' violations
(Sections 527 (violation of interest cap), 532 (termination of
installment loans and/or repossession), and 533 (foreclosure of
mortgages)) and the fourth contains no criminal penalty whatsoever
(Section 518 (unlawful report to credit agencies)).
Even without considering the difficulties of proving a ``knowing''
violation of the SCRA, the realities of criminal sentencing render the
potential of a prison term for a misdemeanor ``white collar'' criminal
offense almost nonexistent. In response, Congress should consider
stiffening maximum sentences for SCRA violations beyond the current 1-
year cap. Doing so will provide the dreaded ``felony'' label to
violations as well as raise the specter of a potential for
incarceration for egregious examples of SCRA breaches.
b. Imposition of Civil Fines for Violations of the SCRA
None of the SCRA provisions pertaining to interest rates,
mortgages, or installment loans contemplate civil fines as a deterrent
to SCRA violations. Fines are only contemplated in terms of a criminal
violation, and thus the government must demonstrate a ``knowing''
violation of the SCRA in order for any monetary penalty to attach.
Congress should consider the imposition of civil fines for any
violation of the SCRA--regardless of the existence of preexisting
knowledge or intent.
In order to encourage compliance with the SCRA and discourage
additional civil and criminal litigation, Congress should consider
offering a discounted fine to SCRA violators that self-report breaches
of the law. A 50 percent reduction in civil penalties owed for each
violation of the SCRA will provide ample incentive to lenders to
monitor their business practices, rapidly correct any breaches, and
promptly remedy any damage inflicted upon servicemembers.
c. Provision Providing for Attorneys' Fees in Conjunction with Civil
Relief
In addition to the provision of civil fines, Congress should
consider providing for the statutory right of recovery of reasonable
attorneys' fees by servicemembers from SCRA violators. Due to the
nature of SCRA protections, oftentimes damages suffered by
servicemembers will be relatively small. If a servicemember were to
retain the services of an attorney to attempt to enforce his SCRA
rights, a typical attorney's contingency fee would decimate an already
modest recovery by one-third or more--assuming that that servicemember
could retain an attorney willing to invest in such a modest potential
gain. Likewise, an attorney's hourly billable rate may exhaust a
servicemember's recovery all together.
In contrast, the statutory provision for a recovery of reasonable
attorneys' fees will enable servicemembers to seek counsel for the
protection of their SCRA rights while vesting in the Federal judiciary
the power to ensure that the servicemembers' attorneys are fairly
compensated while prohibiting windfall fee awards. A successful example
of such a statutory fee scheme may be found in civil rights litigation,
more specifically that related to 42 U.S.C. 1983. Recognizing that a
successful suit over a violation of civil rights may produce little or
no financial reward, Congress enacted the accompanying authority of 42
U.S.C. 1988 that provides for ``reasonable attorneys' fees'' to be
awarded to a successful plaintiff by the defendant adjudged liable for
the violation. This statute has enabled victims of civil rights
violations to have access to the civil justice system and civil counsel
while preventing the award of excessive fees.
CONCLUSION
I would again like to thank the Committee for the opportunity to
speak on behalf of our clients and on behalf of the thousands of
servicemen and servicewomen who have fallen victim to SCRA violations
in the last several years. As the SCRA recognizes, its protections are
essential to our national defense. It is my hope that Congress will
take all steps necessary to ensure the continued vitality of this law.
Prepared Statement of Stephanie B. Mudick, Executive Vice President,
Office of Consumer Practices, JPMorgan Chase & Co., New York, NY
Executive Summary
Chase has discovered mistakes in our compliance with the
Servicemembers Civil Relief Act (SCRA), and we are committed to fixing
them. We deeply regret that servicemembers have been overcharged and in
some cases faced foreclosure because of these errors. We are acting to
make these customers whole as soon as possible and enhancing our
safeguards to prevent such mistakes going forward. Chase is determined
to get this right.
Chase has identified two problems: First, based on our review to
date, some 4,500 servicemembers were charged interest rates and fees
above SCRA's 6-percent cap. We have begun paying back those
overcharges. Second, to date, we have found 18 cases where
servicemembers were improperly foreclosed upon. For 12 of these
borrowers, we have rescinded the sale or reached a settlement, and we
will work to resolve the other cases.
Our review is on-going and these numbers could change. SCRA also
applies to other types of consumer loans, and we are actively reviewing
all our businesses to ensure they comply with the SCRA.
Weaknesses in Chase's SCRA Compliance. Our ongoing review of SCRA
compliance has identified several operational problems that led to
mishandling of SCRA loans. In some cases, Chase employees
misinterpreted military orders and the length of time servicemembers
were on active duty, affecting fees and interest rate charges. In other
cases, errors on our part resulted in some loans not being identified
as SCRA-protected, which resulted in overcharges, and in some cases,
improper foreclosures.
Enhancements to Our Processes to Prevent Further Problems. Chase
has made significant enhancements to our SCRA compliance protocols. We
have centralized SCRA loan set-up in a single unit in Florence, South
Carolina, where employees get special training in interpreting military
orders and key decisions are reviewed by managers or other employees.
Chase now checks SCRA loans daily to verify that the law's protections
remain in place on Chase's system. We have added new controls to
prevent foreclosures on borrowers covered by the SCRA.
Military Initiatives. Chase is expanding our outreach to customers
who may be in the military, advising them of SCRA's protections. This
outreach will be automatic when a customer has a military address. We
have set up a new customer service hotline for servicemembers, staffed
by 30 Chase employees in Monroe, Louisiana. We are providing SCRA
training to 2 employees in each of our 51 existing Chase Homeownership
Centers created to help borrowers struggling with their mortgages. By
this summer, these centers will be in 27 States and the District of
Columbia.
Chase deeply regrets our errors in SCRA compliance. We are
committed to correcting them, and making changes that will prevent such
problems in the future.
__________
Introduction
Chairman Miller, Ranking Member Filner, and Members of the
Committee, thank you for inviting me to appear before you today. My
name is Stephanie Mudick, and I am the Head of Consumer Practices at
JPMorgan Chase & Co. I appreciate the opportunity to appear before you
today to discuss errors that Chase discovered in its compliance with
the Servicemembers Civil Relief Act (SCRA), the steps Chase is taking
to compensate servicemembers mistakenly overcharged or improperly
foreclosed upon as a result of those errors, and the enhancements that
Chase has implemented in its controls related to SCRA compliance going
forward. I will also discuss several new initiatives that Chase is
implementing to ensure that Chase customers who are servicemembers have
reliable information about their rights and receive the very best
customer service we can provide.
Before I go further, I'd like to acknowledge to you that we clearly
made mistakes here, and that we are working very hard on fixing them.
The SCRA provides vitally important financial protections to the
men and women of our armed forces during active duty--a period of
personal sacrifice for themselves and their families. I want to express
to the men and women serving our country and to the Members of this
Committee Chase's deepest regret over the mistakes we made in applying
those protections. I also commit to you that Chase is determined to get
this right. My focus today will be on mistakes in our mortgage
business, where we first became aware of these issues. We are also
reviewing all of our lines of business that are subject to the SCRA to
ensure that they are in compliance. And if and wherever we find a
mistake, we will fix it.
SCRA Compliance Errors
We have identified two problems in our home lending business with
respect to certain mortgages, including home equity loans, held by
servicemembers who are eligible for SCRA protection.
First, under the SCRA, servicemembers who are on active duty and
who took out a mortgage loan prior to the start of that duty are
entitled to have the interest rate and fees on their mortgages capped
at 6-percent interest for the period of their active duty, and 12
months afterward, by providing the lender with the orders calling them
to active duty. In many instances, Chase charged SCRA-eligible
borrowers who had provided Chase with their active duty orders interest
and fees that raised their effective interest rate above the 6-percent
cap for at least some part of the SCRA-covered period. We are in the
process of calculating the refunds and credits for any interest that we
charged SCRA-eligible borrowers above 6 percent, as well as fees (which
do not include tax and insurance payments) charged to SCRA-eligible
borrowers. To date, the amount we have identified equals approximately
$1.8 million. We have added to the refunds 7.25 percent interest from
the date of the overcharge, which comes to approximately $600,000, for
a total of approximately $2.4 million. The total number of affected
servicemembers we have identified is approximately 4,500, and the
median payment is approximately $70, plus interest. We already sending
an initial batch of checks to some of these servicemembers this week
and intend to send additional checks over the coming weeks as we
finalize and double-check the amounts they are due.
Second, the SCRA protects a servicemember from foreclosure judgment
or sale while the servicemember is on active duty and, since SCRA was
amended by the Housing and Economic Recovery Act (HERA) of 2008, that
protection is extended for the 9 months after completing active duty.
We are scrutinizing our files closely and to date we are aware of 18
servicemembers who were on active duty or otherwise within the SCRA/
HERA protection period at the time of foreclosure sale. In 12 of these
cases, we have either rescinded the sale or entered into a settlement
with the borrower. We will attempt to make the remaining borrowers
whole as quickly as possible. We are continuing to review our files to
make sure that we have identified all borrowers affected by these
issues. If we find problems involving additional servicemembers
protected by the SCRA, we will fix them.
Weaknesses in Chase's SCRA Compliance
We routinely review all of our businesses for compliance with
applicable laws and regulations, including the SCRA. As part of that
process, we became aware of weaknesses in our SCRA compliance.
We have identified several operational problems that caused us to
mishandle SCRA loans. Chase's handling of military loans involved
significant manual processing and complexity, which led to (i) human
errors, including in the review and interpretation of military orders,
the identification of the protected period from those orders, and the
interest rate and fee calculations; and (ii) errors relating to the
coding of these servicemember loans on our system, which resulted in
certain loans not being properly identified as SCRA-eligible. For
example, in certain instances, we misinterpreted the military orders,
recording the protection period on the servicing system as commencing 2
weeks after the actual active duty date, leading to an interest rate
overcharge for several weeks. In other instances, the coding on the
system did not identify the account as SCRA-protected, leading to a
longer period of overcharges and fees and, in some instances, to an
improper foreclosure. We did not check the Web site maintained by the
United States Department of Defense, called the Defense Manpower Data
Center (DMDC) Web site, with sufficient frequency or consistency.
We understand that Mr. Harpootlian, the lawyer for Captain Rowles
and his family, accompanied by the Rowleses, will testify before this
Committee about the family's dealings with Chase in connection with
their mortgage. We have reviewed the history of their account, and we
clearly made mistakes in how we serviced their mortgage and how we
dealt with them in trying to resolve those mistakes. The customer
service that we provided to Captain Rowles and his wife was
unacceptable, and the fact that this was a servicemember makes our
mistakes all the more inexcusable. We deeply regret any hardship or
distress we caused the Rowles family. We've communicated to Captain
Rowles through his attorney our commitment to resolve this matter and
our genuine desire to make him and his family whole as quickly as
possible.
Enhancements to Our Process to Prevent a Recurrence
Recognizing the causes of the errors in SCRA-eligible accounts,
Chase now has made significant enhancements to its processes to ensure
that loans are properly categorized on the servicing system as SCRA-
eligible loans, that SCRA protection periods are properly identified,
that interest and fees are calculated correctly, and that several
verifications are done and documented prior to any foreclosure sale to
confirm that borrowers are not SCRA-eligible.
Enhanced Controls on SCRA Setup and Protection Period
Determinations. We have centralized SCRA loan set-up in a single unit
located in Florence, South Carolina. The members of this group receive
enhanced training on interpreting military orders, and every single
determination of the protected period under military orders is subject
to quality control by another employee. In addition, any determination
by a member of this group that a borrower is not eligible for SCRA
protection requires manager review and sign-off.
Enhanced Controls on SCRA-Eligible Loans. Chase has instituted a
daily review and reconciliation of the entire list of SCRA-protected
loans to ensure that the SCRA codes blocking foreclosure of those loans
remain in place, and a periodic review to ensure that the aggregate
interest and fees on these loans are capped at 6 percent.
Enhanced Controls on Interest Rate Calculation. The calculation
of the 6-percent interest rate cap now is subject to 100 percent
quality control review by another employee every billing cycle.
Enhanced Controls on Foreclosure Referrals and Sales. Chase has
implemented enhanced controls on foreclosure referrals and sales
through repeated checks on military status at different points in the
process. First, before any loan is referred for foreclosure, an
Independent Foreclosure Review team reviews each loan for military
status by checking Chase's own system and the DMDC Web site. Second,
before the first legal filing to start a foreclosure, Chase policy
requires its local foreclosure counsel to check the DMDC Web site and
then upload evidence of that check onto Chase's servicing system.
Third, 2 to 3 weeks before foreclosure sale, the Independent
Foreclosure Review team again reviews the servicing system for military
coding and checks the DMDC Web site. Finally, 96 hours before a
foreclosure sale, a Pre-Sale Review team reviews the loan again for
military status.
To summarize, today when a servicemember calls to tell us he or she
is going on active duty, a special unit of Chase reviews the military
orders and codes the account to reflect the start date for SCRA
coverage. Once the system is coded, the account is capped at 6-percent
interest and fees until 1 year following the end of the active duty
period. We have created a hotline--staffed by employees who have
received training on SCRA--to handle borrower questions. And Chase or
its outside counsel checks the DMDC Web site at least three times
before moving to a foreclosure sale.
We are committed to addressing effectively the issues that we found
with our SCRA compliance. Therefore, the current processes are being
reviewed by Chase Internal Audit and by Chase's Operational Risk unit,
with the assistance of outside advisors, to ensure that they are
effective in identifying SCRA-eligible servicemembers and ensuring that
these servicemembers receive the protections provided under the SCRA.
