[Senate Hearing 112-402]
[From the U.S. Government Publishing Office]
S. Hrg. 112-402
EMPOWERING AND PROTECTING SERVICEMEMBERS, VETERANS, AND THEIR FAMILIES
IN THE CONSUMER FINANCIAL MARKETPLACE
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING THE FINANCIAL PROTECTION OF SERVICEMEMBERS, VETERANS, AND
THEIR FAMILIES
__________
NOVEMBER 3, 2011
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Catherine Galicia, Senior Counsel
William Fields, Legislative Assistant
Andrew Olmem, Republican Chief Counsel
Beth Zorc, Republican Counsel
Dawn Ratliff, Chief Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
?
C O N T E N T S
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THURSDAY, NOVEMBER 3, 2011
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 2
Senator Tester............................................... 4
Senator Kirk................................................. 4
Senator Akaka................................................ 4
Senator Brown................................................ 5
Senator Hagan................................................ 5
Senator Bennet
Prepared statement....................................... 30
WITNESSES
Hollister K. Petraeus, Assistant Director, Office of
Servicemember Affairs, Consumer Financial Protection Bureau.... 6
Prepared statement........................................... 30
Bonnie Spain, Executive Director/Chief Executive Officer,
Rushmore Consumer Credit Resource Center....................... 8
Prepared statement........................................... 33
Admiral Charles S. (Steve) Abbot, U.S. Navy (Ret.), President,
Navy-Marine Corps Relief Society............................... 10
Prepared statement........................................... 39
Major General Kevin Bergner, U.S. Army (Ret.), Executive Vice
President and Chief Administrative Officer, United Services
Automobile Association......................................... 12
Prepared statement........................................... 40
Frank Pollack, President and Chief Executive Officer, Pentagon
Federal Credit Union........................................... 14
Prepared statement........................................... 44
(iii)
EMPOWERING AND PROTECTING SERVICEMEMBERS, VETERANS, AND THEIR FAMILIES
IN THE CONSUMER FINANCIAL MARKETPLACE
----------
THURSDAY, NOVEMBER 3, 2011
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:32 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I would like to call this
hearing to order.
Earlier this week, it was reported that 10 executives at
Fannie Mae and Freddie Mac were scheduled to receive bonuses
totaling more than $12 million. Given the current economic
times and continued challenges in the housing market, I want to
assure my colleagues that I plan to call Acting FHFA Director
Ed DeMarco before the Committee as soon as possible. The
details are still being worked out, and my staff will be in
touch with your staff.
As the conservator of Fannie Mae and Freddie Mac, FHFA
under Mr. DeMarco's leadership was responsible for approving
the compensation and maintaining adequate internal controls to
oversee the day-to-day operations at Fannie Mae and Freddie
Mac. This Committee, the Congress, and taxpayers need to be
confident that those controls are in place and that the
conservator is upholding its responsibilities.
As we approach Veterans Day and we prepare to welcome home
the last American troops from Iraq later this year, it is
important for us to understand the unique consumer financial
challenges members of the military, veterans, and their
families face. I take special interest in this matter, not only
as the father of a soldier, but also as a Senator from a State
that has over 72,000 veterans and more than 3,500 military
personnel at Ellsworth Air Force Base.
At today's hearing, we will examine how young enlisted
personnel, officers, veterans, and military families manage
their financial needs, whether through mainstream financial
products or products marketed to the military community. We
will also learn about the important role financial readiness
plays in mission readiness. And we will look at some of the
tools and protections available to help military consumers
navigate the complex consumer financial marketplace.
It is important to remember how military consumers differ
from the average consumer. This population is predominantly
young and enters the military with little financial education.
The military lifestyle requires frequent relocations, forcing
spouses to find new employment and families to sell their homes
if they have chosen to live off base. Their mobile lifestyle
also means they need banking services that are accessible
throughout the country and the world. When a servicemember
deploys, he or she must be certain family members have
appropriate access to handle bills and financial needs in their
absence.
It was with those needs in mind that Congress created the
Office of Servicemember Affairs at the Consumer Financial
Protection Bureau. I am pleased to welcome the first head of
that office, Assistant Director Holly Petraeus. As a military
daughter, wife, and mother, Mrs. Petraeus is very qualified to
lead this office, which will educate and empower members of the
military and their families to make the best financial
decisions for themselves. As importantly, once the CFPB has a
Director in place, the agency will finally be able to monitor
the nonbank financial institutions which are often at the heart
of the military community's financial hardships.
I would also like to welcome Bonnie Spain from my home
State of South Dakota. Bonnie runs the Rushmore Consumer Credit
Resource Center in Rapid City. Bonnie will explain some of the
work she does and assistance she provides to airmen and their
families stationed at Ellsworth and to members of the National
Guard.
Admiral Steve Abbot, thank you very much for your service
to our country and for being part of today's hearing. We look
forward to your testimony on the importance of financial
readiness and the work of the Navy-Marine Corps Relief Society.
We are also joined by Retired Major General Kevin Bergner
of USAA and Mr. Frank Pollack from the Pentagon Federal Credit
Union. General Bergner, thank you for your service to our
country.
Both USAA and the Pentagon Federal Credit Union serve a
large number of military consumers, and they do an outstanding
job of meeting that community's needs. Thanks to both of you
for being a part of today's hearing.
In closing, I would like to recognize our veterans and the
thousands of military personnel who continue to serve in harm's
way in defense of our country. I am grateful for their service.
Throughout my time in Congress, it has been my highest priority
to assist our servicemembers and veterans. As Chairman of the
Senate Military Construction and VA Appropriations Subcommittee
and the Senate Banking Committee, I continue to work to ensure
servicemembers and veterans have the resources they need and
protections they deserve. I look forward to today's testimony.
Now I turn to Ranking Member Shelby for his statement.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Mr. Chairman, thank you. Thank you for
calling this hearing.
First, I want to respond to your statement that you are
going to call up the head of the Federal Housing Finance
Agency--I think that is a good idea--regarding high salaries
and so forth, these salaries at Freddie and Fannie. But I would
also ask that you bring up the Treasury because the Federal
Housing Finance Agency has to consult with Treasury on this,
and we need them both here to have a proper and thorough
hearing. So I would hope you would do that at the same time.
And if you do that, I think we will have a good and thorough--
--
Chairman Johnson. I will take that into consideration.
Senator Shelby. Sure. I do not know how you can have a
hearing, a good hearing, without doing both. But, anyway, I
have got an opening statement here, Mr. Chairman, that I would
like to give.
The issue of consumer protection for military
servicemembers has long been a priority for this Committee.
During the 109th Congress, while I was Chairman of the
Committee, the Committee examined reports of predatory lending
practices aimed at members of the armed forces and their
families. This examination identified a series of problematic
tactics used to sell financial products to military personnel.
It also identified regulatory gaps and the lack of coordination
among financial regulators in handling military consumer
protection issues.
Based on the investigation by the Committee, the Committee
ultimately passed the Military Personnel Financial Service
Protection Act of 2006. This law protects members of the armed
forces from certain unscrupulous sales practices regarding the
sale of insurance and financial and investment products. It
also improved the ability of our regulators to enforce our
consumer protection laws with respect to the military.
Servicemembers and their families have unique needs with
respect to their use of financial services due to the special
circumstances caused by their military service. For example,
military personnel move regularly, which can make purchasing a
home a very risky endeavor. In addition, military personnel are
often very young and away from home for the first time. They
often have to make important financial decisions without being
able to consult with family or with trusted advisers.
Congress and the States have sought to address these
problems through a variety of legislative and regulatory
initiatives. As a result, at least nine Federal regulators and
State regulators in all 50 States currently have varying levels
of regulatory, supervisory, and enforcement powers in this
area. At the Federal level, this includes the Department of
Defense, the FTC, the Federal Reserve Board, the SEC, the OCC,
the FDIC, the Department of Education, the Department of
Justice, and most recently the Bureau for Consumer Financial
Protection.
Accordingly, I do not believe there is any shortage of
regulators. The real challenge is making sure that regulation
keeps up with changes in technology and changes in the
marketplace. In particular, I would like to hear today whether
new forms of lending to our military, such as online lending,
present any new difficulties for enforcing consumer protections
for military personnel. I would also like to know whether more
can be done to ensure that our military personnel and their
families receive the information they need to exercise all of
their rights available to them under Federal laws, such as the
Servicemembers Civil Relief Act, or SCRA.
Recently, several banks have settled claims under the
Servicemembers Civil Relief Act because they currently
foreclosed on members of the military while they were on active
duty. In my view, that is the sort of problem no military
member should have to worry about while they are fighting
overseas.
Mr. Chairman, while often there appears to be very little
upon which our respective sides can agree, there is complete
agreement, I think, on our joint commitment to supporting our
men and our women in uniform. I look forward to hearing from
you today. I believe this could be a constructive hearing.
Chairman Johnson. Thank you, Senator Shelby.
Are there any other Members who wish to make a brief
opening statement? Senator Tester.
STATEMENT OF SENATOR JON TESTER
Senator Tester. I will get to my opening statement when we
get into the questions. I want to thank you all for being here,
especially you, Holly, but specifically I want to thank you,
Mr. Chairman, for the hearing that you announced on the FHFA. I
think ultimately in the end we need to have the people here so
we can get to the bottom of why those bonuses were given out
and get some accountability. But I appreciate your and your
staff's scheduling of that hearing. I think it is critically
important.
Chairman Johnson. Anybody else?
STATEMENT OF SENATOR MARK KIRK
Senator Kirk. Mr. Chairman, I just want to also put in a
request. I think we are in a very dynamic situation with regard
to U.S. exposure to the European banking system. I think you
should probably call for an update on that because I am
concerned that we may see a fairly bleak prospect of the
current European Stabilization Facility meeting its goals. I am
concerned about reports that U.S. bank exposure now is
considerably more than it was, and activity and transparency
led by this Committee I think would help U.S. markets.
Senator Akaka. Mr. Chairman?
Chairman Johnson. Senator Akaka.
STATEMENT OF SENATOR DANIEL A. AKAKA
Senator Akaka. Thank you, Mr. Chairman. I want to add my
welcome to our witnesses today. I look forward to their
testimony on a matter that many of us in the Senate are deeply
concerned about: making sure that our servicemembers and
veterans are economically empowered to make the best financial
decisions possible. For years, my colleagues here on the
Banking Committee have heard me talk about financial literacy
and economic empowerment, and my colleagues on the Armed
Services and Veterans' Affairs Committees know that I am
concerned about the unique challenges confronting military
families and our veterans. Prolonged deployments and more
frequent relocations create unique banking and budgeting
challenges. Our veterans come home from war only to face the
highest unemployment rates in the Nation. And meanwhile our
Guard and Reserve forces are feeling the financial impact of
sustained active service. It is clear our men and women in
uniform now more than ever need to be educated in financial
matters both before and after they complete their service to
our country.
Chairman Johnson, thank you very much for convening this
hearing on such an important topic. For many of our military
families, financial education and protection is tied to their
readiness. And servicemembers, veterans, and their families
have sacrificed for us. Now it is our turn to do all we can to
help them return.
Thank you very much, Mr. Chairman.
Chairman Johnson. Thank you.
Senator Brown. Mr. Chairman?
Chairman Johnson. Senator Brown.
STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, and I appreciate all the panel
being here and, Mrs. Petraeus, thank you especially for the
work that you are doing and will be doing. I sit at Chairman
Akaka and Senator Tester on the Veterans' Affairs Committee,
and the stories we hear about financial predators, especially
around places like Wright-Patterson Air Force Base in Dayton,
the scams that appeal to a veteran's patriotism, the scam Web
sites, the mailings masked as though they are run by the
Government and look like they are coming from the Department of
Defense or the VA, deceptively they often come from a dot-com
operation that wants access to the veteran's money, personal
information, or both. It is shady automotive loans that target
servicemembers. It is packed illegal fees into VA mortgages.
You know all that. It is so important that we are on the side
here of people who are serving their country or who have served
their country, and I appreciate your focus on that.
Thank you.
Chairman Johnson. Senator Hagan.
STATEMENT OF SENATOR KAY HAGAN
Senator Hagan. Thank you, Mr. Chairman. I, too, just wanted
to tell you how much I appreciate you holding this hearing
today, especially as we are so close to Veterans Day. I think
it is very appropriate. In North Carolina, we pride ourselves
on being one of the most military-friendly States in the Nation
and having such a huge number of active duty and veterans
living in our State.
I am also very concerned about the high rate of
unemployment that returning veterans from Iraq and Afghanistan
have. It is about 11.7 percent. And we also know that many of
our military families are targets for predatory lenders and
other schemes. So I think given these disturbing trends, we
need to be sure that these returning heroes are not subject to
predatory practices and that they also possess the tools and
the skills that they need to make responsible financial
decisions.
So I thank the witnesses for being here today, and I look
forward to your testimony. Mrs. Petraeus joined me at Fort
Bragg recently to really talk about these issues, and I think
she can bring such an important light to this topic for so many
of the young people in our military today. So I thank you for
doing that.
Thank you, Mr. Chairman.
Chairman Johnson. Thank you all. I want to remind my
colleagues that the record will be open for the next 7 days for
opening statements and any other materials you would like to
submit.
Mrs. Petraeus, you may proceed with your testimony.
STATEMENT OF HOLLISTER K. PETRAEUS, ASSISTANT DIRECTOR, OFFICE
OF SERVICEMEMBER AFFAIRS, CONSUMER FINANCIAL PROTECTION BUREAU
Ms. Petraeus. Chairman Johnson, Ranking Member Shelby, and
distinguished Members of the Committee, thank you for the
opportunity to speak with you today about the Office of
Servicemember Affairs at the Consumer Financial Protection
Bureau, or as we call it, CFPB.
As a lifetime military family member, I have seen firsthand
the devastating impact financial scams and predatory lending
can have on our military families. I also spent 6 years as the
head of the Better Business Bureau's BBB Military Line program,
and that was an education for me about the consumer issues and
scams that impact the military. Unfortunately, there are still
too many young troops learning financial lessons through hard
experience and years of paying off expensive debt.
In January 2011, I was asked to join the CFPB and head up
the Office of Servicemember Affairs. The OSA's job is to
educate and empower servicemembers to make better-informed
decisions regarding consumer financial products and services,
to monitor their complaints about consumer financial products
and services and the responses to those complaints, and to
coordinate the efforts of Federal and State agencies to improve
consumer protection measures for military families.
In support of our mission, we have already signed a Joint
Statement of Principles with the Judge Advocate Generals of all
the services about how we will coordinate the exchange of
information between us concerning military consumer complaints
and the actions we take to protect servicemembers. We have also
set up a working agreement with the Department of Veterans
Affairs. We are now referring any military personnel or
veterans who call the CFPB's hotline claiming that they are in
danger of foreclosure directly to the VA Home Loan Program.
As for our educational mission, I think that it is
important to get out and hear from military families about the
issues that concern them the most. I have visited bases all
over the United States since I started my job. I have also met
with the National Guard in Oklahoma, Ohio, Illinois, and
Indiana.
So what are the issues that have come up? First, the
housing meltdown has hit military families hard when they
receive orders to move. Often they cannot sell their home for
enough to pay off the mortgage. They cannot rent it out for
enough to cover their mortgage payments. They are told they
cannot get a loan modification or short sale because they are
not yet delinquent. And they cannot refinance for a good rate
because it will no longer be considered their principal
residence once they leave.
We have heard of a number of cases where the servicemember
has opted to go alone to the new duty station, and that is
pretty tough when you consider that he or she may have just had
an overseas deployment and the family is now facing another
separation--this time for financial reasons.
We are starting to see some positive movement on this
issue. The Department of the Treasury has issued new military-
related guidance for its Home Affordable Foreclosure
Alternatives program, and Fannie Mae and Freddie Mac are
tweaking their own guidance as well.
Another big issue we have been hearing about concerns
military education benefits and for-profit colleges. There have
been cases of very aggressive marketing by for-profit colleges
to military personnel and their families of both educational
programs and expensive private student loans.
Another issue is car loans. Servicemembers are often sold
clunkers at inflated prices with high financing charges and,
when the original clunker breaks down, may be urged to roll the
existing debt into another loan for yet another clunker.
There is also yo-yo financing where servicemembers drive
away thinking they have qualified for financing only to be told
later that the financing fell through and they will have to pay
more. Although the CFPB will only have supervisory authority
over the auto dealers who write their own loans, the Federal
Trade Commission and the Federal Reserve are required to
coordinate with my office on military auto issues, and we have
started to do that.
Finally, a continuing issue for the military is the issue
of indebtedness. Many servicemembers do not make much money,
but it is a guaranteed paycheck and it is subject to
garnishment outside of the normal court process. That has led
to a lot of businesses looking to lend them money. It can be
the kiosk at the mall selling high-priced electronics at even
higher financing, the rent-to-own furniture store, or the
latest installment loans that manage to exist just outside the
Military Lending Act definition of payday loans.
When servicemembers get behind in their payments, their
debt is turned over to debt collectors. We are concerned about
potential violations of the Fair Debt Collection Practices Act.
We have heard reports of debt collectors calling
servicemembers' units 20 times a day, threatening them with the
Uniform Code of Military Justice and telling them that they
will get them busted in rank or have their security clearance
revoked if they do not pay up. They also may call the parents
and spouses of deployed servicemembers in an attempt to get
them to pay the debt. We have even heard of a debt collector
telling a widow that she had to use the money from her
husband's combat death gratuity to pay the debt immediately.
A big part of my job is to educate servicemembers about
their rights under existing consumer financial laws and to give
them the information they need to make wise financial
decisions, and I will continue to work with you and other
Federal and State agencies to help identify effective consumer
protection measures that will work on their behalf.
Thank you for the opportunity to testify before the
Committee.
Chairman Johnson. Thank you, Mrs. Petraeus.
Ms. Spain, you may proceed.
STATEMENT OF BONNIE SPAIN, EXECUTIVE DIRECTOR/CHIEF EXECUTIVE
OFFICER, RUSHMORE CONSUMER CREDIT RESOURCE CENTER
Ms. Spain. Chairman Johnson, Ranking Member Shelby,
Committee Members, thank you for the opportunity to be here
today to speak to you about what we see happening with the
military in our area.
Our organization has been serving Western South Dakota for
37 years, providing housing counseling, credit counseling, and
financial education programs. We also create national financial
education programs that have been used by 1.4 million consumers
across the Nation. Our agency serves military personnel at
Ellsworth Air Force Base. The Airmen and Family Readiness
Center invites us twice or three times a month to come out and
provide financial education programs. They also refer
individuals to us that are struggling with housing issues or if
they have more financial issues for our debt management
program, and on a rare occasion for someone to come in for pre-
filing counseling or post-filing debtor education.
Yes, the military do have housing issues that civilians do
not. When they get orders, they have to move. A civilian has
choices. They can choose not to move. They can choose when they
move. The military cannot. If they take their family with them
and they leave a home empty because it does not sell, it
creates financial stress. If they leave their family home, it
creates financial stress. It is a difficult time.
Agencies such as ours that provide housing counseling can
help military members and their families as they work through
these difficult times while they serve our country. We helped
one 21-year-old who was being discharged for medical
disability. He was told to short sell his house. He could not
find a Realtor that would list his house. The Realtors told him
they are not accepting short sells. It is too much work. You
have to get the lender to agree first. They came in and talked
to our Consumer Credit Counselor who was able to get the lender
to agree to the short sale and the Realtors are now listing the
house.