Student Loans
We would like to explain our deferral policy with regard to student
loans. Several years ago, we began deferring all student loan payments
for active duty servicemembers, in addition to lowering the interest
rate and fees to 6 percent. This policy went beyond the requirements of
SCRA. However, as part of a broader review of our forbearance policies
in our student lending business, last December we stopped offering
deferments for new participants. When some servicemembers expressed
concern, we decided to reinstitute the deferment option and offer them
a choice: continue paying at 6 percent, or defer the payments.
Military Initiatives
In addition to these enhancements to our controls, we also are
taking certain other proactive steps to better support our
servicemember customers.
First, we are enhancing our communications with military personnel
about their SCRA rights. Chase already has a specific Web page
dedicated to military personnel (www.chasemilitary.com), and we plan to
provide a prominent link to a Web site recommended by the Department of
Defense (DoD). \1\ We will also send a letter to borrowers whom we
believe may be military personnel based on information that comes to
our attention. Our letter will alert them to the existence of SCRA
protections and direct them to the DoD-recommended Web site for further
information. We would welcome the opportunity to work with the
government to provide additional information to servicemembers about
their rights.
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\1\ http://www.militaryonesource.com/MOS/FindInformation/Category/
Topic/Issue/Material.aspx? MaterialID=15924&MaterialTypeID=9.
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Second, to improve our ability to identify military personnel to
whom such a letter should be sent, we are following the suggestion of
Holly Petraeus, the newly appointed Team Lead of the Office of
Servicemember Affairs of the Consumer Financial Protection Bureau
Implementation Team, that we identify servicemembers by setting up a
process for identifying when a borrower has changed his or her home
address from a standard street address to an APO or FPO. When we are
alerted to such a change of address, we will reach out to the
servicemember to alert them to the existence of SCRA protections.
Third, we also believe it is critical to ensure that our
servicemember customers have access to customer service representatives
who understand their unique issues and can provide top quality service.
Therefore, we have created a hotline (877-469-0110) that is staffed by
approximately 30 Chase employees based in Monroe, Louisiana who are
trained on SCRA coverage. These customer service personnel also will be
able to liaise directly with Chase personnel involved in the system
setup of SCRA protection periods to ensure that any issues with those
protection periods are quickly resolved.
We are also training two people in each of our existing 51 Chase
Homeownership Centers (CHOCs) in SCRA matters so that servicemembers
and their families can have local access when they would like to speak
to a Chase representative face to face. Chase Homeownership Centers are
local offices devoted exclusively to serving families struggling with
their Chase mortgages, and CHOC counselors will help customers
understand the full range of options available that could allow them to
stay in their homes. We recently announced we will soon open an
additional 25 CHOCs. This expansion will bring Chase Homeownership
Centers to a total of 27 States and the District of Columbia, reaching
the vast majority of borrowers with Chase mortgages.
In closing, I would like once again to express Chase's deepest
regret to Captain Rowles and his fellow servicemembers for our errors
in SCRA compliance. I hope that my testimony has made clear that we are
committed to correcting past mistakes and that we will continue to
improve processes and controls to ensure that we are in full compliance
with the SCRA.
I would be happy to answer questions from the Committee.
Prepared Statement of Hollister K. Petraeus, Team Lead,
Office of Servicemember Affairs, Consumer Financial Protection Bureau
Implementation Team, U.S. Department of the Treasury
Chairman Miller, Representative Filner, and distinguished Members
of the Committee: thank you for the opportunity to speak with you today
about the Servicemembers Civil Relief Act as well as the Consumer
Financial Protection Bureau (CFPB) Implementation Team's work to
establish the Office of Servicemember Affairs (OSA). First of all, I'd
like to thank this Committee for its continuing efforts to protect
servicemembers, veterans, and their families from predatory financial
practices. As many of you know, I've been a member of the military
community my entire life, and I feel that it's very important that our
military has strong advocates working on its behalf. And it's my intent
that the Office of Servicemember Affairs be one of those strong
advocates, educating and looking out for military personnel and their
families.
First, I'd like to tell you a bit about my background, especially
my work on military financial education issues during the last 6 years.
Next, I'll provide some background on the Consumer Financial Protection
Bureau and the Office of Servicemember Affairs (OSA). Finally, I'll
touch on the alleged violations of the Servicemembers Civil Relief Act
(SCRA) that are the subject of today's hearing.
My Background
I come from a military family, one that has a tradition of service
going back to the Revolutionary War. My father served in the Army for
over 36 years, fighting in both World War II and Vietnam. Two of my
brothers also served in Vietnam, and, of course, my husband is
currently serving. And I'm a military mom, as well. The military is in
many ways a separate community in our Nation, and it's one that I have
the privilege to know very well.
The last time I testified before Congress was over 6 years ago,
when I spoke about deployment-related issues at a joint hearing of two
Senate Subcommittees: The Subcommittee on Children and Families from
the Committee on Health, Education, Labor & Pensions, and the
Subcommittee on Personnel from the Committee on Armed Services. At that
time, my husband had just begun the second of three deployments to Iraq
and I was a longtime volunteer in the military community. As a
volunteer, I had the opportunity to serve as a senior Family Readiness
Group advisor during deployment and to work with local, State and
national legislators on issues affecting Army families. Five months
after that testimony, I became the Director of BBB Military Line, a
program of the Council of Better Business Bureaus (BBB) providing
consumer education and advocacy for servicemembers and their families--
a position that I held for 6 years. In that role, I oversaw a national
program that worked with the Department of Defense (DoD) as a partner
in the DoD Financial Readiness Campaign and fostered outreach from the
120 local Better Business Bureaus to military communities across the
United States.
While with the BBB, I made on-site visits to many military
installations, learning about the consumer issues that impacted them,
giving presentations on consumer scams, and working to establish local
BBB-military relationships. I guided development of teen and adult
financial education curricula taught to over 10,000 individuals in
military communities around the United States, and wrote a monthly
consumer newsletter addressing issues of interest to the military.
Last fall, I was one of a number of people who offered advice to
Professor Warren when she first began her task of setting up the
Consumer Financial Protection Bureau. And when she offered me the
opportunity to be in on the ground floor of building the Office of
Servicemember Affairs, I couldn't resist this new opportunity to serve
as an advocate for military personnel and their families.
Functions and Structure of the CFPB
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) which was signed into law on July 21, 2010,
established the CFPB as an independent bureau within the Federal
Reserve System and charged it with ensuring that consumers have the
information they need to make financial decisions that are best for
them and their families. The CFPB will work to promote fairness,
transparency, and competition in the markets for mortgages, credit
cards, and other consumer financial products and services. The CFPB
will set--and enforce--clear, consistent rules that allow banks and
other consumer financial service providers to compete on a level
playing field and that allow consumers to see clearly the costs and
features of financial products and services.
Under the Dodd-Frank Act, the Secretary of the Treasury has
responsibility for standing up the CFPB until a Director of the CFPB is
in place. In September, the Secretary asked Elizabeth Warren to serve
as a Special Advisor leading the effort to stand up the CFPB. The CFPB
implementation team, currently housed within the Treasury Department,
is hard at work putting in place the building blocks for the CFPB.
The CFPB Implementation Team is divided into several teams that are
standing up the various functions of the CFPB, including: Bank
Supervision, Nonbank Supervision, Enforcement, Financial Education,
Rulemaking, Consumer Response, Fair Lending, Research and Markets, etc.
On July 21st of this year, many consumer financial protection functions
that are currently with other agencies will transfer to the CFPB--I
have to point out, however, that responsibilities relating to the
Servicemembers Civil Relief Act, the focus of this hearing, will remain
with the prudential regulators and the Justice Department. Eventually,
the CFPB will grow into a fully operational financial regulator and
supervisor, and it will be the primary place where members of the
public--including servicemembers--can come with questions and
complaints about consumer financial products and services.
Functions and Structure of the Office of Servicemember Affairs
Professor Warren asked me to join the implementation team at the
end of last year. I started a little less than a month ago, and we are
hard at work building the Office of Servicemember Affairs.
The Dodd-Frank Act authorizes the OSA to work in partnership with
the Pentagon to see that military personnel and their families receive
strong financial education, to monitor their complaints about consumer
financial products and services--and responses to those complaints--and
to coordinate efforts by Federal and State agencies to improve consumer
financial protection measures for military families. We are authorized
to enter into agreements with the Department of Defense to carry out
OSA's work and to make sure that we achieve those goals.
Within the CFPB, our job is to make sure that every division of the
CFPB understands the unique military community and the financial issues
that impact it. I plan to work with our examiners to ensure they are
current on military-specific issues, to encourage our enforcement team
to take action against financial providers who break the law to harm
servicemembers and to work with the consumer response unit to be sure
that it is attuned to the military community and responsive to its
concerns. We also plan to work closely with the consumer financial
education team at the CFPB. History has shown us that best practices
developed in support of the military can translate to the larger U.S.
community--and that the military can be a great test bed for innovative
financial education products that could have an application to the
population at large.
According to our current draft organizational chart, the Office of
Servicemember Affairs will eventually fit under the Associate Director
for Education and Engagement, along with financial education and other
offices that focus on particular segments of the population. Although
education and engagement will be our primary responsibilities, our
reach will go beyond our box on the organization chart; the goal is for
the OSA to work closely with all parts of the CFPB to make sure that
they keep the needs of the military community in mind in all of their
work.
Outreach Activities
Right now we are focused on planning and scheduling visits to
military bases and other meetings that will help us identify the
problems and determine where we can make the biggest difference. I have
already met with senior DoD officials, including Robert Gordon, the
Deputy Assistant Secretary of Defense for Military Community and Family
Policy. It's clear to me that the people at the Pentagon are very
supportive of our mission, and we are working closely with them to plan
our future activities. In addition, I have met with senior staff from
the Department of Justice's Civil Rights Division, headed by Assistant
Attorney General Tom Perez. The Justice Department is also supportive
of our mission and eager to work with the CFPB to protect the rights of
servicemembers. I was pleased to hear about the scope of DOJ's
enforcement activities on behalf of servicemembers, which includes
authorized lawsuits against 3 nationwide lenders and several active
investigations involving both foreclosures issues and failure to lower
the interest rate to 6 percent. We are planning to coordinate closely
with DOJ in light of its enforcement responsibilities under the SCRA.
This past Tuesday, I sent a letter to the chief executive officers
of the 25 largest banks that provide mortgage servicing. This was
prompted by the recent news reports alleging that major financial
institutions had violated the Servicemembers Civil Relief Act, which
provides financial protections for our military. I urged the chief
executive officers to take steps to ensure that their institutions are
in compliance with the law.
Military Outreach
We've already started a conversation with the military community.
Professor Warren and I have been to Joint Base San Antonio, where we
had two roundtable discussions. The first was with military service
providers, including lawyers, financial counselors, mental health
professionals and chaplains, as well as the base's leadership. We asked
questions about what scams and other financial problems these service
providers were seeing, and how they thought those financial problems
might be dealt with. The second roundtable was with military personnel
and spouses from the Air Force, Army and Navy. They felt strongly about
the need for mandatory financial training, not just in basic training,
but on a continuing basis. The military spouses in the room also
brought up the challenges of deployment for dual-career couples, and
the difficulties and temporary loss of income when moving a spouse's
civilian career job, as well as the basic financial strains of frequent
moves. I could certainly relate to that, as I have moved 23 times in 36
years of marriage! We plan to do more roundtables, and have a tentative
travel schedule mapped out through the spring that includes about one
base visit per month.
Servicemembers Civil Relief Act
Protecting our servicemembers from suffering devastating financial
repercussions for answering the call to service is not only the right
thing to do--it is also important to our National security. Military
personnel who are distracted by financial problems cannot do their jobs
to the best of their abilities. In fact, hundreds of people in the
military have their essential security clearances revoked each year due
to financial problems, which then means they can't do the job they were
trained for. A recent Department of Defense survey found that
servicemembers consider their finances to be the second largest source
of stress in their lives, behind career concerns but ahead of
deployments, health, family, and war.
The SCRA provides important safeguards for our military families
who do so much for our country. It protects military personnel who are
called to active duty by lowering the interest rate to 6 percent on
certain debts incurred before entering active duty, including mortgage
and credit card loans. Additionally, the SCRA provides certain
protections from foreclosure for the home of a servicemember on active
duty.
In light of the importance of protecting our servicemembers, I was
dismayed to learn about the recent allegations of mortgage-related
violations of SCRA. I hope that the recent attention to this issue will
cause all lenders to take steps to educate their employees about the
financial protections that the SCRA provides and to take appropriate
proactive steps to ensure compliance. This law was put in place to
enable our soldiers to focus on their jobs, and it's important that it
be adhered to. Servicemembers should not have to struggle to get the
provisions that are due to them under law. A National Guard wife once
told me that her husband had been activated three times, and each time
she had had to fight with their bank for months to get the SCRA
applied.
As you know, a foreclosure is devastating for any American family
to experience, but it can be especially painful for military families.
Both the family back home and the servicemember abroad, who feels
helpless to take action to prevent the foreclosure, are put in a
terrible situation. That's why it is so important that servicemembers
receive all the protections afforded to them under the SCRA. Again, I
would hope that the recent problems will be a wake-up call for all
banks and other financial companies to be especially careful to comply
with the SCRA.