Another military family was retiring from the military and
he was having difficulty selling his home, so he came in and
contacted our Consumer Credit Counselor, certified, and she
helped work with the lender to get the short sale through.
Unfortunately, the lender refused to forgive the second
mortgage and the military member had promised to sign a second
note and repay $10,500.
Even though they struggle through these issues, there is
support for them. Military personnel are always under the
pressure to keep their finances and their credit good because
collections or bankruptcies can cost them their career, but
this leaves them vulnerable to lenders that charge high rates
of interest, and predatory lenders continue to target the
military.
One young man that came to the Airmen and Family Readiness
Center had five payday loans, all charging over 36 percent
interest. He received four loans online, one locally. He went
to base legal. Base legal sent them a letter. The predatory
lenders said these are open-ended transactions. They are not
really payday loans. We are not changing the interest rate. At
that point, the military member only has the choice of hiring
an attorney, which they cannot afford to do, and payday lenders
know that. Payday lenders also know that people do not ask
enough questions, and online, you can find different sites that
do not tell you where they are located, not in their
disclosures, not in their contact policy, not in their privacy
policies. They do not tell you what their rates of interest
are, but the very first question they ask the military member
is, what is your Social Security number?
We had one client that had gotten the payday loan but did
not realize the funds had come from Croatia. They finally had
to close their bank accounts in order to stop this company from
pulling money out.
Another issue that we see our military struggling with is
debt settlement. Debt settlement can often do more harm than
good because people do not understand how it works. One young
airwoman paid $1,500 to find nothing being done with her
creditors but for her to go farther delinquent. Another family
that was civilian paid $6,000 in fees to have $600 set aside to
settle their debts.
Our demographics are shifting and we are seeing people
across the board of all ages struggling with their finances and
with multiple issues. We had one young man that came to us
after he left the military that was filing for bankruptcy. He
said he had made every possible mistake he could. He got payday
loans while he was in the military. He went through a divorce
that caused additional problems. And then he trusted when he
went overseas a nice little old lady, he said, to pay his
bills, and she did not pay his bills. So when he finally got
out of the service and he was moving home, he rented a car. He
fell asleep, so his friend took the car, got in an accident,
and the insurance company sued him. So there he was, filing for
bankruptcy.
I can tell you unequivocally, after 25 years of working in
the credit counseling industry, that financial education is key
to helping people not be taken advantage of. It is important
that the information be relevant to their personal situation.
We also develop programs that are specific for Ellsworth and
Rapid City, and we took our United Way funding and provided
direct assistance to homeowners who were behind that needed a
forbearance or loan modification and often have to come up with
money. With $68,000, we helped 32 families save their homes.
Our financial education programs are used by bases across
the United States, including Ellsworth, Langley, Mountain Home,
Fairchild, Tinker, Sheppard, Shaw, Randolph, and the Virginia
Air National Guard, Florida National Guard, Tennessee National
Guard, and Virginia National Guard. Our programs have also
reached overseas. We had a Marine that asked us to send some of
our programs over to Afghanistan this year. In 2007, we
received a request from the Army to send some programs over to
Northern Iraq.
In wrapping up, I would like to recommend the following
actions. Close the loopholes that payday lenders are using to
charge military members over 36 percent interest. Require
online businesses to post their locations and their interest
rates. Strengthen regulation for the debt settlement companies
that target individuals and are abusive. Apply the same
standards for for-profit credit counseling agencies that
nonprofits have to adhere to. Continue to support financial
education for our military. And allow the bases to use the
funds to purchase materials that they know are good for their
agencies and their military.
Require homebuyer education for first-time homebuyers. It
is vital we help people seek homes to help revitalize our
troubled economy. And support housing counseling and homebuyer
education. Military families need the assistance of trained,
knowledgeable foreclosure specialists, individuals who can tell
them what to watch for in their areas when they are buying a
home.
In conclusion, on behalf of Rushmore Consumer Credit
Resource Center, and more importantly, the servicemen and women
that we see, thank you for the opportunity to testify today.
Chairman Johnson. Thank you, Ms. Spain.
Admiral Abbot, you may proceed.
STATEMENT OF ADMIRAL CHARLES S. (STEVE) ABBOT, U.S. NAVY
(RET.), PRESIDENT, NAVY-MARINE CORPS RELIEF SOCIETY
Admiral Abbot. Thank you, Mr. Chairman, Senator Shelby,
Senators. I appreciate the opportunity to be with you today to
discuss what our servicemembers are encountering in the
financial marketplace.
In 2010 at Navy-Marine Corps Relief Society, we saw 73,000
individual sailors and marines in our offices around the world,
and some of them more than once. That is 100,000 cases, or what
amounts to one-fifth, one out of every five sailors and
marines, 20 percent of the force, in a single year. So it is
still a tough financial environment out there, especially for
the junior troop.
The financial assistance that we provided in 2010 was the
greatest that we provided since the end of the cold war when
the military services, including the Navy and the Marine Corps,
were substantially larger than they are today.
I would like to say up front that there is very good news.
Senator Shelby referred to it, and it is the effect of the
Military Lending Act, which became effective in October 2007.
It has dramatically curtailed payday loans, and we are grateful
for the farsightedness and the effectiveness of that
legislation. To prove that point, I can say that our annual
assistance to those who have become stuck in the payday loan
trap has decreased from $1.4 million in 2006 to just $168,000
this year, and virtually all of that smaller amount went to
retirees who were not covered by the Military Lending Act. We
credit both the Military Lending Act and improved financial
management education and training for this welcome development.
But the Military Lending Act was implemented on a limited
scope. Financial institutions have found loopholes in the
regulations and new predatory lending practices have arisen
which continue to victimize our clients.
Before my visit this morning, I contacted all 51 of our
offices around the world to ask what practices they are seeing
that send their clients into the downward spiral of debt, and
so here are a few illustrations of the problems that are facing
young servicemembers.
In Fort Worth, Texas, we assisted a retired Navy E5 with
rent, food, and utilities because he had used his retirement
check to repay a payday loan. He had borrowed $950 at an annual
percentage rate of 277 percent and the finance charge was over
$216.
In the interest of time, I will skip over a couple of
others of these and ask that they be included in the record,
but I would like to focus on those that deal with the use of
overdraft charges.
At Camp Lejeune in North Carolina, we recently helped a
Marine Lance Corporal with food and utilities since his
paycheck had been entirely consumed--entirely consumed--by
overdraft charges and associated fees. And in Quantico,
Virginia, a Navy E2 who we saw 1 month after his 21st birthday,
with a wife and a child, had overdraft protection payments due
at every payday, and when seen by our office, the member had
six credit cards, one loan consolidation debt, and one personal
loan. The Society helped with a no interest loan for food, gas,
and diapers, and provided him some on-the-spot financial
counseling and sent him to other sources for in-depth
counseling.
A similar story in Corpus Christi, Texas, where we saw an
active duty E5 with a wife and two small children. They were in
a cycle of payments for overdrafts exacerbated by a high
interest Internet loan, and the family had gone into the
overdraft condition when they child they had required medical
care at a facility in another town, but the distance was not
far enough for TRICARE to cover the travel expenses. By the
time the couple sought assistance, they had suffered four back-
to-back paydays when $500 was taken by the bank to zero
overdraft funds and fees.
So here are the trends that my directors report. Banks and
credit unions on and near military bases continue to charge
exorbitant and multiple fees associated with overdraft
protection. With an overdraft protection plan, the bank agrees
to cover a transaction despite lack of funds in the account,
charges a fixed fee, and takes payment out of the next deposit
to the servicemember's account before other banking
transactions can take place. Common overdraft fees range from
$25 to $35 per transaction. I mentioned earlier that I had
polled all 51 of our offices. All but four of them listed this
overdraft protection penalty as the top of their list.
It has already been mentioned about online lending. It is
hard to monitor. It is predatory. They evade State regulations
by being offshore and they hide behind anonymous domain
registrations.
The financial industry is adjusting its practices. By
structuring loans for a longer payback period and making them
open-ended instead of closed-ended and for a larger amount,
banks and other lending institutions offer installment loans
that avoid the 36 percent annual percentage cap that was
instituted with the Military Lending Act and can legally charge
as much as 500 percent.
A few recommendations. First, we need to continue to
improve financial education and consumer awareness for these
technically savvy but not necessarily financially savvy men and
women in uniform.
Two, legislators and administrators should plug the
loopholes in the laws and regulations governing predatory
lending practices.
Three, the need for credit will not go away, even with
better education and better laws, so we should stimulate
additional responsible, low-cost alternatives to predatory loan
practices.
Fourth, we should encourage direct dialog between senior
military leaders and banking and credit union executives,
including at the local level.
Fifth, the protection of the Military Lending Act should be
extended to retirees, Reservists, Guard, and to veterans.
And sixth, banks and credit unions located on military
installations should be held to a higher standard of service,
offering military families, including military retirees, lower
fees and better protection from predatory lending practice.
They should also offer financial education to inexperienced
consumers before they commit to loan contracts and agreements.
Adopting better business practices would go a long way toward
ameliorating, if not fixing, the problems that these
servicemembers are experiencing. Some institutions are moving
in that direction and I applaud those steps.
I sincerely appreciate the opportunity to appear before the
Committee today.
Chairman Johnson. Thank you, Admiral Abbot.
General Bergner, you may proceed.
STATEMENT OF MAJOR GENERAL KEVIN BERGNER, U.S. ARMY (RET.),
EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER,
UNITED SERVICES AUTOMOBILE ASSOCIATION
General Bergner. Chairman Johnson, Ranking Member Shelby,
and Members of the Committee, thank you very much for your
leadership and for your commitment to protecting our
servicemembers and their families, and I want to thank you for
the opportunity to appear before this hearing and represent
USAA.
I grew up in a military family. My father served in Korea
and Vietnam. My brother served for 30 years, as did I, and I am
the proud father of a son who is currently a Captain and
recently returned from Iraq with the United States Army. So the
issues before the Committee are ones that are important to me
both personally and professionally and I appreciate the chance
to represent USAA in this discussion.
I had the privilege to serve as the Deputy Chief of Staff
for General David Petraeus in Baghdad, Iraq, in 2007 and 2008,
and then I got to know him well in 2005 when I served in Mosul,
Iraq, as well. And during that time, we were very honored to
live right down the street from one Holly Petraeus, who we
first came to see as a wonderful advocate for our soldiers and
our families and a wonderful friend to my wife, Carla,
throughout my deployment, and so I want to just take a moment
to say how much I am personally appreciative of her service,
her willingness to continue to serve and be an advocate for our
servicemembers and our families. Our Nation is so well served
with her.
I am also humbled to represent the 22,000 employees of USAA
today. We were founded in 1922 by 25 Army officers who found
themselves in the situation where the risk that they were
exposed to and the mobility associated with their careers
precluded them from finding insurance and security, and so they
banded together and formed an association that has now grown to
8 million members today. But the founding values, their sense
of service, and their commitment to one another endure and are
still at the center of USAA as an association of--a member-
based organization. And our purpose today continues to be a
very simple one: Help military families and facilitate their
financial security.
The USAA employees today are broadly recognized for their
commitment to customer service, and it manifests itself in how
our members feel about their association. About 98 percent of
our members will stay with this association. About 94 percent
of them say that they will stay for life, and we have about a
97 percent member satisfaction rate among those 8 million
members of the association.
Our employee commitment to those members is driven by one
simple fact. We have the very best customers in the world, our
members, and that is how we refer to them, as our members. And
they deserve the very best service and protection that any
financial services company could provide. In fact, we see their
financial security as our national security responsibility to
this Nation.
I want to just share one example of how that commitment
comes to life on a daily basis. So this is an example that took
place a few months ago, and it was an Army captain serving in
Iraq who called USAA because she was about to lose her home in
the States due to foreclosure. Her mortgage was not with USAA,
but she is a member of USAA. She spoke to a member service
representative whose name is Norma Renteria, and Norma
understood how important it was for that captain to be able to
get back to the important duties associated with her deployment
and the special circumstances surrounding that and realized
that we needed to find special circumstances to take care of
her. So Norma agreed and arranged for a short-term loan at a
competitive rate that would get this captain current with the
other lender and got her started on an application to refinance
her mortgage at a lower rate and kept her in her home, not with
USAA but a USAA member.
And Norma Renteria represents the commitment of our
association and the other 22,000 employees she serves with to
understand the military, understand the special circumstances,
and support them in those. About one in five of our employees
is actively serving in the military, has served, or is a
military spouse, so that is how we understand what it means to
serve, and how we go the extra mile for our members.
Some of the things that we do specifically unique to their
circumstance is we have a deployment kit specifically for those
that are deploying to help them get their finances organized.
Our insurance policies do not have a wartime exclusion. Our
checking accounts are truly free, and we refund the ATM fees
that other banks charge our members when they use them. Also in
2010, we adjusted the payment terms on about $1 billion in
credit and loan balances, enabling members to continue to meet
their obligations on 72,000 accounts to keep them financially
secure.
We appreciate and share the Committee's commitment to
supporting and empowering our servicemembers in the financial
services sector and we very much look forward to the discussion
today, and thank you for the opportunity to be here.
Chairman Johnson. Thank you, General Bergner.
Mr. Pollack, you may proceed.
STATEMENT OF FRANK POLLACK, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, PENTAGON FEDERAL CREDIT UNION
Mr. Pollack. Good morning, Mr. Chairman and distinguished
Members of the Committee. On behalf of the Board of Directors
of the Pentagon Federal Credit Union, I want to thank you for
the opportunity to testify today on these important issues that
affect those who are sacrificing so much to protect our Nation.
When we think about financial issues within the military
community, we believe that more can be done to provide
financial education and tools necessary for servicemembers to
better manage their money. Too many servicemembers are ill
prepared to protect themselves from those who would take
advantage of their lack of financial sophistication. We would
never send our troops into battle today, but we have not
similarly focused on their financial preparedness.
I would be remiss if I failed to recognize the laudatory
efforts of credit unions in general and the defense credit
unions in specific. Because defense credit unions are member-
owned, not-for-profit cooperatives, we can create unique
programs to meet the financial needs of military servicemembers
and I would like to share some of the programs that the
Pentagon Federal Credit Union has and provides to its
membership.
Recognizing the need to address the lack of financial
education and in conjunction with our PenFed Foundation, we
have established relationships with partners like Money
University and MathMastery to develop financial education
materials that will assist in teaching military personnel how
to properly manage their money. We provide these services free
of charge to members between the ages of 17 and 25. While all
of our materials and legal documents are already in plain
English, we do believe that the lack of clear and easy to use
disclosures prevent members from comparing and thus selecting
the best financial options available to them.
As a result, in collaboration with the Pew Trust, we have
introduced a checking account disclosure that is much more
transparent and enables members to easily understand the fees
and costs associated with their account. We hope to roll out
similarly easy to use disclosures for all of our savings and
loan products by the end of the first quarter of 2012. We
believe that the disclosure format created by Pew Trust
represents a better way forward for all financial institutions
and we are proud to be a leader in rolling this out.
The fact is that when a servicemember is fighting in
Afghanistan or Iraq, they should not have to worry about fees
and charges on their accounts, even when they do make a
mistake. In 2009, we introduced a program for active duty
servicemembers called Warriors Advantage, which waives checking
account fees associated with insufficient funds for up to two
occurrences in any rolling 3-month period. We have also waived
ATM surcharge fees at all of our ATMs on military installations
and we provide free bill payer services to all of our members,
as well.
In a recent survey of fees by the Military Times newspaper,
we had the lowest average fees of any financial institution
serving on military bases in the United States. Importantly, we
intend to continue driving our fees lower as we look to the
future.
Our efforts extend to borrowers as well as savers. Because
we do not price based on risk, every qualified member receives
the same price for a loan. Our present rate for a used car
loan, which is a staple in the military community, is 2.49
percent APR. We provide a credit card offering that has no
annual fees, no late charges, no foreign transaction fees, and
the annual percentage rate is a market-leading 7.49 percent. In
short, we are trying to do everything we can to ensure that the
military member has low-cost credit available to them for any
need they might have.
We do know that military members can and do get into
trouble with debt. When they do, some turn to payday lenders
for assistance. For the past 8 years, we have provided an
alternative to our members in such circumstances. Through our
ARK loan, we provide up to a $500 emergency loan for a flat fee
of $5. If a rollover is requested, the member is required to go
to consumer credit counseling free of charge to develop a plan
to get them out of trouble. We provide up to five rollovers
free of charge for any additional rollovers that might be
necessary. Through our Foundation, we cover the losses for 12
other defense credit unions who participate in our ARK loan
program.
And our Foundation's DreamMaker program provides matching
grants of up to $5,000 for active duty servicemembers seeking
to purchase their first home. Because we have never done
subprime lending, our delinquency and losses have remained low.
As a result, our collection efforts are focused on helping
members in trouble get out of trouble rather than harassing
them.
We are but one of many defense credit unions that view our
reason for being as a labor of love for those who defend our
country. The men and women who have given so freely of
themselves so that we may be free at home deserve nothing less.
We appreciate the opportunity to testify here today and we
thank all of you for taking your precious time on an issue of
real importance to the long-term security of our Nation. Thank
you.
Chairman Johnson. Thank you, Mr. Pollack. Thank you very
much for your testimony.
As we begin questions, I will ask the Clerk to put 5
minutes on the clock for each member.
Ms. Petraeus, many of the abuses that have been raised in
testimony today are committed by nonbank financial
institutions. Do you think that the CFPB would be better able
to protect servicemembers and their families from abusive debt
collectors, for-profit companies, and unscrupulous installment
lenders if it had a director in place?
Ms. Petraeus. Yes, Chairman, I do. We have an array of
things that we can do to help servicemembers. One is certainly
education, which we are already working on. Another would be
enforcement. But the third leg, if you will, is supervision,
and without a director, we cannot do the supervision of the
nonbank entities such as payday lenders, debt collectors,
private student lenders, the ones that you mentioned.
Chairman Johnson. Ms. Spain, would you please describe for
the Committee some of the regular financial literacy training
you and your partners conduct for Ellsworth and the South
Dakota National Guard.
Ms. Spain. We provide a program called ``Money in Motion,''
and it is a 2-hour basic financial education program. What it
teaches--what people understand is they know they should
budget. They do not know why. They know they should care about
their credit score. They do not know why. And so what our
programs do is explain the ``why.'' For example, you budget so
that you can reach your goals and cover your bills. You want to
know what your credit score is because it affects the interest
rate you are going to pay, and the interest rate you are going
to pay determines what your car payment is and how much money
you are going to have left for other things.
In addition, we provide a 6-hour credit education program
called ``Credit When Credit Is Due.'' And then the third
program that we provide at Ellsworth is called ``Make Your
Move: A Guide to Home Ownership.'' It is a 6-hour homebuying
education program that shows students the current forms as well
as the information they need to know in any community, what
they need to ask.
And those are the programs that we are currently providing.
We also will provide programs upon request from Ellsworth
Airmen and Family Readiness Center.
Chairman Johnson. Admiral Abbot, General Bergner, and Mr.
Pollack, as we have heard, the military lifestyle is different
and creates unique financial challenges for servicemembers and
their families, especially during deployment. What tools are
available to military consumers to make these transitions
smoother? Admiral.
Admiral Abbot. The military lifestyle is a peripatetic one
that, as Mrs. Petraeus has described, in recent years has
involves so many rotations into theater and back, that creates
the difficulties for the families that are staying back at the
installation and the dilemma that is posed them whether they
are going to, in fact, remain at the installation or, in fact,
move to some other location where they might have other more
family oriented support, particularly difficult for the junior
members.