Conclusion
Last month, I attended the White House announcement of the
``Strengthening Our Military Families'' initiative. The President,
First Lady and Dr. Biden all spoke at that event, affirming their
commitment to military families, and almost the entire cabinet was in
attendance as well. There is currently a very positive feeling in this
country toward the service and sacrifice of military families, and a
desire to support them. One way to help is to enforce the laws that are
already on the books to protect them, and to hold to account those who
ignore them. Another is to write new rules when needed. It's also
important to educate the military about their financial protections and
about best financial practices. That will all be a big part of the
mission of the CFPB and the Office of Servicemember Affairs.
Prepared Statement of Colonel Shawn Shumake (USA), Director,
Office of Legal Policy, Office of the Deputy Under Secretary
of Defense, U.S. Department of Defense
Chairman Miller and Members of the Committee, thank you for
extending the invitation to the Department of Defense to comment on the
Servicemembers Civil Relief Act (SCRA) and explain how we educate our
servicemembers, their families, and private industry about it. The
Department recognizes the fundamental importance of the SCRA. No other
statute provides the breadth of benefits and protections for
servicemembers as are found in the SCRA. It protects those who have
dropped their own affairs and taken up those of the Nation.
Purpose and Importance of the SCRA
The purpose of the SCRA is no less lofty than to provide
servicemembers' peace of mind, knowing that while they put their lives
at risk to protect this great Nation, their personal affairs and
economic interests will be protected. They and their families will be
relieved from many of the day-to-day strains and pressures that the
rest of us are more easily able to handle.
The SCRA's protections are broad and diverse. It protects
servicemembers from evictions, default judgments, and foreclosure. It
allows them to delay judicial proceedings and to cap their interest
rates. It provides them and their spouses certain tax relief. It does
more for our servicemembers than any other single law by shifting--at
least temporarily--some of the burdens associated with military service
from the servicemember to others more capable of bearing those burdens.
Congressional Efforts to Strengthen Enforcement of the SCRA
Congress continues to play the most critical role in protecting our
servicemembers and their families. To ensure that the SCRA could be
aggressively enforced by those it is designed to protect, the 111th
Congress passed the Veterans' Benefit Act of 2010.\1\ This law could
have the most broad-reaching effect of any single change to the SCRA
since the overhaul and update of the SCRA in 2003. The Veterans'
Benefit Act of 2010 clarified that servicemembers and others that it
protects could seek civil enforcement through the courts and receive
monetary damages and attorneys' fees. It also clarified that the
Attorney General has similar enforcement authority on behalf of
servicemembers and other aggrieved persons.
---------------------------------------------------------------------------
\1\ Section 303 of the Veterans' Benefit Act of 2010, Public Law
111-275, October 13, 2010, amended the Servicemembers Civil Relief Act
(50 USC App. 501 et seq) by adding at the end new title VIII, Civil
Liability. This title contains new sections of the Servicemembers Civil
Relief Act: 801, Enforcement by the Attorney General; 802, Private
Right of Action, and 803, Preservation Of Remedies. These have been
codified as sections 50 USC App 597, 597a and 597b.
---------------------------------------------------------------------------
Although many courts had found that such a private right of action
was implied, others have resisted this interpretation, leading to the
almost unconscionable conclusion that servicemembers had benefits and
protections that could not be enforced. In Hurley v. Deutsche Bank
Trust Co. Americas,\2\ which recently received front page coverage on
the New York Times,\3\ the court initially ruled that a Michigan
National Guardsman whose home was illegally foreclosed on and sold to a
third party while the Guardsman was deployed to Afghanistan, had no
legal remedy. Only through expert legal counterattacks by the
servicemember's attorneys was the court persuaded to reverse its
position--but only after adding 6 months to the already protracted
litigation. Just the danger of such daunting impediments to the
enforcement of smaller claims could leave servicemembers wronged, and
without remedy. The Veterans' Benefit Act of 2010 ended such worries.
---------------------------------------------------------------------------
\2\ Hurley v. Deutsche Bank Trust Co. Americas, et al, 2008 WL
4539478 (W. D. Mich., 9/30/2008, Case No. 1:08-cv-361), vacated by 2009
WL 701006 (W.D. Mich. 3/13/2009).
\3\ http://www.nytimes.com/2011/01/27/business/
27foreclose.html?scp=1&sq=John+Odom&st=nyt
---------------------------------------------------------------------------
Substantive Changes to the SCRA
Congress has for the last several years recognized the burdens that
military service places on servicemembers through a number of
substantive changes to the SCRA designed to relieve some of the burdens
associated with military service.
The 110th Congress recognized these burdens and amended the SCRA in
2008 to extend the 6-percent interest rate cap for pre-service mortgage
obligations. This interest rate cap, which had been in effect for
decades, had previously only applied for actual periods of active duty.
This amendment extended the interest rate cap for pre-service mortgage
obligations for an additional year after leaving active duty.\4\
---------------------------------------------------------------------------
\4\ P.L. 110-289, The Housing and Economic Recovery Act of 2008,
2203(b).
---------------------------------------------------------------------------
At the same time, Congress also temporarily amended the SCRA to
extend protections from foreclosure on pre-service mortgage obligations
from 90 days to 9 months after the servicemember leaves active duty.
Under these conditions and during this time, no servicemember can be
foreclosed on absent a court order.\5\ This extension to 9 months would
have reverted by law to the previous 90 days on January 1, 2011. In one
of its last acts, the 111th Congress extended this sunset provision for
2 years.
---------------------------------------------------------------------------
\5\ P.L. 110-289, The Housing and Economic Recovery Act of 2008,
Section 2203(a).
---------------------------------------------------------------------------
Additional Statutory Protections Addressing the Burdens of Service
In February 2009, the 111th Congress provided $555 million in the
American Recovery and Reinvestment Act to expand the pre-existing
Homeowner's Assistance Program (HAP) benefits to address unique
economic pressures faced by military personnel who are required to
relocate during adverse housing market conditions. Congress added
another $300 million for HAP in 2010.
HAP seeks to minimize the amount of financial harm--including risk
of foreclosure, credit damage, or bankruptcy--that servicemember and
civilian beneficiaries may experience when they are compelled to
relocate under military orders. As of January 27, 2011, HAP has
assisted 4,483 homeowners at a program cost of $674 million. Another
4,643 homeowners are currently being evaluated for eligibility.
On May 20, 2009, the 111th Congress recognized that because most
servicemembers are not homeowners, but rather are renters, they faced
particular difficulties when their landlords were foreclosed on. The
Helping Families Save Their Homes Act of 2009,\6\ provides significant
protections when such servicemembers face possible displacement.
Although the above two statutes do not directly amend the SCRA, they
recognize that servicemembers face challenges with their housing that
puts them at greater risk than the rest of the country.
---------------------------------------------------------------------------
\6\ P.L. 111-22, Title VII, the Protecting Tenants at Foreclosure
Act of 2009, 701-704.
---------------------------------------------------------------------------
The Education Process
These amendments to the SCRA and the other powerful statutory
provisions discussed above, show Congress clearly recognizes the
difficulties of military service. Of course, the protections and
benefits from these and other laws mean little if our servicemembers do
not know about them.
The Service secretaries are directed to ensure that their Members
know about the benefits and protections of the SCRA and of other
similar laws. This educational process involves coordinated and
overlapping efforts to alert the servicemembers and their commanders of
these benefits and protections and then to ensure that the proper
counselors are there to help the servicemember fully understand the
nuances of the laws and receive everything the laws promise their full
benefits and protections. The Department has worked closely with the
Department of Justice, which has enforcement authority under the SCRA.
Together DoD and DOJ have trained attorneys in the military legal
assistance program so they are well prepared to answer servicemembers'
questions and identify potential violations of the SCRA. The military
legal assistance program provides the first line of defense for our
servicemembers; however, if they are unable to resolve the matter, the
servicemember may be referred to private counsel or seek representation
through any number of State and local pro bono programs. The DoJ has
also intervened on behalf of servicemembers when necessary to protect
servicemember's rights and interests.
The Department's efforts to educate servicemembers and their
families center around the installation and the various reserve
component mobilization and demobilization processing centers. These
reserve component processing centers are particularly critical because
two of the most important economic protections and benefits--the 6-
percent interest rate cap and the extension of foreclosure
protections--only apply to pre-service obligations. Accordingly, those
most likely to benefit from these protections are Reservists and
National Guardsmen called to active duty.
Because each of the Services has the authority to best determine
how to provide the necessary training and counseling, the Department
has asked the Services to set out how they educate their members about
the SCRA. The timing of the Committee's request did not allow time to
gather the data and then organize it to show the many ways the
information is presented to the servicemember; therefore, that
information will be submitted separately to the Committee as soon as
possible.
Statement of Colonel John S. Odom, Jr., USAF (Ret.) Esq.,
Jones & Odom, LLP, Shreveport, LA
Honorable Jeff Miller
Honorable Bob Filner
Chairman
Ranking Member
House Committee on Veterans Affairs
House Committee on Veterans
Affairs
335 Cannon House Office Building
2428 Rayburn House Office
Building
Washington, DC 20515
Washington, DC 20515
Re: February 9, 2011 Hearing on Alleged violations of the
Servicemembers Civil Relief Act
Mr. Chairman, Ranking Member Filner, Members of the Committee:
I am grateful to the Committee for its invitation for me to present
testimony on alleged violations of the Servicemembers Civil Relief Act
(SCRA) by financial institutions and related matters. Cases arising
under the SCRA occupy a substantial amount of my law practice and I
appreciate any opportunity to share with the Members of Congress
information about violations I have observed and suggestions I have for
improvements to the SCRA.
By way of introduction, I am a practicing attorney in Shreveport,
Louisiana. From 1973 to 2005, I served as a judge advocate in the
United States Air Force. Although I retired in 2005 in the grade of
Colonel, I was recalled from retirement in 2010 and served for 6 months
in the Office of Legal Policy, Undersecretary of Defense for Personnel
& Readiness in the Pentagon. During that tour of duty, I was the
principal author on a Report to Congress concerning certain child
custody matters related to the SCRA. For over 20 years, I have lectured
extensively on the topic of the Soldiers' and Sailors' Civil Relief Act
(SSCRA), and the SCRA at the Air Force Judge Advocate General's School
at Maxwell AFB, Alabama, the Army Judge Advocate General's Law Center
and School at Charlottesville, Virginia and the Naval Justice School at
Newport, Rhode Island. I have also lectured for local, State and
national bar associations, judges' conferences and judicial colleges,
consumer advocacy groups, bankruptcy trustee associations and financial
service groups around the country concerning the SSCRA and the SCRA. I
have recently completed writing a Bench Book on the SCRA which will be
published by the American Bar Association later this year. I have
represented countless servicemembers in a variety of claims under the
SCRA, both in negotiations which led to out of court settlements and
others that resulted in successful litigation.
At the present time, I am lead counsel for Sergeant James Hurley in
his suit against Deutsche Bank Trust Co. Americas, Saxon Mortgage
Services, Inc. and Orlans Associates, P.C., currently pending in the
Western District of Michigan (Case No. 1:08-cv-361). As of February 4,
2011, over 300 pleadings had been filed in that case and the attorneys
representing Sergeant Hurley have expended over 5,000 hours trying to
recover damages for a National Guardsman whose home was illegally
foreclosed upon, his family evicted and the property sold to a third
party while he was deployed to Iraq. The case presents the worst case
scenario for any servicemember--answering the call to duty only to find
that when you returned home, everything you valued most in the way of
property was irrevocably gone and nothing you did could recover it. The
most amazing aspect of Hurley is the fact that after nearly 3 years of
litigation, the Court granted summary judgment in favor of Sergeant and
Mrs. Hurley against the mortgage company, the mortgage servicing
company and the law firm that had carried out the illegal foreclosure--
and still there has been no monetary settlement to compensate this
family 2 years after the defendants lost by summary judgment.
The Chairman's invitation to present testimony asked that I inform
the Committee of information I had on (1) financial institution
compliance with SCRA; (2) how to best educate servicemembers as to
their protections and responsibilities under SCRA; and (3) how to best
inform the industries affected by SCRA as to their obligations. I was
also asked to include any suggested changes or clarifications I believe
need to be made to improve the SCRA.
I want to thank this Committee and the entire Congress for the
significant improvements made to the SCRA near the end of the 111th
Congress. Specifically, the amendments to the SCRA contained in the
Veterans' Benefit Act of 2010, Public Law 111-275, amended section 305
of the Act (50 U.S.C. App. 535) to specifically prevent any early
termination fees for leases of premises or motor vehicles being
terminated under the Act. It also revised section 305a (50 U.S.C. App.
535a) to make termination of cell phone service contracts easier for
servicemembers who are transferred to an area where their contract
carrier does not offer service. Finally, and most importantly, Public
Law 111-275 established a new Title VIII for the SCRA, comprised of
sections 801 through 803 (50 U.S.C. App. 597, 597a and 597b) that
clarify that the Attorney General has enforcement authority and that a
private cause of action exists for damages plus costs and attorneys
fees to sue violators of the SCRA. Those amendments are invaluable and
I express my sincere appreciation for that action. When the President
signed the law on October 13, 2010, he took action that will eliminate
the need for future litigants to prove, as was the case in Sergeant
Hurley's case, that they had a right to bring an action for damages
against violators of their SCRA rights. That exercise in Hurley alone
took nearly 2 years and countless hours of legal work to convince a
Federal judge that Sergeant Hurley had a right to be in court.
1. Financial Institution Compliance with SCRA
After handling hundreds of SCRA issues related to financial
institutions, I am convinced that many of the financial institutions in
our country, including some of our largest banks and mortgage
companies, have a fundamental misunderstanding of the SCRA.