So we, for instance, at the Navy Marine Corps Relief
Society will see clients, individuals who have come in to us to
ask for assistance in dealing with some of those circumstances
where the military member is deployed over a substantial period
of time. The spouse is back alone at the installation and, in
fact, may choose to move to a location where she has or he has
more family.
Chairman Johnson. General Bergner.
General Bergner. Mr. Chairman, one of the biggest
challenges our servicemembers face today is the mobility
challenge. We send them hither and yon. We send them all over
the world.
So, their ability to maintain their credit and at the same
time have access to the financial services that they so deserve
is one of the biggest challenges they face.
So, one of the tools that we have recently deployed is
something called Auto Circle. You can access it on your mobile
device and we have arranged discounts with car manufacturers to
provide those to our servicemembers, and on average, they can
save about $4,500 on the purchase of an automobile by using
that.
But most importantly, it puts the facts in their hands. So,
no matter where they are, where the services take them, they
have the facts available to them to make a decision that is the
right decision for them, that is not going to be a car lender
or car dealer outside their gate.
We do the same thing with home purchases and home
mortgages, allowing them to access them online, fill out the
application online, and pursue that mortgage online.
So, being relative to their mobility is one of the key
things that we commit to with our members.
Chairman Johnson. Mr. Pollack.
Mr. Pollack. Credit unions do a lot and the Pentagon does
as well. Similar to the USAA, we have a deployment Kit. Many
credit unions serve at overseas bases, and very, very few of
those locations make any money. We do it at a loss.
The issues are, as the general has pointed out, that when
you are moving that frequently, your spouse and family may be
at home and you may be somewhere a long way away.
So, we too provide online services 24 hours a day, 7 days a
week. A member who is stationed overseas can call us on DSN. We
reimburse the Government for that so that they can reach us 24
hours a day, 7 days a week if there is an issue.
In our case, we are live, real-time in our computer system
24 hours a day, 7 days a week around the globe so that if a
military person deposits money in Okinawa, and their spouse
needs that money in Washington, DC, the money is available at
the same time it is deposited.
Those kinds of services enable a military person to be far
away from their family and able to take care of their family at
the same time.
Chairman Johnson. Thank you. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Mrs. Petraeus, in your testimony you discussed that you
joined the bureau in January of this year to start an entirely
new office, the Office of Service Member Affairs.
How many people have you hired to work in your office? How
many total staff members do you hope to hire, and what is your
budget? And last, are you getting the resources that you need
here?
Ms. Petraeus. Thank you for the question, Ranking Member
Shelby.
I have six employees working for me. So, we are a small but
mighty office I hope. I do not expect to have it get much
larger than that, at least not for the moment.
Of course, everybody has a wish list, and there is nobody
that, if you ask, can you use more employees they would say no.
And I do have a wish list of a few more to extend our reach,
but, you know, there are other divisions within the CFPB that
we are able to tap for their expertise as well. So, we do not
have to do everything ourselves.
As for our budget, that is still being hammered out, and
thankfully for me my deputy is doing the numbers so I am a
little bit removed from that so I cannot give you accurate
information on that right now.
Senator Shelby. Do you think you are getting the resources
overall that you need thus far? I know you are just getting
started in a way.
Ms. Petraeus. Yes, the resources are there, but again, I
think it is a frustration right now to not be able to do
everything that people expected us to do.
When I first began, I got letters saying we are so excited
that there is an agency now, that you, Ms. Petraeus, will be
able to do something about these people that prey on the
military. So, I am very eager for the day when our nonbank
supervision team can, if I can use an analogy, stop circling
the airfield and get permission to land and start their work.
Senator Shelby. Mrs. Petraeus, as you well know, in 2006
Congress passed the Military Lending Act, and this gave the
Department of Defense the authority to promulgate regulations
to address unscrupulous lending practices involving the
military.
After the Dodd-Frank legislation was passed, the Department
of Defense still continues to have the sole authority to write
regulations implementing that particular Act.
What is your view of the effectiveness of the Act in
stopping unscrupulous lending?
Ms. Petraeus. Well, I think we heard from Admiral Abbot.
Senator Shelby. Absolutely.
Ms. Petraeus. That there has been success on the classic
definition of a payday loan. I think the problem is there are a
lot of predatory products out there that have now managed to
write themselves a definition that puts them outside of the
implementation.
I went online yesterday and I searched the search term
military loans, and I got 9,980,000 hits, and the top two
search terms that came up were military loans bad credit, which
was almost 2,000,000, and military loans no credit check also 2
million.
So, there are obviously a ton of people out there who are
managing to exist outside of the protections of the Military
Lending Act, and it is a problem.
Senator Shelby. Ms. Spain, should the VA require first-time
home buyers to receive financial education of some sort before
they can obtain a VA insured loan? In other words, counseling,
serious counseling as to the implications and obligations of a
loan like this?
Ms. Spain. My opinion would be yes, and the reason that I
say that is buying a home is a complicated process; and unless
you are a realtor or mortgage lender, you cannot possibly know
everything that you need to know in buying a home.
Senator Shelby. And it is a big buy for most people, is it
not?
Ms. Spain. It is the most important, largest purchase they
will ever make.
Senator Shelby. Admiral Abbot, in your testimony, among
other things, you stated that the Military Lending Act, and I
will your words, ``has dramatically curtailed payday loans to
active duty servicemembers.'' We are glad to hear that.
You also point out, however, that some financial
institutions have found loopholes in the regulations that the
Department of Defense promulgated in 2007. They always do this
and you have to come back.
Have you contacted the Department of Defense regarding
these issues, and if so, what has been their response to close
some of those loopholes?
Admiral Abbot. Yes, Senator, we did, in fact, in the year
immediately after the Act was passed and then implemented have
a period where we examined its effect and we reported the
results that we had seen to the Department of Defense.
It had already begun to be clear that it was having a
positive effect and also the same phenomenon you describe of
the workarounds were coming.
The narrowness with which we saw the Act implemented gave
us concerns at the beginning and now in the light of 4 years of
experience, it continues to cause us concern, and that is the
direction that the financial industry has gone in using the
particular limited application of closed end loans in certain
circumstances to, in fact, offer new products that were
essentially new payday loans.
Senator Shelby. Regarding online lending and the growth
there, are there additional steps that the DOD can take to
ensure that it adequately covers online lending, because people
will be resourceful to get around anything?
Admiral Abbot. You know, Senator, I believe that education
may be the single most important weapon in that particular
fight.
Senator Shelby. You agree with Ms. Spain?
Admiral Abbot. Yes.
Senator Shelby. OK. General Bergner, USAA, I know your
organization is unique. What are some of the ways briefly that
USAA is uniquely qualified to serve the military--I know that
is your focus--and their families?
General Bergner. Senator, I think it starts with the best
customers in the world, and we recognize that. It is then
followed by the best employees in the world to do that.
The combination of those two things generates a level of
commitment that really is at the center of how we can truly put
their needs first.
A couple of ways that it manifests itself, we look at every
person out there from a member needs perspective, and so that
is where we start and finish.
Last year we saved those members about $165 million through
refinancing on mortgages and on savings in their auto purchases
specifically. That is a tremendous amount of savings for
servicemembers who are exposed to the kind of threats that Ms.
Petraeus is talking about.
So, it is a member-focused effort. SCRA is another example.
SCRA caps 6 percent. At USAA we cap the exposure at 4 percent.
So, it is going that extra mile for servicemembers because
it is the right thing to do.
Thank you, sir.
Senator Shelby. Mr. Pollack, briefly, it is my
understanding there are at least nine Federal regulators and
regulators in all 50 States, all of our States, with the
authority to regulate, supervise, and possibly enforce lending
to servicemembers by both banks and nonbank lenders.
In your view, have any of these regulators failed to
properly oversee lending to military personnel, and if so,
which ones, because we need to point this out because the
regulators need to do their jobs?
Mr. Pollack. I am not sure I could actually answer your
question but I do believe it is an issue of education. If we
properly educated our young people in America, they would not
make some of the mistakes that they make today.
Senator Shelby. Do you all agree that the worst thing a
lender can do is overload anyone but especially a young
servicemember, 19, 20, 21 years of age with debt they cannot
carry? It makes no sense financially and it is exploiting the
servicemember, is it not?
Mr. Pollack. Yes, sir, it is. And I have been doing this
for 33 years and for 33 years we have had that exact problem
that a young person enters the service and the first thing they
do is buy a car that they cannot afford. The second thing they
do is take on more insurance than they can afford; and before
they ever get going, they are in trouble.
Senator Shelby. Thank you, Mr. Chairman.
Chairman Johnson. Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman, and thank
you for your wonderful testimony.
First, let me make three points. I want to commend, Mr.
Pollack, Pentagon Federal for adopting a Pew disclosure form.
That should be the standard for financial institutions
throughout the country. So, thank you.
Second, I think one of the most satisfying aspects of the
Dodd-Frank Act for me was working with Senator Brown to create
the Office of Servicemembers Affairs and particularly delighted
that Holly Petraeus is leading it. So, thank you for what you
are doing.
Third, in the mid-1970s, I commanded a paratrooper company;
and before that, I was the executive officer of the company
which meant every day I got letters from creditors and I got
young paratroopers telling me how they bought a $25,000 truck
on a $17,000 a year income.
But what I have heard today is, I think, even more
outrageous than I recollect in terms of what is being done to
military personnel, particularly now in a time of war.
So, whatever we have done, it is not enough, and we have
got to do more. Let me start with that premise.
But let me focus in on those particular issues alluded to
in Admiral Abbot's testimony. Thank you, by the way, sir, for
your selfless service to the Mutual Aid Association, to the
Marines and Sailors, and to your colleagues in the Army and the
Air Force.
But we have facilities that operate on bases, and the
expectation, I think, is that they are on a military base from
the individual servicemembers is that they are sort of the gold
edition because they have the stamp of approval. They are
sitting there.