Specifically, with regard to pre-service obligations, the financial
community is well aware of the procedures necessary for a servicemember
to request interest rate relief under 50 U.S.C. App. 527. If a
servicemember has a pre-service obligation that bears interest at a
rate above 6 percent per annum, they can make written demand to the
creditor for reduction in the interest rate to no more than 6 percent.
Per the terms of the SCRA, the servicemember must submit to the
creditor a copy of their military orders. That demand for interest rate
relief can be made at any time during the period of service, or within
180 days after release from active duty and any reduction would be
retroactive to the first date of active duty. We refer to that as a
section 527 request and the banks and other financial institutions know
precisely how to administer such demands.
The complete disconnect comes when the situation moves from demands
for interest rate relief under section 527 to the protections against
non-judicial foreclosures of mortgages under 50 U.S.C. App. 533. The
existing mortgage foreclosure protection--regardless of whether the
default on the mortgage occurs prior to or during the period of active
duty--provides that no sale, foreclosure or seizure of property for a
breach of a mortgage protected by the SCRA (that is, a pre-service
mortgage) is valid if made during or within 9 months after the period
of service except upon a court order granted before such sale,
foreclosure, or seizure with a return made and approved by the court.
In other words, if a mortgage is protected by the SCRA, no self-help,
or non-judicial foreclosure is allowed. There are 23 States in which
some form of non-judicial foreclosure is ordinarily allowed. In those
States, the mortgage companies will have obtained a waiver of any legal
proceedings in the event of a default in the mortgage documents
themselves. However, such a waiver is invalid under 50 U.S.C. App.
517. When the mortgage companies want to foreclose on mortgage
protected by the SCRA, they must file an ordinary lawsuit and get
service on the defendant-servicemember. The servicemember is then
entitled to a hearing before a judge, who has the power to stay the
foreclosure, adjust the obligations between the parties and basically
do just about anything the judge wants to do to protect the
servicemember and his or her family from foreclosure. The mortgage
companies have a hard time accepting the fact that the SCRA alters the
terms of conventional contracts--but that is precisely what the Act
does.
In my experience, the mortgage companies do not understand that
they cannot foreclose on an SCRA-protected mortgage except judicially.
I am aware of any number of cases, Hurley being a prime example, in
which the mortgage company stubbornly demanded copies of the
servicemembers' individual orders before according them SCRA
protection. That may be appropriate in a section 527 interest rate
relief case, but it is completely improper in a section 533 case
involving protection from a non-judicial foreclosure. The creditors
have the burden of ascertaining the military status of debtors before
exercising any non-judicial foreclosure rights. Congress shifted the
burden from the servicemember (where the burden falls in a section 527
interest rate relief situation) to the creditor (where it falls in a
section 533 mortgage foreclosure situation). The creditors have no
right to try and shift that burden back to the servicemembers.
Banks and mortgage companies cannot have a ``one size fits all''
SCRA compliance policy. A policy that may be valid for compliance with
Section 527 interest rate relief requests is probably useless for
section 533 mortgage foreclosures if the creditor is insistent on
receiving copies of orders before granting SCRA protection from non-
judicial foreclosures.
The Hurley case is illustrative of the problem. During the run up
period prior to his actual reporting for active duty, Sergeant Hurley
received his unit mobilization orders at the weekend drill in September
2004. He knew he was being mobilized and from the point he received
those orders, he was protected under Titles I, II and III of the SCRA
(see 50 U.S.C. App. 516. His mother, holding a power of attorney from
him, contacted the mortgage servicing company on his loan a total of
six separate times informing Saxon Mortgage Services that Sergeant
Hurley was being mobilized and would go on active duty effective 25
October 2004. The notifications included having Sergeant Hurley's
commanding officer fax a letter to Saxon indicating ``this soldier is
trying to claim his SCRA rights.'' Saxon already had Hurley's name,
Social Security Account Number and unit information from earlier orders
he had sent to them. The fax from the commanding officer included a
letter advising that Sergeant Hurley would be on active duty beginning
25 October 2004 for a period of up to 18 months, and included a copy of
the First Army unit mobilization orders. Sergeant Hurley's individual
orders were not issued until 12 October 2004. Despite all of those
notices (which the Federal judge on the case has determined provided
more than enough information for Saxon to know Sergeant Hurley was
protected by the SCRA), Saxon referred the file to a Michigan
foreclosure firm, Orlans Associates, P.C., which initiated a non-
judicial foreclosure on Sergeant Hurley's property on 14 October 2004.
In the referral of the file, Saxon failed to notify Orlans that
Hurley's case might involve protections under the SCRA. Obviously, the
Hurley file must have been referred to Orlans Associates for
foreclosure at some time prior to 12 October 2004 (the date of Hurley's
orders). In other words, Saxon was demanding Hurley submit something
that did not exist--his individual orders and refusing to follow the
SCRA's prohibition against non-judicial foreclosures under they-- not
Congress--felt like granting Hurley SCRA protection.
As the court in Hurley ultimately ruled, it was Sergeant Hurley's
status as a mobilized member of the National Guard that provided the
SCRA protection--regardless of Saxon Mortgage Services' illegal policy
demanding that orders--that did not even exist-- be submitted before
protection would be accorded him. Saxon continually attempted to impose
on the servicemember a requirement from one section of the SCRA
(Section 527's requirement to submit a copy of the orders) in a case
arising under another section of the Act (Section 533). The Supreme
Court in Conroy v. Aniskoff, 507 U.S. 511 (1993) has ruled that the Act
is a ``carefully reticulated'' statute. Congress is presumed to know
what it enacts and requirements of one section of the Act cannot be
superimposed on another section of the Act. If Congress wants to amend
the law, fine--but the creditors do not get to decide when a
servicemember is protected. The Congress has already made that
decision.
One simple illustration suffices to show why an SCRA compliance
policy that requires submission of orders before section 533
protections are accorded is invalid. Suppose a servicemember had a
mortgage that had an interest rate below 6 percent. In such a case, the
servicemember would not be entitled to any relief from his or her
mortgage company and might go off to war without ever notifying the
mortgagee of anything. Thereafter, if the mortgage obligation went into
default (the reason for the default is completely immaterial), it would
be preposterous for a mortgage company--claiming that it could
foreclose non-judicially because the mortgagor had never sent in a copy
of his or her orders--to conduct a non-judicial foreclosure and then
sell the property. Such a violation of 50 U.S.C. App. 533 would be
viewed as a travesty, and would have taken place because the creditor
failed to take the minimal time required to ascertain the active duty
status of the mortgagor.
The Department of Defense, through the Defense Manpower Data
Center, maintains a publically accessible Web site (https://
www.dmdc.osd.mil/appj/scra/scraHome.do) where anyone can check the
active duty status of a person with only a name, Social Security number
and date of birth (or just a name and either a Social Security number
or a date of birth). Every creditor is going to have a Social Security
number on a mortgage debtor to issue the certification of the amount of
interest paid at year end for income tax returns. It takes only a few
seconds to type in the necessary search data and about 5 seconds for a
certificate to pop up on the computer screen advising if the person is
on active duty and, if so, what branch, the initial date of active duty
and, if the person has been released from active duty within the past
366 days, the date of last active duty. The process is so simple that
there is no excuse whatsoever for a creditor not ascertaining the
military status of a debtor before any non-judicial mortgage
foreclosure proceeding is commenced.
I have permission from several clients to mention their names and
briefly describe their battles with mortgage companies. I represented
Sergeant John Savage of North Carolina several years ago in a suit
against a major lender that had lowered his interest rate on his
request and sent him a letter advising him of the new, lower monthly
payment. He left for Iraq and every month his wife sent in the new
payment, the payment center returned the check with a notation that
they did not accept partial payments. After several months, the
mortgage company posted a notice of non-judicial foreclosure on the
door of their home. When Mrs. Savage came home from her job at Wal-
Mart, she found their teenage son curled up on the front porch
inconsolable after he had seen the foreclosure notice and believed the
family was about to become homeless--all because their father had
answered his country's call to arms. While we got the foreclosure
stopped, the bank did not clean up Sergeant Savage's credit and when he
returned--injured and partially disabled--he was unable to borrow any
money to restart his small business. All because the payment center of
the bank did not get the word from the legal department.
Chief Warrant Officer 2d Class Chip Pickett of Arizona had me on
his speed dial from Iraq. When he was not flying helicopter missions in
combat, he was doing battle with Bank of America which, although they
had coded his mortgage as SCRA protected, for unknown reasons kept
referring it to a non-judicial foreclosure four different times over an
8-month period. Every time Chip would call, I would have to stop
everything I was doing and contact Bank of America to get the same
wrong answer--``The house is not going to be foreclosed upon. Uh-oh,
wait a minute. We'll need to contact that law firm and stop the
foreclosure sale set for tomorrow.'' Frustrating does not begin to
describe how the process made me feel. To think that anyone deployed
overseas could handle these types of problems is ridiculous. Moreover,
Chip's mind was diverted from the one thing we really wanted him to be
concentrating on--flying his aircraft safely and effectively. This is a
combat effectiveness issue if ever there was one.
The banks are going to have to improve their internal
communications and implement SCRA compliance policies that actually
comply with the law. If regulators are going to audit SCRA compliance,
this Committee must make sure the auditors understand what they are
supposed to be looking for. Most regulators came from the banking
industry, and I have low confidence in their understanding of what ``no
non-judicial foreclosures'' actually means.
2. Education of Servicemembers on Rights and Responsibilities
The SCRA already requires education of all new servicemembers on
their rights and responsibilities under the SCRA. However, young people
tend to hear what they want to hear. They hear about 6-percent interest
rate caps and tune out the part about ``pre-service obligations.'' They
hear ``SCRA-protected'' and some of the troops mistakenly think that
means they can stop making their monthly payments.
The sources of good, reliable information on the SCRA are almost
too many to count. Within the DoD, the Military OneSource Web site has
accurate and understandable information about SCRA and specifically how
to deal with mortgage problems available within two clicks of the mouse
when on their site. I have reviewed the materials and they are quite
good.
Every post, base and station with a Legal Office has trained Legal
Assistance officers available for assistance. Through the training
these judge advocates, civilian attorneys and paralegals receive at the
Service JAG Schools, they are able to assist in contacting creditors,
drafting correspondence and giving advice to servicemembers on SCRA
matters. Financial counseling is available at most of the larger
installations, and those counselors know to send the servicemembers to
the Legal Office when the situation calls for it.
The American Bar Association's Legal Assistance to Military
Personnel Committee holds quarterly meetings at military installations
around the country. Generally, a 1-day continuing legal education
seminar, always featuring SCRA instruction, is conducted for local
members of the bar as well as military attorneys. Through the ABA's
Military Pro Bono Program, hundreds of qualified attorneys around the
country have volunteered to assist servicemembers (E-6 and below) in
civilian legal matters in court, including SCRA issues.
Since many of the SCRA's protections apply primarily to Reserve and
Guard members (who generally have more pre-service obligations than
active duty servicemembers), the judge advocates for those units are
especially well aware of the SCRA's protections and their members'
responsibilities. Many of those units draft the notices to creditors
required by section 527 for the members and have form letters available
for that purpose.
3. Training for the Banking and Credit Industry on SCRA
I am not aware of what types of seminars bank compliance officers
conduct or attend to ensure compliance with the SCRA. Based on
depositions we have taken in the Hurley case, the two compliance
officers offered as experts by one of the defendants were simply not
competent to interpret the SCRA. The SCRA specialists with the mortgage
servicing company demanded copies of Sergeant Hurley's orders and did
not afford him SCRA protection when he did not submit orders (which did
not then exist). In their depositions, they acknowledged that they had
never read the SCRA, did not understand how it worked, and only knew
that they had a compliance policy that started with the words ``the
member is responsible for submitting his orders and no SCRA protection
will be granted until the bank has reviewed the orders and determined
that SCRA protections should be in effect,'' or words to that effect.
Bank regulators should receive training in the SCRA and then devise
audit criteria for the banks under their supervision and control to
ensure that the Act--both as to requests for interest rate relief and
as to protection of servicemembers from non-judicial foreclosure and
default judgments--was being followed. A ``one size fits all'' SCRA
compliance policy does not exist. Different sections of the Act require
different efforts by the banks to provide SCRA compliance.
4. Recommendations for Amendments to the SCRA
I recommend the following technical amendments to the SCRA:
1. Amend 50 U.S.C. App. 597a of the SCRA to provide that no
action brought to enforce a member's rights or obtain damages as a
result of SCRA violations shall be subject to a mandatory arbitration
clause in the contract or other obligation that gives rise to the suit.
2. Amend section 305 of the SCRA (50 U.S.C. App. 535) to (a)
clarify that an order to a servicemember to move from off-base into on-
base quarters qualifies as a grounds to terminate a lease earlier than
its term, and (b) that the term ``permanent change of station'' has the
definition found in the Joint Federal Travel Regulations (which would
include ETS moves, and retirement moves).
3. Further amend section 305 of the SCRA (50 U.S.C. App. 535) to
delete subparagraph (i), and move that language to section 101 (50
U.S.C. App. 511). The broader definition of ``military orders'' should
apply to all sections of the SCRA in which a servicemember is required
to submit copies of military orders to a creditor or other obligee.
Many times, the individual servicemember's orders are not cut and
published until he/she has either actually gone on a deployment or is
so close to departure that other matters are more pressing than getting
copies of orders to creditors. If the general definitions in the SCRA
of ``military orders'' and ``CONUS'' were included in section 101,
commanders would be able to write letters certifying the upcoming
active duty status of a member of the Guard or Reserve (or active
force) so that creditors' demands for copies of military orders could
be deemed satisfied. This has been a huge issue in Hurley v. Deutsche
Bank Trust Co. Americas, since the bank's defense was that Sergeant
Hurley did not supply a copy of his individual military orders to the
mortgagee and the bank therefore did not extend to him SCRA protection
against non-judicial foreclosure of his mortgage. Of course, Congress
has differentiated between a case in which the soldier requests
interest rate relief under 50 U.S.C. App. 527 (and is required to
submit a copy of his military orders) and a situation in which a
mortgagee wishes to proceed non-judicially to seize property and
foreclose on a mortgage (in which case under 50 U.S.C. App. 533,
there is no obligation on the part of the servicemember to do anything
to be protected). However, the vast majority of banks have one SCRA
compliance policy and it is geared to interest rate relief requests.
Therefore, anything Congress could do to satisfy the requirement of
submission of military orders (including changing the definition of
what qualifies as ``military orders'' under the SCRA) would be helpful.
4. Amend section 203 of the SCRA (50 U.S.C. App. 523) to clarify
that an early pre-payment penalty on a mortgage is included within the
coverage of that section and providing that if it is necessary for a
servicemember to obtain a court order to force a creditor to waive an
early pre-payment penalty for a mortgage when the pre-payment is a
result of either a deployment in excess of 180 days or a PCS move, the
creditor shall be liable for the reasonable attorneys fees and costs
incurred by the servicemember to obtain such a court order.
5. Amend the SCRA to clarify that the Act applies to the debts and
obligations of limited liability companies and Subchapter S
corporations, including property taxes owed by those entities, when the
company/corporation is wholly owned by the servicemember or the
servicemember and a spouse and, in the case of debts other than taxes,
the servicemember is personally liable on the debt, either as a co-
maker or as a guarantor. (Property taxes will never be a personal
liability of the servicemember who owns the business, but loss of the
business due to a tax sale will obviously adversely impact the
servicemember, so the protections of the SCRA should be extended to tax
debts of businesses wholly owned by the servicemember.)
6. Amend section 201(b)(2) of the SCRA (50 U.S.C. App.
521(b)(2)) to provide that the reasonable fees of the attorney
appointed by the court to represent the servicemember shall be taxed as
costs of court.
7. Amend the SCRA to add a provision that the expiration dates of
any license or certification issued by any State or Federal agency
(including driver's licenses, nurses' licenses, contractors' licenses,
etc.) shall be extended to a period that is 90 days after the release
from active duty of a servicemember. Additionally, add a provision to
exempt from the requirements of continuing legal or medical education
levied by any State or Federal agency, bar or medical association any
servicemember who is serving in a legal or medical billet and is
deployed outside the CONUS for 180 days or more during the year.
8. Amend section 303 of the SCRA (50 U.S.C. App. 533(b) and (c)
to extend the protection against non-judicial foreclosures from 9
months to 12 months. That would bring the SCRA mortgage protection
provision in line with the extension of the interest rate cap of 6
percent for mortgage debt found in Section 207 of the SCRA (50 U.S.C.
App. 527). As it is now, the protection against non-judicial mortgage
foreclosure extends for 9 months but the interest rate protection
extends for 12 months after release from active duty. Making the two
periods different by 3 months makes no real sense. The extension
periods should be the same.
There is one other action this Committee could recommend that would
be invaluable in trying to promote understanding of and compliance with
the SCRA. When the SCRA was enacted in 2003, the Government Printing
Office printed the entire text of the Act in a single document. Since
that date, because of numerous minor and some major amendments, the GPO
has not reprinted the SCRA in a single document. It would be most
helpful for servicemembers, practitioners and those responsible for
compliance with the Act to have access to a single document (that did
not require a subscription to LEXIS-NEXIS of Westlaw to obtain) where
the complete text of the Act, current through the end of the 111th
Congress, could be found in readily available format.
I appreciate the opportunity to have submitted this testimony to
the Committee and would be happy to entertain any questions the Members
or their staffs might have. Please address any questions to me at
[email protected].
Respectfully submitted,
John S. Odom, Jr.,
Colonel, USAF (Ret.)
Statement of Hon. Silvestre Reyes,
a Representative in Congress from the State of Texas
I want to thank Chairman Miller and Ranking Member Filner for
calling this hearing and bringing this important issue before the
Committee. Since the Civil War we have recognized the importance of
providing financial protection to the men and women who serve our great
Nation. Our Soldiers, Sailors, Airmen, and Marines risk their lives
protecting our freedom; the least we can do is protect them from the
financial hardships that may result from their time in combat.
As a veteran of the Vietnam War, I saw firsthand the financial
uncertainty that comes with being deployed. Every day that a
servicemember is away, their loved ones worry about their safety.
Equally concerning to the deployed servicemember is the financial
wellbeing of the family they left behind. It is imperative that we
provide them protections that ensure their fiscal security.
It is deeply concerning to me that we are here today because some
of our Nation's largest financial institutions have failed to afford
these great men and women the protections provided by this Congress--
this is both unpatriotic and shows a lack of respect for their service.
It is my hope that the information provided in today's hearing will
allow us to ensure that this does not occur again in the future.
MATERIAL SUBMITTED FOR THE RECORD
Committee on Veterans' Affairs
Washington, DC.
February 15, 2011
Naomi Gendler Camper
Managing Director and Head of Federal Government Relations
JPMorgan Chase
601 Pennsylvania Ave., NW
Washington, DC 20004
Dear Naomi:
In reference to our Full Committee hearing entitled ``Allegations
Regarding the Servicemembers Civil Relief Act,'' that took place on
February 9, 2011, I would appreciate it if you could answer the
enclosed hearing questions by the close of business on April 1, 2011.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for materials for all full
Committee and Subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively and single-spaced. In
addition, please restate the question in its entirety before the
answer.
Due to the delay in receiving mail, please provide your response to
Debbie Smith by fax at 202-225-2034. If you have any questions, please
call 202-225-9756.
Sincerely,
BOB FILNER
Ranking Democratic Member
JL:ds
__________
Debevoise & Plimpton LLP
New York, NY.
April 1, 2011
The Honorable Bob Filner
Ranking Democratic Member
House Committee on Veterans' Affairs
335 Cannon House Office Building
Washington, D.C. 20515
Hearing Questions Regarding the Servicemembers Civil Relief Act
Dear Congressman Filner:
I am writing on behalf of JPMorgan Chase (``Chase''), in response
to your letter to dated February 15, 2011, enclosing questions arising
out of the February 9 hearing on the Servicemembers Civil Relief Act
(``SCRA'').
1. How often does the bank perform audits to check for this type of
problem?
Chase Home Lending has recently enhanced its processes to attempt
to ensure that: (1) the correct interest rate and fees are applied to
SCRA-protected loans; and (2) no foreclosures against SCRA-protected
servicemembers go forward. A number of these enhancements involve
frequent reviews and quality checks to ensure that Chase's processes
comply with the SCRA. So, for example, there are now daily reviews of
the entire set of SCRA-protected loans to ensure fee, subsidy and rate
protections are in place. Similarly, Chase now conducts several checks
at various stages prior to and subsequent to foreclosure referral to
determine whether a borrower is protected by the SCRA.
Chase's Internal Audit department will periodically review Chase's
procedures for compliance with SCRA requirements. The Internal Audit
department is currently conducting a review of the existing processes,
and will conduct a full audit of the enhanced processes in the coming
year.
2. How many families have not received a refund yet?
Chase Home Lending has now sent approximately 6,000 refund checks
to SCRA borrowers. In almost all of these cases, Chase paid the
servicemembers more than double the amounts of the estimated
overcharges or fees. The review of borrowers' files is ongoing, and
Chase expects that it may identify additional accounts where it
mistakenly overcharged servicemember borrowers or charged SCRA-
protected borrowers fees. However, Chase has now sent refund checks to
all servicemembers it has identified as being entitled to a refund for
overcharges or fees, with the exception of a small number of borrowers
with whom it is in active litigation.
3. In what situations does JPMorgan Chase deny access to a
borrower's account?
It is Chase policy to discontinue account statements to borrowers
with whom it is in litigation.
4. You recently established a team dedicated to servicing home
loans to military personnel in South Carolina. How will their training
differ from your previous training? What type of checks and balances
are you establishing to prevent this from happening again?
One of the issues with Chase Home Lending's SCRA processes was that
there were errors in the reading of military orders. To address this,
the initial set-up of SCRA loans has now been consolidated in a single
unit in Florence, South Carolina; new personnel have been installed to
manage this process; and enhanced training has been given to these
employees. Former members of the military are involved in this process
to assist Chase in interpreting military orders from each branch.
The majority of the Special Loans SCRA team was initially trained
in October/November 2009 when the SCRA function for the combined Chase
mortgage portfolio was transitioned to Florence, South Carolina.
Additional training was conducted in March and April 2010. In addition,
during weekly staff meetings, review and training for unique military
orders or nuances in order interpretation is a standing agenda topic.
On average, each individual on this team has reviewed hundreds of
military orders over the last 12 months.
The review of the orders, which is a manual process, also is now
subject to additional quality control; an additional Chase employee
reviews each order to ensure that the protection periods have been
properly identified. In addition, when SCRA protection has been
claimed, denial of SCRA protection requires senior manager sign off.
Another issue with Chase's SCRA processes was the calculation and
accounting for the SCRA interest rate. Now, 100 percent quality control
has been put in place around the calculation of and accounting for the
interest rate.
To address the customer service issues, Chase has created a
dedicated hotline for military customers staffed by personnel trained
on SCRA compliance issues. This customer service hotline is open 24
hours a day, 7 days a week. These same personnel will provide customer
service to any military borrower who calls Chase's general customer
service line.
5. Under protections against foreclosure of mortgages under title
50, section 533, the SCRA does not require that servicemembers provide
military orders. Does JPMorgan Chase require servicemembers to submit
military orders to provide these protections?
Chase does not require servicemembers to submit military orders
before Chase provides the protections of SCRA section 533 against
foreclosure. Chase now has procedures in place to check the Department
of Defense Web site to verify military status at multiple stages of the
foreclosure process to ensure that it does not foreclose on a
servicemember who is protected by SCRA or the Housing and Economic
Reform Act (``HERA'').
6. There have been a number of families who were foreclosed. Does
JPMorgan Chase correct their damaged credit reports?
Chase Home Lending is currently assessing and correcting the credit
reporting of servicemembers to whom it sent refund checks and those
upon whom it wrongfully foreclosed. Currently, all credit reporting is
suppressed for SCRA loans during the SCRA protection period.
7. Please state how many executive vice presidents there are at
JPMorgan Chase.
JPMorgan Chase has 20 Executive Vice Presidents at the corporate
level. Stephanie Mudick is one of these Executive Vice Presidents, and
is a member of JPMorgan Chase's Executive Committee, which comprises 55
senior officers who lead its businesses and functions.
Please do not hesitate to contact me at (212) 909-6947 if you have
any additional questions.
Sincerely yours,
Andrew J. Ceresney
cc: Chairman Jeff Miller
Committee on Veterans' Affairs
Washington, DC.
February 15, 2011
The Honorable Robert M. Gates
Secretary
U.S. Department of Defense
The Pentagon
Washington, DC 20301-1155
Dear Mr. Secretary:
In reference to our Full Committee hearing entitled ``Allegations
Regarding the Servicemembers Civil Relief Act,'' that took place on
February 9, 2011, I would appreciate it if you could answer the
enclosed hearing questions by the close of business on April 1, 2011.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for materials for all full
Committee and Subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively and single-spaced. In
addition, please restate the question in its entirety before the
answer.
Due to the delay in receiving mail, please provide your response to
Debbie Smith by fax at 202-225-2034. If you have any questions, please
call 202-225-9756.
Sincerely,
BOB FILNER
Ranking Democratic Member
JL:ds
__________
Hearing Date: February 09, 2011
Committee: HVAC
Member: Congressman Filner
Witness: Colonel Shumake
SCRA Protections
Question 1: When did you become aware that JPMorgan Chase was
violating protections afforded under the SCRA?
Answer: I received a call from a Senate Veterans' Affairs staffer
on January 13, 2011, asking if I had heard about a class action lawsuit
involving JPMorgan Chase, one that may have involved interest rate cap
issues. I had not, but indicated I would check with my contacts in the
American Bankers Association. I did and soon received a call indicating
that representatives from JPMorgan Chase would be contacting me
shortly. I received a call from JPMorgan Chase on January 14, 2011.
They explained the law suit and admitted that they had incorrectly
calculated interest rate rates for many servicemembers. They also
indicated they had improperly foreclosed on the homes of 15-20
servicemembers. They outlined the steps they were taking to correct
their errors and provided a hotline number established for
servicemembers.
Information Flow
Question 2: Did JPMorgan Chase reach out to inform you of these
violations or did you become aware through the various media outlets?
Answer: I received a call from JPMorgan Chase officials on January
14, 2011. This was the Friday before the Today show reported the story
the next Monday morning.
Financial Institutions Violating the Law
Question 3: Are you aware of any other financial institutions that
may be currently violating the law?
Answer: Although the Department of Defense is aware of allegations,
and provides legal assistance to servicemembers and their families
regarding their rights under the SCRA, the Department does not
investigate private companies' compliance with the SCRA.
The Department of Justice may have more specific information on
violations of the SCRA.
I have attached a complaint in an ongoing class action suit against
Citibank alleging violations of the interest rate cap provision of the
SCRA. The Department does not take a position about the merits of this
case.