I know they operate under operating agreements. So, the
question I want to address to Ms. Petraeus and Ms. Spain and
the admiral is, are those operating agreements sufficient? Are
they being enforced?
And I will just say there are some indications in an Army
Times story that some of these facilities are charging far in
excess of fees for missed payments or failure to pay on time on
time, et cetera, than is normal.
So, Ms. Petraeus.
Ms. Petraeus. I will say, as you mentioned, they do have a
contract to operate on those installations and they are
expected to do certain things. Part of that contract is to
provide financial education.
Certainly, there should also be transparency in the fees
that they are charging. When that contract comes up for review,
that is an opportunity for these services to decide if they are
treating their customers right.
I will say that we are taking a look at the issue of what
are these special products that financial institutions are
providing for servicemembers. We put a Federal Register notice
in about a month and a half ago asking for input from across
the field saying let us know what you are doing, and we are
going to have a 1-day forum next month where we discuss both
the issues and then some of the things that are being done that
are on the positive side.
Hopefully, that will serve to kind of put the word out
about what is being done that is commendable and what are the
issues that need to be addressed, and we look forward to some
cross-pollination, if you will. I hope they will look at that
and go back and say, why can't our institution do this?
So, I am pleased about that.
Senator Reed. Ms. Spain, your comments.
Ms. Spain. There is a credit union that operates on
Ellsworth Air Force Base, and they support financial education
through grants that allow us to go to the base to provide the
education. The military members and the family readiness center
have not had any complaints regarding that particular credit
union.
Senator Reed. Thank you. Admiral Abbot, you can elaborate
on your comments.
Admiral Abbot. Senator, I know that our servicemembers and
our clients at the Navy Marine Corps Relief Society are
grateful for the services that they do get from the finance
industry on base. That is a great convenience and we are
grateful for it.
I do agree that the renegotiation of the periodic contract
is a spot at which there ought to be a frank discussion about
practices and that the local leadership should be empowered to
discuss those issues with the bank and credit union leadership.
We have heard today about some commendable best practices.
I personally believe there is an opportunity for a discourse
consolidation of those in a way that would benefit all of the
military installations that have those facilities.
Senator Reed. Thank you. My time is about expired. General
Bergner, I do not want to upset your premise that you have good
customers because I have been a customer for 40 years so
forgive me.
Back in 1971 I insured a very dashing Triumph with USAA, a
Triumph sports car. The years have passed and now I am ensuring
a 1991 Ford Escort. That is what happens as you grow older.
So, thank you for your service and my regards again to
General Moellering. Thank you all.
Chairman Johnson. Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
Ms. Petraeus, our guard and reserve forces have been called
up to fight alongside their active duty counterparts at a
higher ops tempo to ensure our Nation's safety.
What do you see as differences in the consumer protection
needs for families of our reserve component when they are on
active duty versus when they are in reserve status?
Ms. Petraeus. I have had the opportunity, as I mentioned,
to talk with a number of National Guard officers and enlisted
and their families on my trips out to the States. In fact, I
try to do that when I go out because their issues are a bit
different.
For a great amount of their time, the families especially
consider themselves really to be civilian families, and some of
the challenges preparing them for that change of circumstance
is when suddenly they become a military family and they have
their guardsman or reservist deployed.
They do not have the installations that the active duty
force has with all the wonderful offices that they can walk
into and get information. So, a great deal of it really has to
be delivered virtually through the Web.
I think they have come a long way. There are some great
initiatives now. Yellow Ribbon programs that do provide
information before they deploy and then also circle back around
after they come back.
But delivery of information is certainly a challenge for
them. Again, just making the families really aware of what is
there for them in the way of benefits. I will add, the economy
is, of course, a challenge for those families as well.
Employment is a big issue both for them when they are not on
active duty and also for their family members.
Senator Akaka. Thank you.
Ms. Spain, on average, military members arrive at their
initial training assignments with $10,000 in debt. This means
that they may already be behind before they even consider how
to manage their finances.
In your experience, does this initial debt influence their
reliance on high interest loans to meet their short-term needs?
Ms. Spain. When they come in and have debt, it does affect
them because they become targets, because they know they have
to make those payments. If they have anything go wrong, if the
car breaks down or whatever happens, they become more
vulnerable, and that is why they fall prey to lenders that are
charging the exorbitant fees. So, it does make a difference.
At Ellsworth we are allowed to come in and talk to the
first-termers which makes a huge difference and provide them
the education so that they know that they have options and to
ask questions very carefully and to know that there are other
programs and assistance available.
Senator Akaka. Thank you. Ms. Petraeus, I want to
congratulate you and wish you the best as you focus on the
important topic of financial education and consumer protection
for military families.
If there was one thing Congress could do to help CFPB
better protect servicemembers and their families, what do you
think that would be?
Ms. Petraeus. Confirm a director for us so we can use the
full array of what is there. I agree education is vitally
important but we need to be able to also exercise supervision,
to go in and take a look at the practices of some of the
nonbank lenders that are out there.
I actually heard a quote from a CEO of a Federal credit
union in Ohio. The quote was, ``We have a branch of ours near a
pawn shop and a payday lender and the only one that is
regulated is us.''
So, we need a fair playing field and to do that we have to
be able to go in and supervise and look at these folks, and
then, as needed, exercise the enforcement capability as well.
Senator Akaka. Thank you.
Ms. Petraeus, as operations come to a close in Iraq, we
will begin to see end strength numbers decrease and veterans
numbers increase.
What are you doing now to partner with agencies, such as
the VA, to identify the financial needs or vulnerabilities of
those transitioning to veteran status? How are the needs of
these wounded in action different?
I was glad in your statement you did mention you are
working closely with VA.
Ms. Petraeus. We are and we have talked to them both, as I
said, about the distressed homeowners that may come to us that
we might be able to help.
We have also talked to them on the issue of education
benefits because we will have a lot of veterans getting out
looking to use their G.I. Bill which is a wonderful benefit,
and we want to be sure that they use it for college programs
that provide them the best bang for your buck, if you will.
Unfortunately, there is very heavy marketing right now
because military education benefits do not count in the 90
percent for for-profit colleges. They can only get 90 percent
from Title IV education funds. They have to get 10 percent of
their funding elsewhere, and the military benefits are part of
that elsewhere, that 10 percent. So, they are heavily marketed
to.
We have been talking to them again hopefully to make it
more transparent when you look at a college, what is its track
record, what is the default rate on loans for its graduates,
what is its accreditation.
And our Office of Students has just put out a ``know before
you owe'' kind of financial worksheet that I think is a good
first step.
I think we all want to see our veterans come out, find
gainful employment, and become productive members of society.
We have also worked with the Department of Defense, Office of
Transition on that as well.
Senator Akaka. Thank you very much. Thank you Mr. Chairman.
Chairman Johnson. Senator Tester.
Senator Tester. Thank you, Mr. Chairman.
I had a question that I wanted to dovetail with the Ranking
Member's question. I think Senator Akaka may have gotten the
answer to it but I just want to be very clear.
The reason that the nonbank supervision team is still
circling, to use your words, and has not received permission to
land, in other words, the reason we cannot regulate the nonbank
financial folks that I think just about everybody on this panel
referred to as being somewhat of a problem as regards to our
military folks is because we do not have a director of the
CFPB, is that correct?
Ms. Petraeus. That is correct.
Senator Tester. Thank you.
I want us to go back on what you just finished up with, and
that is for-profit schools. You brought the attention to us of
some of the unethical recruitment and marketing practice of the
bad actors in this industry, and they are not all bad actors
but some of them are.
What are you doing about it? Is it an education situation?
How are we reaching out to the military personnel and are we
being successful in that?
Ms. Petraeus. I think it is a work in progress right now. I
think a lot of it really just has to be education where
servicemembers know to ask the right questions.
There are kind of two competing priorities in a way when a
servicemember is on active duty and has what is called tuition
assistance benefits. They may be looking for college credits
for promotion. So they want something they can get quickly,
easily if you will, possibly online. Seventy percent of those
courses are delivered online.
That may not be the best college credits for them when they
get out and want to apply that college to a job.
So, right now it is mostly education. Our jurisdiction, if
you will, is limited to the private student lender side of the
market. But I have a broad mandate to work on consumer
protection measures with Federal and State agencies, and I will
continue to do that especially on this issue.
Senator Tester. We appreciate that work. I want to talk
about foreclosures for a second. And this is a question for you
to Major General. Right now, the servicemembers are protected
under the Servicemembers Civil Relief Act when it comes to
foreclosures, and correct me if I am wrong on that.
Can you tell me what is the mechanism for mortgage
servicers to determine if there is a deployment status of a
servicemember and how is that handled?
What I am trying to get at is it is my understanding that
there are some servicers that are starting foreclosure before,
while the servicemember is employed. I do not believe that is
illegal under the law. Correct me if I am wrong. What is being
done about that?
I will start with you, Holly.
Ms. Petraeus. First, I have to fess up, I am not a lawyer.
Senator Tester. Neither am I.
Ms. Petraeus. I am not going to give you binding legal
advice here. But when it is a question of foreclosure, it is
not the obligation of the servicemember to tell their mortgage
holder that they are going on active duty, unlike the interest
rate reduction provision where you do have to tell them.
For protection from nonjudicial foreclosure, it is on the
lender to determine if you are on active duty, and they can do
that by going to the Defense manpower data system and looking
that up.
You are right. Judging by the recent announcements by the
Department of Justice of some large-scale settlements,
obviously there are servicers who are not doing that before
they foreclose.
Senator Tester. Major General, could you just address that
from your perspective?
General Bergner. Senator, I think I go back to a reference
I made in my opening statement about Norma Renteria. She is
probably the best example I could give you of our commitment
and the way that it plays out on a daily basis.
So, Norma Renteria benefited from the training necessary
for a member service representative to understand what the SCRA
requirements are and to ensure that we operate and are true to
those.