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
---------------------------------
---------------------------------------
FIRST AMENDED COMPLAINT a Delaware corporation,
---------------------------------------
501-596 was enacted in recogn
i2. Both the letter and spirit
of the SCRA acknowledge the
sacrifice made by our military
men and women so as ``to provide
for, strengthen, and expedite
the national defense through
protection--to servicemembers of
the United States to enable such
persons to devote their entire
energy to the defense needs of
the Nation. . . .'' 50 U.S.C.
App. 502.
3. Defendants, regrettably,
have failed to honor the active
duty status of America's
fighting forces. Despite the
prohibitions of SCRA, 50 U.S.C.
App. 501-596, Defendants have
charged excess interest on
servicemembers' loans as well as
imposing a forbearance status as
a pre-condition to receiving the
interest reduction. Defendants
have illegally capitalized
interest resulting from the
mandatory forbearance they
imposed on servicemembers'
loans. They charged interest on
the capitalized interest which
raised the effective interest
rate on the loan.
4. Ms. Lyndsey M.D. Olson
brings this class action on
behalf of herself and other
similarly situated
servicemembers who have been or
will be injured by Defendants'
failure to promptly and fully
comply with the requirements of
SCRA without added pre-
conditions.
5. Ms. Lyndsey M.D. Olson (f/k/
a Ms. Lyndsey M.D. Kimber, f/k/a
Lyndsey Margaret Davis) is a
Minnesota resident and a Captain
in the Minnesota Army National
Guard. She began a period of
active duty on March 1, 2005.
One year of her active duty
service was spent in Iraq, from
June 2008 to May 2009.
6. Defendant Citibank, N.A.
(``Citibank'') is a national
commercial bank, with its
principal place of business at
3900 Paradise Road, Suite 127,
Las Vegas, Nevada, 89109.
7. Defendant Citibank (New York
State) (``CNYS'') is or was a
New York State chartered bank,
with its principal place of
business at 99 Garnsey Rd.,
Pittsford, New York, 14534. Upon
information and belief, it
merged with Citibank, N.A. in
August of 2003.
8. Defendant The Student Loan
Corporation (``Student Loan'')
is a Delaware corporation, with
its principal place of business
at 750 Washington Blvd.,
Stamford, Connecticut, 06901.
Upon information and belief,
Defendant CNYS owned 80 percent
of Student Loan's shares until
its merger with Citibank, N.A.
Also upon information and
belief, Citibank and/or
Citigroup sold its interest in
the Student Loan Corporation at
the end of 2010.
9. At all relevant times, and
at least until the end of 2010,
all of the Defendants were
wholly owned or controlled by
Citigroup, Inc., a Delaware
corporation with its principal
place of business at 399 Park
Avenue, New York, New York,
10043.
10. Monthly statements and other
correspondence received by Ms.
Olson illustrate the closely
intertwined relationship between
the Defendants. For example, Ms.
Olson's monthly statements were
jointly captioned ``Citibank''
and ``The Student Loan
Corporation.'' Payments, in
turn, were sent to ``Student
Loan Corporation, c/o Citibank
(Nevada), N.A.'' Letters to Ms.
Olson were typically sent on
Citibank letterhead, but stated
``CitiAssist student loans are
originated by Citibank, N.A. and
assigned to The Student Loan
Corporation.'' See Exh. 1. Pay
Online statements referred to
``Citi.com,'' and indicated that
all copyrights were held by
Citigroup, Inc. (parent company
of Student Loan and Citibank,
N.A.).
11. Ms. Lyndsey Olson is a
``servicemember'' as defined in
the SCRA, 50 U.S.C. App.
511(1), and is in ``military
service'' as defined in
511(2)(A)(i).
12. Defendants are ``creditors''
for purposes of the interest
rate limitation provisions of
the SCRA, 50 U.S.C. App. 527.
13. Plaintiff and each class
member have a qualifying
``obligation or liability'' to
Defendants within the meaning of
the SCRA, 50 U.S.C. App.
527(a).
14. Defendants have
systematically violated the
interest rate limitation
provisions of the SCRA, 50
U.S.C. App. 527, by
overcharging interest or by not
crediting back correct amounts
when they receive notice of
military service status after
the commencement of the military
service and/or active duty
period (the phrases ``military
service'' and ``active duty''
are used interchangeably
throughout this Complaint to
mean the period of time to which
527 applies).
15. Defendants have
systematically violated the SCRA
by unilaterally placing
Plaintiff's and each class
member's loans in forbearance
status as a pre-condition to
receiving the SCRA interest rate
reduction.
16. This Court has jurisdiction
over this action pursuant to 28
U.S.C. 1331.
17. Venue in the United States
District Court for the District
of Minnesota is proper under 28
U.S.C. 1391 because all
Defendants routinely conduct
business in the State of
Minnesota, and thus can be said
to ``reside'' here, and because
a substantial part of the events
or omissions giving rise to the
claims in this action occurred
in the State of Minnesota.
18. The Servicemembers Civil
Relief Act was signed into law
by President George W. Bush on
December 19, 2003. The SCRA is a
revision of the Soldier's and
Sailor's Civil Relief Act of
1940 (``SSCRA''), and was
intended, in part, to ease the
economic and legal burdens on
military personnel called to
active-duty status in Operation
Iraqi Freedom.
19. National Guard and National
Air Guard personnel on duty for
training or other duty
authorized by 32 U.S.C. 502(f)
at the request of the President,
for or in support of an
operation during war or national
emergency declared by the
President or Congress are also
covered by the SCRA, 50 U.S.C.
App. 511(2)(A)(ii).
20. Among the protections
granted to active-duty
servicemembers under the SCRA is
a 6 percent per year cap on most
interest-bearing debts incurred
before the start of active duty.
Thus, for example, if a new
active-duty servicemember has
pre-existing credit card debt
incurring interest at an annual
percentage rate (``APR'') of 21
percent, the SCRA would require
the credit card issuer to lower
the APR on that debt to 6
percent per year throughout that
servicemember's time of active
duty. Interest must be forgiven
in excess of 6 percent per
year, not just deferred,
pursuant to SCRA, 50 U.S.C. App.
527(a)(2).
21. The servicemember must give
written notice of the active
duty status in order to obtain
the 6 percent per year interest
rate. The written notice,
however, can be given anytime up
to 180 days after the end of the
servicemember's active duty
period. SCRA 527(b)(1). If the
notice is given after the start
of the active duty period, then
the creditor must apply the 6
percent per year retroactively
to the start date of active duty
service. Id at 527(b)(2).
22. The United States Supreme
Court has held that the SSCRA
must be read ``with an eye
friendly to those who dropped
their affairs to answer their
country's call.'' Le
MaiT1, 333
U.S. 1, 6, 68 S. Ct. 371, 373
(1948).
23. The SCRA limits the interest
rate to be charged to a maximum
of 6 percent per year. Nowhere
does the language of the Act
permit capitalization of
interest (i.e. adding unpaid
accrued interest to the
principal balance and then
charging interest on the total).
Also, nowhere does the language
of the Act permit compounding
interest (ie. charging interest
upon previously accrued
interest).
24. Federal courts have long
recognized that compounding
results in a higher effective
interest rate.
25. Federal courts have long
recognized that capitalization
of interest also leads to a
higher effective interest rate.
26. 527 of the SCRA limits the
interest that can be charged to
``6 percent per year,'' which
means the interest must be
calculated based on the simple
interest method.
27. In the absence of explicit
language in a statute
authorizing compounding of
interest, the creditor is
limited to simple interest.
28. Similarly, contract law also
follows the rule that the
contract must specifically
authorize compounding, and in
the absence of explicit contract
language, the creditor can only
use a simple interest
calculation.
29. In the alternative, even if
SCRA were silent as to method of
interest calculation, which it
is not, if the underlying note
does not explicitly provide for
compounding or capitalization,
the creditor cannot,
unilaterally, compound or
capitalize interest.
30. Also, where a loan contract
does not specifically authorize
(1) placing the loan in
forbearance, and (2)
capitalization of interest
accrued during the forbearance
period, the creditor may not
unilaterally change the loan
terms and impose mandatory
forbearance or capitalize
interest accrued during the
forbearance period.
31. When a servicemember does
not specifically agree to
placement of his or her loan
into forbearance status, the
creditor may not unilaterally
place the loan into forbearance
status and then capitalize
interest accrued during the
forbearance period.
32. The SCRA does not allow a
creditor to unilaterally impose
mandatory forbearance status on
a servicemember's loan and then
capitalize the unpaid interest
simply as a result of the
servicemember exercising his or
her right to the 6 percent per
year interest rate cap.
Furthermore, such actions by the
creditor violate the spirit of
the SCRA, a law that must be
read liberally and with an eye
friendly toward servicemembers.
33. Ms. Olson first joined the
Minnesota Army National Guard in
January 2001. In 1998, she had
earned a bachelor's degree from
Stephens College, in Columbia,
Missouri, majoring in
philosophy, law, and rhetoric.
In order to finance her final
year of college, Ms. Olson
applied for an $8,000 private
student loan through Defendant
Citibank's CitiAssist program.
On July 16, 1997, Ms. Olson
received notice that her
application had been approved,
and she received her loan funds
in two equal distributions, one
on July 16, 1997, and the other
on August 25, 1997. See Exh. 2.
34. Ms. Olson began making
regular payments on her student
loan in December 1998, and has
never incurred a late payment
fee. The interest rate on her
loan is variable, and has
fluctuated between 4.25 percent
and 9.25 percent. As Ms. Olson
sought further education, her
loan periodically went into
forbearance while she was in
school. During these periods of
forbearance, the interest
payments on her loan were
capitalized, meaning the
interest that accrued during
these periods of forbearance was
ultimately added to Ms. Olson's
principal balance.
35. In 2000, Ms. Olson enrolled
in Hamline University School of
Law in St. Paul, Minnesota with
the hope of serving as a Judge
Advocate (``JAG'') in the United
States Armed Forces after
graduation. When Ms. Olson
graduated in 2003, she was
primary editor of the Hamline
Law Review. Following
graduation, she attended the
U.S. Army Judge Advocate General
School in Charlottesville,
Virginia.
36. Ms. Olson began her active
duty on March 1, 2005. On May 6,
2008, Ms. Olson received orders
deploying her to Iraq in support
of Operation Iraqi Freedom. She
was stationed in Balad, Iraq,
where she served as
International Law Officer and
Brigade Trial Counsel to the
34th Combat Aviation Brigade.
She returned from Iraq in June
2009 and was stationed at the
U.S. Army Judge Advocate General
School in Charlottesville,
Virginia to obtain her LLM
degree. She finished her degree
in May, 2010.
37. On May 26, 2006, Ms. Olson
notified Defendants in writing
that she had been called to
active duty, and enclosed copies
of her orders. See Exh. 3.
Approximately 5 months later,
Defendant Citibank notified her
by letter that it had received
her correspondence and would
limit her interest to 6 percent
per year as required by the
SCRA. The letter went on,
however, to state that an
(unrequested and mandatory)
forbearance was also being
``granted'' on her loan, and
that any accrued interest during
this time would be capitalized
when her forbearance ended. See
Exh. 4. Defendants took the
above actions unilaterally. Ms.
Olson did not agree to the
forbearance or the
capitalization of interest.
38. When Ms. Olson informed
Citibank of her active duty
status, she did not request that
her account be placed in
forbearance status. See Olson
letter dated May 26, 2006, Exh.
3. Instead, contrary to the
SCRA, Citibank placed it in
forbearance status on its own
without her request or consent.
When she called Citibank to
advise them that she did not
want her account placed in
forbearance status, she was told
it was Citibank's policy to
place accounts in forbearance
status in order for the
servicemember to receive the
SCRA interest rate reduction,
and that Citibank would not give
her the rate reduction without
that status change.
39. Ms. Olson requested to speak
to a manager regarding this
policy and was told the same
thing.
40. The SCRA does not allow any
conditions, other than what is
stated in the statute, to be
placed on an active duty
servicemember's right to receive
an interest rate reduction.
41. The vast majority of
servicemembers deployed overseas
and in combat zones, have
limited, or no, access to the
Internet for purposes of going
online and making payments on
their account, and instead rely
on ``auto pay'' to have their
bills paid on a monthly basis
while they are on active duty.
Ms. Olson's loan was on the
automatic student loan payment
service prior to being placed on
this mandatory forebearance.
42. The consequences of a
servicemember's loan being
placed in mandatory forbearance
status include: (a) being denied
access to the autopay option,
through which the servicemember
could have made payments in
order to continue reducing
principal during the active duty
period, (b) the servicemember no
longer receives monthly account
statements in the mail while in
forbearance, (c) both of which
result in most active duty
servicemembers not making
regular payments while they are
deployed because of the added
effort they must commit to
making a payment.
43. Fewer payments being made
during the forbearance period
leads to a larger amount of
interest capitalized and added
to the principal balance at the
end of the servicemembers'
active duty and when the
forbearance status is lifted by
Defendants. This results in
higher compounded and/or
effective interest rates, to the
servicemembers' detriment and to
the Defendants' benefit.
44. Defendants are aware that
requiring active duty
servicemembers to go into
forbearance status in order to
receive their SCRA interest rate
reduction will result in
Defendants being able to
capitalize higher amounts of
interest at the end of the
active duty period, compared to
if forbearance status were not a
requirement.
45. If Defendants wished to
offer forbearance status for
neutral reasons, they could have
simply made it optional, rather
than a pre-condition to obtain
the benefits of the SCRA.
46. Although Ms. Olson sent her
notice of active duty status to
Citibank on May 26, 2006, and
despite Citibank's duty under
the SCRA to cap her interest at
6 percent per year, statements
sent by Defendants Citibank and
The Student Loan Corporation
plainly show that Defendants
continued to charge interest in
excess of 6 percent. For
example, Ms. Olson's statement
from November 2006 showed that
Defendants were charging
interest at an annual percentage
rate of 9.25 percent. See Exh.
5.
47. Citibank eventually changed
the interest rate to 6 percent
on the December 2006 statement
and stated that it kept the
interest rate at 6 percent (or
lower based on the market rate,
since Ms. Olson's loan carried
an adjustable rate), thereafter.
Pursuant to the SCRA, Citibank
was required to credit back to
Ms. Olson the excess interest it
charged her, going back to the
beginning of her active duty
period, i.e. March 1, 2005.
However, the online statements
for the months following
Defendants' November letter
(Exh. 4) do not show Defendants
credited back any interest to
Ms. Olson's account for the
previous months of overcharges.
There is no evidence in the
online account information that
the interest was credited back.
In the alternative, if
Defendants credited back any
interest, the amount of excess
interest it credited back to Ms.
Olson's account was insufficient
to remedy the overcharges for
the prior months.
48. In the years prior to filing
this action, Ms. Olson requested
a copy of her account history on
several occasions to determine
whether Citibank had charged the
correct interest on her loan
pursuant to the SCRA and/or
whether it credited back
overcharged interest. Citibank
sent Ms. Olson a payment history
at two different times. See Exh.
6 and Exh. 7. The two account
histories do not match each
other. In fact, the histories
contain inconsistent entries.
See e.g. the ``Interest decrease
for servicemembers'' entry dated
11/08/2006 for the amount of
$733.30 on Exh. 6, and compare
with the entries for the same
time period on Exh. 7, where
such an interest decrease is
missing.
49. Furthermore, the two account
histories described above do not
match the loan information on
her monthly statements. See e.g.
The monthly statement for
November 2006, Exh. 5, shows a
principal balance of $9,789.05,
and the loan history, Exh. 6,
for 11/08/2006 shows a principal
balance of $8937.49. These and
other inconsistencies made Ms.
Olson's efforts to ascertain the
exact amounts Defendants were
charging her (or crediting back,
as the case may be) very
difficult. These inconsistencies
also make it easier for
Defendants to disguise excess
interest being charged despite
the SCRA prohibitions.
50. On several occasions prior
to the filing of this action,
Ms. Olson also requested, by
telephone and in writing, a copy
of her note or loan agreement to
be sent to her. Citibank (South
Dakota), N.A. sent her a copy of
her application rather than a
formal note or contract. See
Loan Application
(``Application'') attached as
Exh. 8.
51. She later wrote to Citibank
to specifically request the
``Note'' referenced in the copy
of the Application it sent her.
See Exh. 9. By letter dated
December 30, 2009, Citibank
stated there was no ``Note,''
and that her entire agreement
was the Application. See Exh.
10. (``Thank you for your recent
correspondence to Citibank, N.A.
regarding your CitiAssist
loan(s). The copy of the
application is also a copy of
the promissory note. They are
one in [sic] the same.'').
Plaintiff, therefore, assumes
the Application is the only
remaining existing agreement for
repayment of this loan. See Loan
Application attached as Exh. 8.
52. The Application does not
contain any provision allowing
Defendants to compound interest
on her loan, which means that
her loan agreement is for simple
interest. Furthermore,
Defendants' own monthly
statements confirm on the back
of the statements that interest
is calculated based on the
``simple daily interest''
method.
53. Likewise, the Application
does not contain any provision
allowing Defendants to
capitalize interest.
54. Defendants took Ms. Olson's
loan off mandatory forbearance
status sometime in early 2010.
After Defendants took her loan
off forbearance, they
capitalized accrued interest
(added it into her principal
balance) and began charging her
monthly interest on the new,
inflated principal balance. Ms.
Olson is still making monthly
payments on a balance that
reflects and includes the
capitalized interest resulting
from the mandatory forbearance
imposed on her account. Also, as
a result of the capitalized
interest, and thus higher
principal balance, the amount
Ms. Olson owes Citibank is
higher than it would have been
had the interest not been
capitalized. Therefore, due to
the combination of mandatory
forbearance and resulting
capitalized interest, Ms. Olson
paid (and is still paying) a
higher effective interest rate
due to Defendants' violation of
SCRA.
55. Upon information and belief,
Defendants have been and are
capitalizing and/or compounding
interest on servicemembers'
loans where a SCRA rate
reduction was requested, thus
resulting in effective interest
rates in excess of 6 percent per
year.
56. Ms. Olson brings this action
pursuant to Fed. R. Civ. P.
23(a), b(2), and b(3), on behalf
of the following Class:
All servicemembers who,
within the statute of
limitations, were in military
service, as defined in 50 U.S.C.
App. 511(2), and who (a)
carried obligations or
liabilities to Defendants
bearing interest in excess of 6
percent; (b) provided the
written notice to Defendants
regarding their period of
military service before 180 days
after the end of their military
service; and (c) who were
overcharged interest in
contravention of 50 U.S.C. App.
527(a), and/or were put into
forbearance status as a
condition of receiving the
interest rate cap under 50
U.S.C. App. 527(a).
Plaintiffs specifically
exclude from the class:
a. Defendants' employees,
officers, directors, or heirs.
b. Loans of servicemembers
for whom Defendants successfully
proved the servicemember's
financial ability to repay loan
did not change as a result of
active duty status, pursuant to
SCRA 527(c).
c. This Court, this Court's
direct family members, and this
Court's personnel.
57. This class action satisfies
all requirements of Fed. R. Civ.
P. 23(a), (b)(2), and (b)(3),
including, but not limited to
numerosity, commonality,
typicality, adequacy, and
predominance.
58. Numerosity: Consistent with
Fed. R. Civ. P. 23(a)(1), the
proposed class ``is so numerous
that joinder of all members is
impracticable.'' At present, the
United States of America has
approximately 1.4 million active-
duty servicemembers. Defendants
comprise some of the largest
lending institutions in the
country. Class members will
number in at least the
thousands. Detailed information
on the Class can be ascertained
through the review of account
records maintained by
Defendants, publicly available
records, and appropriate
discovery. Joinder of the
numerous active-duty
servicemembers who carry
obligations or liabilities to
Defendants and who Defendants
violated their SCRA rights would
be impracticable.
59. Commonality and
Predominance: Common questions
of law and fact exist as to all
members of the class and
predominate over any questions
affecting solely individual
class members. These questions
include:
Whether Defendants are
improperly processing military
service notices received from
active-duty servicemembers;
Whether Defendants are
failing to reduce to at least 6
percent the annual rates on
servicemembers' interest-bearing
obligations or liabilities, or
failing to forgive the correct
amounts of such excess interest;
Whether Defendants are
improperly compounding interest
on servicemembers' loan
obligations;
Whether the SCRA allows
compounding of interest;
Whether Defendants are
improperly requiring
servicemembers' loans to be put
into forbearance status as a
condition of receiving the SCRA
interest rate reduction;
Whether Defendants are
improperly capitalizing excess
interest on accounts that it
places into forbearance; and,
Whether Defendants'
capitalization of unpaid accrued
interest from the mandatory
forbearance period violates the
spirit or letter of the SCRA.
60. Typicality: The claims of
Plaintiff, the proposed Class
Representative, are typical of
the class claims, in that (a)
Plaintiff incurred an obligation
or liability to Defendants
bearing interest in excess of 6
percent per year; (b) Plaintiff
requested in writing that her
rate be reduced to at least 6
percent per year pursuant to the
SCRA; (c) Defendants instead put
her loan into mandatory
forbearance status, failed to
reduce her interest rate to at
least 6 percent per year, and
instead overcharged interest (or
did not credit back the correct
amount of interest); and (d)
Defendants capitalized unpaid
accrued interest at the end of
the mandatory forbearance
period.
61. Adequacy: Consistent with
Fed. R. Civ. P. 23(a)(4),
Plaintiff ``will fairly and
adequately protect the interests
of the class.'' Plaintiff has no
adverse or conflicting interests
to the proposed class members.
She has retained counsel
competent and experienced in
complex class action litigation
who possess the necessary
financial resources to
adequately and vigorously
litigate this class action.
62. Superiority: A class action
is superior to all other
available methods for the fair
and efficient adjudication of
this controversy since joinder
of all members is impractical.
Prosecution of separate actions
by individual class members
would create an inherent risk of
inconsistent and varying
adjudications, with the
concomitant risk of the
establishment of incompatible
and conflicting standards of
conduct for Defendant.
Furthermore, the damages
suffered by individual class
members are relatively small,
such that the expense and burden
of individual litigation makes
it impossible for members of the
class to individually redress
the wrongs done to them. In
addition, servicemen and women
who are class members should not
be devoting time, energy and
attention away from service to
this Country in being bogged
down by tracking the amount of
interest charged on their
accounts while on active duty,
or by litigation of same.
Moreover, due to the vastly
unequal market power between the
parties, and the fact that many
class members are in ongoing
lending relationships with
Defendants, a class action may
be the only way, as a practical
matter, that their claims will
be adjudicated. Plaintiff knows
of no difficulty that would make
a class action in this case
unmanageable.
63. Plaintiff re-alleges all
other paragraphs of this
Complaint.
64. Defendants' policy requiring
class members' loans to be put
into forbearance status is an
illegal pre-condition to the
servicemembers receiving the
SCRA interest rate reduction.
65. The SCRA does not allow such
a pre-condition.
66. As a result of the mandatory
forbearance status, the
servicemembers have additional
burdens placed on them
&&&&&&&&&&&&&&&&&&&&&n their
loans while on active duty.
67. These additional burdens
include: (a) being denied access
to the autopay option, through
which the servicemember could
have made payments in order to
continue reducing principal
during the active duty period,
(b) the servicemember no longer
receives monthly account
statements in the mail while in
forbearance, (c) both of which
result in most active duty
servicemembers not making
payments while they are deployed
because of the added effort they
must commit to making a payment,
(d) more active duty
servicemembers having increased
interest to pay at the end of
their active duty period as a
result of making no, or few,
payments while they are
deployed, and (e) higher
likelihood of having a larger
amount of interest capitalized
and added to their principal at
the end of their active duty
when the forbearance status is
lifted.
68. Defendants' mandatory
forbearance policy should be
declared an illegal pre-
condition to receiving the
benefits of the SCRA, and
Defendants should be enjoined
from continuing said policy.
69. Defendant's policy of
compounding and/or capitalizing
interest on the obligations of
the Plaintiff and other
sevicemembers entitled to the
benefits of the SCRA is not
allowed by the SCRA.
70. Defendants' interest
compounding and/or
capitalization should be
declared illegal, and Defendants
should be enjoined from doing so
on those obligations protected
by the SCRA.
71. Defendants' practice of
capitalizing unpaid accrued
interest into the
servicemember's principal loan
balance when combined with the
practice of mandatory
forbearance is in violation of
the spirit and letter of the
SCRA and should be declared
illegal. Furthermore, Defendants
should be enjoined from engaging
in such illegal practice.
7. Plaintiff re-alleges all
other paragraphs of this
Complaint.
7. The Servicemembers Civil
Relief Act, U.S.C. App.
527(a)(1) provides that ``[a]n
obligation or liability bearing
interest at a rate in excess of
6 percent per year that is
incurred by a servicemember, or
the servicemember and the
servicemember's spouse jointly,
before the servicemember enters
military service shall not bear
interest at a rate in excess of
6 percent per year during the
period of military service.''
74. Ms. Olson's private student
loan is an ``obligation or
liability'' which qualifies for
an interest rate reduction under
the SCRA, 50 U.S.C. App.
527(a).
75. Plaintiff made a written
request for an interest rate
reduction to Defendants, and
enclosed a copy of the orders
calling her to active duty.
76. Despite written notice,
Defendants nonetheless charged
interest on Ms. Olson's student
loan in excess of 6 percent per
year, in violation of the SCRA.
77. Upon information and belief,
when Defendants do decrease the
interest rate to 6 percent
sometime after the military
service period has begun, the
amount of interest credited back
to the servicemember's account
(as required by the SCRA) is
incorrect, resulting in an
interest overcharge.
78. The capitalization of
interest raises the effective
interest rate on the
servicemember's loan.
79. When a servicemember
requests the 6 percent per year
cap per SCRA, Defendants place
the servicemember's loan into
mandatory forbearance and then
capitalize any unpaid interest
that is accrued during the
servicemember's military service
period. The mandatory
forbearance and resulting
capitalization of such interest
violates the spirit and letter
of the SCRA protections afforded
to the servicemembers of this
country.
80. Servicemembers, including
Ms. Olson, are damaged by the
capitalized interest resulting
from the mandatory forbearance,
as well as the interest
Defendants charge on that
capitalized interest for the
remainder of the life of the
loan.
81. Plaintiff re-alleges all
other paragraphs of this
Complaint.
82. Defendants' conduct alleged
in this Complaint results in an
unjust enrichment and gives rise
to a claim for money had and
received. Defendants have taken
undue advantage of Plaintiff and
the other members of the Class.
83. Defendants are indebted to
the Plaintiff and the Class in a
certain sum ``for money had and
received by the Defendant for
the use of the Plaintiff.''