Remember, in my recollection, this was not a loan that we
had even made.
Senator Tester. Right. I guess the question I have got is
that we have heard a lot about mortgage servicers. It has not
necessarily been good in a lot of cases.
General Bergner. Yes, sir.
Senator Tester. Do we have to ramp up the penalty on them?
I mean, I am not big into this stick; but by the same token,
and you know this better than anybody and tell me if I am
wrong. If you have a servicemember in theater in very stressful
conditions, the last thing you want is to have the kid, is to
have their head back at home thinking about a house that is
being foreclosed on.
General Bergner. Exactly.
Senator Tester. So, what do we do about this?
General Bergner. Senator, I think it starts with a sense of
ownership and it starts with a sense of ownership and
obligation to those servicemembers and that is what is at the
center of our commitments.
Even when the loan is not with our financial institution,
we will work with that servicemember to protect them from
foreclosure and do everything humanly possible to keep them in
their home, and not to mention the law requires us to do so for
those who are deployed.
Senator Tester. I appreciate you and I appreciate your
company. Unfortunately, there are a lot of other folks out
there that do not share the same commitment, and I do not
appreciate them near as much as I do you.
I want to thank you guys all for your testimony. I
appreciate the work you do and good luck.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. Thank you all
for your testimony.
I want to pick up where Senator Tester left off. As the
Housing Subcommittee Chair, we have taken a particular interest
in stopping foreclosures on military families. At one of the
hearings I chaired, we invited Dick Harpootlian to testify, who
is an attorney who represents military families who were
illegally foreclosed upon by some of the largest banks in
violation of the Servicemembers Civil Relief Act. And it seemed
to me from his testimony and other sources that the act is
either not well understood--on the benign side we will say
that--or simply not followed and needs better enforcement. For
example, Bank of America, Morgan Stanley, and JPMorgan Chase
collectively agreed to pay $80 million to hundreds of military
families whom they illegally foreclosed on.
So, Mrs. Petraeus, my question is: What can the CFPB do to
help the problem of servicemembers and their families being
threatened with foreclosure and high interest rates when they
are on active duty?
Ms. Petraeus. I have certainly had the opportunity to talk
about this issue, and I did hear Mr. Harpootlian testify over
on the House side along with the young captain who had been
impacted by being foreclosed on while he was--or the threats of
it while he was deployed.
I should first point out that is a law--the Servicemembers
Civil Relief Act is not a law that the CFPB will enforce. That
does remain with the Justice Department Civil Rights Division,
and it is partly because, as you said, it is a very complicated
law. There are a lot of pieces to it.
But we did want to take steps so if we got complaints that
came in to us, first of all, that our consumer response folks
would be able to identify something that was a potential SCRA
complaint. So we have done some training in our own system so
people recognize it, and we also met with all the JAGs and the
Justice Department in the same room, and we and the JAGs of all
the services signed a Joint Statement of Principles. Really one
of the main drivers of that was to make sure that SCRA
complaints did not fall through the cracks and that we would
have a procedure for what we would do with them if we got them
to see that they would be addressed.
Senator Menendez. Well, I appreciate that because the
Justice Department, of course, is--sometimes it is a matter
after the fact where you have gone through, you know, the
nightmare of foreclosure while you are stationed abroad. And
while you may get relief at the end of the day, financial
relief by an action taken by someone like Mr. Harpootlian on
behalf of those families, that does not mean that you have
solved the problem of keeping your home. And so I hope that--
while you may not have direct jurisdiction, I appreciate this
effort. We would love to work with you all to try to have a
more vigorous approach that has those who give mortgage
products out understand the responsibility they have here at
the end of the day so we can prevent that action versus deal
with the aftermath of foreclosure.
Ms. Petraeus. Much better to be proactive than reactive,
and, frankly, it all boils down to that person on the other end
of the phone, and if they are unaware of what protections they
should be extending, then you are going to have a problem for
that servicemember.
Senator Menendez. Is the Justice Department considering
bringing in the largest mortgage entities and giving them a
little bit of a primer here on what they are supposed to do? Do
you know whether your discussions have led to anything like
that?
Ms. Petraeus. I have not heard that in particular from
them, but, again, a lot of what they do they do not announce
publicly. I did have the opportunity--I went ahead and wrote a
letter to the CEOs of the 25 largest banks several months ago
saying this has been an issue and I hope that you will look at
your own practices and make sure that you are not doing this to
the servicemembers who have accounts with you.
Senator Menendez. I appreciate that. We will follow up with
Justice.
Let me ask you collectively, I know that some of my
colleagues before have talked about the Military Lending Act,
and I just want to get a bottom-line answer here. It seems to
me that the act which capped annual interest rates for consumer
credit to military borrowers at 36 percent, including fees and
charges, has been narrowly defined in payday lender loans, in
vehicle title loans, and tax refund anticipation loans, but
they do not include high-cost credit cards, they do not include
overdraft loans, military installment loans, any forms of open-
end credit, mortgages, auto loans. If the public policy in one
universe is to protect servicemembers at the end of the day
from such high-interest fees and charges, is there a public
policy reason not to extend that to this broader universe for
servicemembers?
Ms. Petraeus. Well, I am all about consumer advocacy, so I
would love to see broader protections. But I know the devil is
in the details trying to write a rule that does it in a way
that does not have unintended consequences. But, yes, I am for
broader protections.
Senator Menendez. Anybody in public policy, why that is not
a good one?
Admiral Abbot. I was going to climb on the side of saying
that I think there is a public policy reason to extend it for
the same reason that the original legislation was put in place
because of the effect that it was having on service men and
women on their condition, on their loss of security clearances,
on their loss of readiness to deploy, and the morphed measures
that have been taken to deal, to go around those measures that
are in existence have effectively produced the same
circumstances, just with slightly different products.
Senator Menendez. Well, thank you.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Hagan.
Senator Hagan. Thank you, Mr. Chairman. And I once again
just want to say how thankful I am for you holding this hearing
today. I think we have gotten good information. And I also
think what we have discussed speaks volumes about the need for
financial literacy education in our public school systems. I do
not think we do enough of that. I keep saying it is not rocket
science. We just do not teach it, and I think so many of our
young people in the military could benefit greatly if they had
had a financial literacy education course while they were in
high school. So it is something that I am advocating for, and I
certainly hope at some point in time we can accomplish that at
the State level and at the Federal level.
But I did want to, General Bergner, ask you a question. I
know that many years ago when many of our military bases were
in very remote locations, there was a one-base, one-bank rule
that came into play, and I have heard that this limits the
number of financial institutions on military bases. So can you
describe this to me and discuss the benefit to servicemembers,
pro and con? And then anybody else.
General Bergner. Senator, thank you very much. We do not
operate on a military installation as a single bank, but we do
have an educational foundation that will produce about 4.1
million pieces of material on everything from cybersecurity to
financial management to car seat safety, things that truly do
matter to servicemembers and their families, without regard to
a product endorsement or even a mention of the company that is
sponsoring the educational foundation.
One of the challenges that exists is access to those
military servicemembers to support their requirements and their
needs. For example, we have been asked by army community
service and family readiness groups to provide such educational
material and support them, and because of the one-bank rule,
that sometimes limits our ability to provide those, even though
they do not have any reference to a bank or other financial
activity.
So I think to the degree that we can level that and make
those kinds of resources available, there is the opportunity
for nonprofit, not-for-profit educational foundations to help
fill that gap in financial literacy. We will give about 900
presentations this year from the educational foundation on
financial management, many of those to servicemembers and their
families, many of them to National Guard and Reserve components
who are located far away from the footprint of army community
services.
So I think there is an opportunity for us to be able to
enable nonprofit educational foundations like our educational
foundation to serve some of those purposes.
Senator Hagan. Anybody else care to comment on that
question?
Mr. Pollack. Senator, I think we need to be careful in the
overseas environment because the credit unions are not making
money overseas, and to the extent that we put more financial
institutions on base overseas, I think it would actually be
counterproductive. Stateside it is a different issue, but
overseas I think we need to be careful.
Senator Hagan. Thank you.
Admiral Abbot, you mentioned overdraft practices in your
testimony. What could be done on this front? And are high
overdraft fees common on on-base financial institutions?
Admiral Abbot. Senator, yes, I would have to assess it as
probably the top problem that I am observing right now in young
service men and women who are getting into a condition that
they cannot cope and, therefore, come to see us. And it is the
magnitude of the fees that they pay. I read a statistic that in
2011 the national cost of overdraft fees will be $38 billion.
And, of course, the military members are only a small fraction
of that, but at $25 to $35 a time, and in some cases up to as
many as seven per day. So for somebody who has overdraft
protection and $500 worth of it, seven times $25 does not work
out very well. There needs to be and there are a number of
proposals that have not only been made but implemented by
credit institutions which improve that circumstance. We do not
advocate one specific list of them, but are encouraged that
they are being discussed, and we think that is going in the
right direction.
Senator Hagan. Well, it certainly seems like something
that, once again, education would really help up front on this
issue.
Admiral Abbot. I would like to strongly agree with that,
and also add that it is not a one-time inoculation, that you
have to repeat financial management education throughout the
career of an individual, because the problems will rear their
head again.
Senator Hagan. Chairman Johnson, I have one more question,
or should we----
Chairman Johnson. Go ahead.
Senator Hagan. Mrs. Petraeus, in your testimony you state
that the CFPB will focus on ensuring that students understand
the dynamics of student loans, and so many of our
servicemembers in particular in many cases are first-generation
college students, and they are being offered opportunities for
a lot of different areas. Can you describe a little bit more
about what you are looking at in that regard as far as advising
them and giving advice?
Ms. Petraeus. Well, I think there are some real concerns.
Again, there is such aggressive marketing right now to the
military, and it is not just the military members but it is
their spouses and children as well because the GI bill now,
those benefits can be transferred to them.