84. Defendants have collected
sums of money from Plaintiff and
the Class members under such
circumstances that in equity and
good conscience it cannot
retain, which in justice and
fairness belongs to the
Plaintiff and the Class. The
excess interest above the amount
allowed by the SCRA retained by
Defendants is illegal and does
not belong to Defendants.
85. In an unjust enrichment
claim, the emphasis is on the
wrongdoer's enrichment, not the
victim's loss. In particular, a
person acting in conscious
disregard of the rights of
another should be required to
disgorge all illegal amounts
retained because disgorgement
both benefits the injured
parties and deters the
perpetrator from committing the
same unlawful actions again.
86. As a result of Defendants'
actions, described above, they
have unjustly enriched
themselves at the expense of
Plaintiff and the Class.
87. As a result of the
foregoing, Plaintiff and the
Class were deprived of money and
suffered the loss alleged above.
WHEREFORE, Plaintiff, on behalf
of herself and all others
similarly situated, respectfully
requests the following relief
from this Court:
1. Certify this case as a class
action on behalf of the proposed
Class as defined herein;
2. Appoint Plaintiff Ms.
Lyndsey M.D. Olson as class
representative;
3. Appoint the undersigned
counsel as counsel for the
Class;
4. Grant judgment on Count I in
favor of the Plaintiff and
Members of the Class declaring
Defendants' policy of mandatory
forbearance as a pre-condition
of obtaining the lower SCRA
interest is illegal, and enjoin
Defendants from continuing to
impose it as a mandatory policy.
5. Grant judgment on Count I in
favor of Plaintiff and Members
of the Class declaring illegal
Defendants' practice of
compounding interest on
obligations protected by the
SCRA and enjoin Defendants from
continuing such practices.
6. Grant judgment on Count I in
favor of Plaintiff and Members
of the Class declaring illegal
Defendants' practice of
capitalizing interest on
obligations protected by the
SCRA in combination with their
policy of mandatory forbearance,
and enjoin Defendants from
continuing such practices.
7. Grant judgment on Count I in
favor of Plaintiff and Members
of the Class and enjoin
Defendants from discontinuing
their automatic payment service
option when servicemembers
exercise their rights to SCRA
protections.
8. Grant judgment on Count I in
favor of Plaintiff and Members
of the Class and enjoin
Defendants from discontinuing
their mailed monthly statements
when servicemembers exercise
their rights to SCRA
protections.
9. Grant judgment against
Defendants on Count II in favor
of the Plaintiff and Members of
the Class finding that
Defendants violated the SCRA and
awarding damages in an amount to
be determined;
10. Grant judgment against
Defendants on Count II in favor
of the Plaintiff and Members of
the Class and recast and
recalculate Plaintiffs' loans as
if interest had not been
capitalized at the end of the
mandatory forbearance period.
11. Grant judgment against
Defendants on Count III for the
amount in which Defendants were
unjustly enriched by way of
their illegal actions;
12. Enter an injunction
prohibiting Defendants from
placing servicemembers' loans
into mandatory forbearance and
then capitalizing unpaid accrued
interest from the period of
military service.
13. Enter an injunction
prohibiting Defendants from
charging and collecting illegal
interest in the future;
14. Award the Class prejudgment
interest at the applicable rate;
15. Award the Class all direct
and consequential damages
allowed by law;
16. Award the Plaintiff Class
all appropriate equitable and
injunctive relief;
17. Award the Plaintiff Class
their reasonable costs and
attorney fees; and
18. Grant any other further
relief that the Court deems
appropriate.6621
Plaintiff and the Plaintiff
Class demand a jury trial in
this action for all claims so
triable.
2,L0,tp0,p8,8/
Respectfully Submitted,
Dated: January 11, 2011 Crowder Teske, P.L.L.P.
------------------------------------
William H. Crowder (MN # 0020102)
Vildan A. Teske (MN # 0241404)
Marisa C. Katz (MN # 0389709)
222 South Ninth Street, Suite 3210
Minneapolis, Minnesota 55402
Telephone: (612) 746-1558
Fax: (651) 846-5339
Richard J. Fuller (MN # 0032669)
Attorney at Law
4005 Fourth Street South, Suite 202
Minneapolis, Minnesota 55415
Telephone: (612) 294-2600
Fax: (612) 294-2640
Martin A. Carlson (MN # No. 0299650)
Law Offices of Martin A. Carlson, Ltd.
247 Third Ave. S.
Minneapolis, Minnesota 55415
Telephone: (612) 359-0400
Fax: (612) 341-0116
ATTORNEYS FOR PLAINTIFF LYNDSEY M.D. OLSON,
AND THE CLASS VERIFICATION
Lyndsey M.D. Olson being first duly sworn on oath, states that she
has read this Complaint,
t&&&&&&&
ters herein are true
and accurate, and to those matters pled upon information and belief,
they are accurate to the best of her information and belief.
------------------------------------
Lyndsey M.D. Olson
Signed and sworn to before me
this ___ day of ______, 2011.
--------------------------------
-
Notary Public
SCRA Protections Education
Question 4: Does the Department of Defense work with financial
institutions to educate them on the SCRA protections?
Question 4(a): If yes, how?
Answer: Yes, as noted below:
The Department of Defense (the Department) has no statutory or
regulatory responsibility for training the credit or banking industry
or any other entities on the SCRA. The Department has no enforcement
mechanisms in this area either. That responsibility lies with the
Department of Justice, Civil Rights Division.
Nevertheless, important informal ties are in place and significant
efforts are made to reach out to the business and legal communities to
inform them about the laws that impact servicemembers.
The Office of Legal Policy has also reached out to industry and
taught at seminars for the Association of Military Bankers and the
Association of Defense Credit Unions. These seminars have focused on
new developments in the SCRA and the Homeowner's Assistance Program.
Members of the Department of Defense's Financial Readiness organization
in the office of the Assistant Secretary of Defense for Military and
Community Policy also regularly participate in these same seminars.
The American Bankers Association has regularly invited the Director
of Legal Policy to participate in a live Webcast on the SCRA. This same
program has also featured presentations by a representative from
Military Community and Family Policy who have discussed military payday
lending restrictions and other programs impacting the financial
wellbeing of servicemembers.
It was the informal ties between the Department and the American
Bankers' Association that alerted the Department to the recent
litigation involving JPMorgan Chase and allowed the Department to
disseminate information about the lawsuit, including the JPMorgan Chase
hotline for servicemembers, even before the story broke on national
news.
Question 4(b): Have any of these financial institutions ever
included JPMorgan Chase?
Answer: JPMorgan Chase had one registered listener for a September
2007 Webcast that I presented through the American Bankers Association.
Rowles Situation
Question 5: What role did the Department of Defense play in the
Rowles situation?
Answer: The Department played no role in this private litigation,
and was not aware of it until January 13, 2011. The Department has,
however, been involved with passing along information through legal
assistance and financial counselor channels concerning the efforts of
JPMorgan Chase to establish a hotline number for its military
customers.
Foreclosure Statistics
Question 6: Does the Department of Defense have any numbers of the
families that face foreclosure issues?
Answer: The Department of Defense does not have access to the
numbers of servicemembers or their families facing foreclosure. However
some data suggests trends.
Despite what would seem to be aggravating factors of military life
such as frequent moves, mobilizations and deployments, and fluctuating
housing market conditions in areas where members might reside, recent
statistical and anecdotal evidence does not show an increase in
foreclosures or inability to make payments on primary residences:
Financial Information
Question 7: Is the Department of Defense open to simplifying
military orders or adding an extra page in easy to read language for
financial institutions?
Answer: Yes, the Department would be open to looking to see how
this might be done and to working with the Committee to explore
possible legislative authority that would simplify the process for
financial institutions.
The percentage of servicemembers responding to Department of
Defense Status of Forces Assessment surveys from 1999 to 2010 who
reported falling behind in their rent or mortgage in the past 12 months
has consistently ranged from 3 to 5 percent.
Military Services Personal Financial Managers have reported no
significant increase in requests for foreclosure assistance.
Military One Source reports that foreclosures are not in the top
five reasons for requesting financial counseling, although information
on ``home buying or renting/mortgages/refinancing'' is #5.
The Department's Personal Financial Counselors have reported
that less than 2 percent of servicemembers seeking direct support
requested help with foreclosure.
If indeed servicemembers are not suffering from foreclosure issues
as acutely as might be expected based on nationwide trends, this might
be explained in several ways. As of 2008, home ownership was at about
67 percent nationwide, but only 25-34 percent of servicemembers owned
homes. Thus homeownership across the military is about half that of the
general population.
Also, the Homeowners' Assistance Program (HAP) (42 USC 3374)
appropriated $555M in 2009 as part of the American Recovery and
Reinvestment Act to assist, among others, servicemembers relocating
under permanent change of station (PCS) orders dated September 30,
2010, or earlier. Another $300 was appropriated as part of the Fiscal
Year 2010 National Defense Authorization to supplement the HAP. As of
February 23, 2011, the program has assisted 4,825 claimants (the vast
majority being servicemembers with PCS orders) at a cost of $725M (some
of this money will flow back into HAP when the houses purchased by the
government are resold to third party buyers). Another 4,580 claims are
being evaluated for payment.
Committee on Veterans' Affairs
Washington, DC.
February 15, 2011
Elizabeth Warren
Assistant to the President and Special Advisor
to the Secretary of the Treasury
The Consumer Financial Protection Bureau
1500 Pennsylvania Ave., NW
Washington, DC 20220
Dear Elizabeth:
In reference to our Full Committee hearing entitled ``Allegations
Regarding the Servicemembers Civil Relief Act,'' that took place on
February 9, 2011, I would appreciate it if you could answer the
enclosed hearing questions by the close of business on April 1, 2011.
In an effort to reduce printing costs, the Committee on Veterans'
Affairs, in cooperation with the Joint Committee on Printing, is
implementing some formatting changes for materials for all full
Committee and Subcommittee hearings. Therefore, it would be appreciated
if you could provide your answers consecutively and single-spaced. In
addition, please restate the question in its entirety before the
answer.
Due to the delay in receiving mail, please provide your response to
Debbie Smith by fax at 202-225-2034. If you have any questions, please
call 202-225-9756.
Sincerely,
BOB FILNER
Ranking Democratic Member
JL:ds
__________
Committee on Veterans' Affairs
U.S. House of Representatives
Post-Hearing Questions for Holly Petraeus
From the Honorable Bob Filner
Allegations Regarding the Servicemembers Civil Relief Act
February 9, 2011
1. What actions will the Consumer Financial Protection Bureau take
when a servicemember makes a complaint about possible SCRA violations?
The CFPB will create a process to refer SCRA complaints to the
agencies that are authorized to enforce that law, which are the
Department of Justice Civil Rights Division and, if the entity that is
the subject of the complaint is a financial institution, the relevant
prudential regulator. The CFPB will also create a system to inform the
Department of Defense (DoD) of the complaint. Our policies for handling
and referring SCRA complaints will continue to evolve as we work with
other agencies to improve protections for servicemembers.
2. What are some of the initiatives the Consumer Financial
Protection Bureau has in place to provide financial education to
servicemembers?
The CFPB is still under construction and does not assume many of
its powers until July 21, 2011. At this time we are focused on hiring
staff and organizing the various divisions within the CFPB, one of
which will be Consumer Education and Engagement. The Office of
Servicemember Affairs (OSA) will be part of that division. At the
moment the OSA is engaging the military community, to hear their
thoughts on what the most effective financial education would be,
through a series of roundtables and meetings at various military
installations. We are also meeting with the DoD to learn what they
already have in place. We are authorized to enter into agreements with
the DoD and will work with them to be sure that they are reaching
troops at ``teachable moments'' with the best financial education
possible.
In addition, while we are working on building the Consumer
Education and Engagement division, we have posted links on our Web site
to some of the best consumer financial education resources, under Get
Help Now (www.consumerfinance .gov/get-help-now/).
3. When do you expect your agency to be fully functioning?
The CFPB will assume many of its powers on July 21, 2011. We are
doing everything we can--in a thoughtful, deliberate way--to ensure
that we are in a position to assume and exercise those powers in a
responsible manner and to execute a smooth transition and startup. Once
it is fully operational, the CFPB will be able to offer unique
resources that will be able to assist servicemembers--particularly in
regard to financial education--and it will work closely with DoD, DOJ,
and other agencies to ensure compliance with the SCRA.
4. What relationship do you expect to have with the Justice
Department regarding SCRA?
We intend to work closely with the Civil Rights Division at the
Department of Justice (DOJ). Although the DOJ enforces the statute, the
CFPB can help raise awareness of the law and its protections, both
within the military community and within the financial community. In
fact, we have already met with DOJ personnel to discuss their
procedures for enforcing the SCRA. As noted above, we also plan to
refer consumer complaints that allege a violation of the SCRA to the
DOJ as well as any appropriate prudential regulator.
5. What role should the Department of Defense play in SCRA
violations?
The DoD has an important role to play, as its legal assistance
attorneys (Judge Advocates or JAGs) are often the first to hear about
SCRA violations. JAGs can and should refer their clients to the DOJ and
the U.S. attorneys who often handle the cases locally. DoD can also
inform the OSA and DOJ about ways in which the law might be improved to
better serve the military population.
6. Do you believe that the [penalties for] SCRA violations should
be strengthened? If yes, how?
Whether the penalties or other remedies for SCRA violations should
be increased is a question for Congress and legal experts.
7. Do you believe that JPMorgan Chase is the only bank with SCRA
violations?
While there have been a number of financial companies subject to
lawsuits or public investigations regarding alleged SCRA violations, it
is not possible to anticipate the results of those proceedings.