I talked to an army wife at Fort Campbell, Kentucky, and
she started her comment at my roundtable by saying, ``Well, I
am attending a military-affiliated college.'' And I thought,
``Hmm.'' So I asked her the name of it, and, of course, it was
not. It was a for-profit. But obviously they had marketed
themselves to her in such a way that she thought they had an
official military affiliation. And she said that when she had
filled out a card of inquiry, they called her 10 or 15 times a
day until she enrolled. And once that first day of class
happened, she was having trouble logging on, because it was an
online class, and she could not find anybody to take her calls
because, again, they had her money at that point. She ended up
not passing the course because she could not get logged on
enough times to do so, but the money was definitely committed.
So, again, I have a real interest in folks being able to
make more informed decisions than just ``they sounded military-
friendly,'' ``they called me 15 times a day.'' I think we need
to get some tools out there to make it easy for people to
compare and see, you know, what is the track record. If it is a
for-profit and it costs more, is it worth the extra money I may
have to spend beyond my military education benefits which will
not cover the whole cost.
Senator Hagan. In that particular instance, did she get her
money back?
Ms. Petraeus. No.
Senator Hagan. Thank you, Mr. Chairman.
Chairman Johnson. To the panel, thank you all for your
testimony and for being here with us today. I am grateful to
those brave men and women who have served our country and to
those who continue to serve and their families for sharing them
with us. I will continue to work to make sure that
servicemembers, vets, and their families have all the tools and
protections they need and deserve.
This hearing is adjourned.
[Whereupon, at 12:09 p.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF SENATOR MICHAEL F. BENNET
Thank you Chairman Johnson and Ranking Member Shelby for holding
this important hearing.
It's not often that the Banking Committee has the opportunity to
specifically discuss the financial challenges faced by military
families and veterans.
In Colorado, which has multiple military installations for our
Active Duty, Guard, and Reserve forces, and around 460,000 veterans,
this issue is critical.
As we all know, military families face unique financial challenges,
such as multiple deployments, temporary relocations and changes of duty
station, and sudden health care costs.
These challenges have been magnified over the last decade, as we've
asked more of our men and women to serve in the wars in Iraq and
Afghanistan, and as our economy tumbled into the toughest downturn
since the Great Depression.
Meanwhile, it seems that some pay day lenders, irresponsible banks,
and for-profit schools have made a profit off of the sacrifices of our
men and women in uniform. As more have served, more unhelpful products
and services have been marketed to our troops and veterans.
I am hopeful that strong, effective oversight of such products and
improved financial literacy programs can help us ensure that military
families face as few financial challenges as possible.
I look forward to your testimony.
______
PREPARED STATEMENT OF HOLLISTER K. PETRAEUS
Assistant Director, Office of Servicemember Affairs, Consumer Financial
Protection Bureau
November 3, 2011
Chairman Johnson, Ranking Member Shelby, and distinguished Members
of the Committee: thank you for the opportunity to speak with you today
about the Office of Servicemember Affairs at the Consumer Financial
Protection Bureau (CFPB), and the role we play in the financial well-
being of servicemembers and their families.
To tell you a little about my qualifications to talk about military
issues: I've been a part of the military community my entire life. 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 just retired from the Army after 37 years of
service. And I'm a military mom, as well.
In my role as a military family member, I have seen the problems
that can arise for our servicemembers who may experience ``too much
month and not enough money.'' I have also seen first-hand the
devastating impact financial scams and predatory lending can have on
servicemembers and their families. Unfortunately there are still too
many young troops learning about wise spending through hard experience
and years of paying off expensive debt.
As an Army wife I spent a lot of years--over 20--as a volunteer on
the Army posts where we were assigned. During the first year of the
Iraq war, when my husband was the commander of the 101st Airborne
Division (Air Assault) at Ft. Campbell, Kentucky, I served as the
Division's Senior Family Readiness Group Advisor. In that capacity, I
saw the unforeseen financial problems that came with deployment, and I
worked on those issues with Department of Defense (DoD) officials as
well as local, State, and national legislators.
A year later, I was invited to become 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, from 2004 to 2010. While with the
BBB, I made on-site visits to military units all over the country:
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 6 teen and adult
financial workshops taught to more than 20,000 individuals in military
communities around the United States. I also wrote a monthly military
consumer newsletter--and it was an education for me each month to
research and write the articles that went into that newsletter.
In January 2011, based on my knowledge of the military community
and my experience with military consumer issues, I was asked to join
the CFPB and set up the Office of Servicemember Affairs. As you know,
when the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) established the CFPB, it included a mandate that the
CFPB establish an Office of Servicemember Affairs (OSA). The OSA is
responsible for developing and implementing initiatives to educate and
empower servicemembers to make better informed decisions regarding
consumer financial products and services, to monitor their complaints
about consumer financial products and services--and the CFPB's and
other Federal or State agency responses to those complaints--and to
coordinate the efforts of Federal and State agencies to improve
consumer protection measures for military families. The CFPB is also
authorized to enter into agreements with the DoD to carry out OSA's
work and to make sure that OSA's goals are achieved.
We've already signed our first agreement with DoD: a Joint
Statement of Principles with the Judge Advocate Generals (JAGs) of all
the services: Army, Navy, Air Force, Marine Corps, and Coast Guard. We
wanted to work out a mechanism for sharing complaints made to the CFPB
with the JAGs (and vice versa), and we felt it was important to detail
how we would work the exchange of information between us. We don't want
any military consumer complaints to fall through the cracks!
We've also set up a working agreement with the Department of
Veterans Affairs (VA). We are now referring to the VA Home Loan Program
any military personnel or veterans who call the CFPB's hot line
claiming that they are in danger of foreclosure, even those who do not
have VA-guaranteed loans. The VA has a very good track record of
helping military homeowners avoid foreclosures and a thorough knowledge
of what benefits might be available to assist military personnel or
veterans in danger of foreclosure, even those with a non-VA loan. So
this seemed to us to be a very exciting and helpful collaboration.
To circle back to the OSA's educational mission, although I have a
good insider's knowledge of the military community, I think that it's
important for us to get out and hear from military families directly
about what the financial issues are that concern them the most. Those
trips help us tailor our education and outreach efforts to the most
pressing issues. I've been to many military installations since I
started my job in January 2011. In fact, the second week on the job I
went to Lackland Air Force Base in Texas to hold a roundtable, and I
haven't stopped since, visiting bases in California, North Carolina,
Kentucky, Virginia, and Illinois, to name a few. I've also met with the
Adjutants General and their National Guard troops and families in
Oklahoma, Ohio, Illinois, and Indiana to hear about their particular
issues, which may be a little different from those of active-duty
troops since they spend much of their time as civilians and don't have
an infrastructure of military-installation-based support like the
active-duty community does.
So what are the issues that have come up? Well, a big one concerns
home ownership. Owning a home of your own is the American dream, and
military families want that, too. But the housing meltdown here in the
U.S. has hit military families hard. Some of the States that were most
affected in the housing crisis are ones that have a large number of
military stationed there. Declining home values are putting military
families between a rock and a hard place when they owe more than their
house is worth and they receive Permanent Change of Station, or PCS,
orders. Often they can't sell their home for enough to pay off the
mortgage; they can't rent it out for enough to cover their mortgage
payments; they're told they can't get a loan modification or short sale
because they're not yet delinquent; and they can't refinance for a good
rate because it will no longer be considered their principal residence
once they leave. We've heard of a number of cases where the
servicemember has opted to go alone to the new duty station, an option
that is pretty tough when you consider that he or she may have just
come back from a deployment and the family is now facing another
separation--this time for purely financial reasons.
I've been talking a lot about this issue to people in Washington,
and we are starting to see some movement to try to make it easier for
servicemembers to get help. The Department of the Treasury has issued
new guidance for its Home Affordable Foreclosure Alternatives (HAFA)
program making it more accessible for those with PCS orders, and
Government-sponsored enterprises like Fannie Mae and Freddie Mac are
tweaking their own guidance. There have also been various letters on
the importance of this issue, from your colleagues here on the Hill as
well as the banking industry.
Another big issue we've been hearing about concerns military
education benefits and for-profit colleges--an issue that impacts
military spouses, too, now that they can use the Post-9/11 GI Bill.
Because of a quirk in the Higher Education Act, military education
money is very appealing to for-profit colleges, because it counts
towards a requirement that for-profit colleges get at least 10 percent
of their revenue from sources other than Title IV education funds
administered by the Department of Education. This has led to some cases
of very aggressive marketing by for-profits schools to military
personnel and their families--and these schools often market not only
the educational programs themselves, but also expensive private student
loans. A key focus at the CFPB is to be sure that students understand
these loans--and whether they will really be able to repay them. There
are also serious questions about whether the education you get at many
of these institutions justifies their high price.
Another issue, and one that always applies when it comes to the
military, is the issue of car loans! Military personnel love their
wheels, and they don't always go shopping for them in the right places.
I'm sure many of you are familiar with the typical strip of used-car
dealers that cluster around the gates of military installations.
Servicemembers are often sold clunkers at inflated prices with high
financing charges, and when the original clunker breaks down, they
sometimes take an offer to roll the existing debt into another loan for
yet another clunker--which may also break down. There is also the issue
of spot financing, where they are allowed to drive away with a car with
a promise of certain financing, and then get called back a week or two
later to be told that the financing fell through and they will have to
pay more. Although the CFPB will only have supervisory authority over
the auto dealers who write their own loans (what are often called ``buy
here, pay here''), the Federal Trade Commission and the Federal Reserve
are required by Dodd-Frank to coordinate with us on military auto
issues, and we have already started to do that.
Another thing we've heard about fairly often from military families
is employment challenges for military spouses. Those spouses who are in
professions that require a license or certification have told us how
difficult and expensive it is to get or renew their professional
license at each new duty station. And I can testify that military
spouses move a lot! My husband and I moved 24 times in 37 years, in
fact. Also, if the spouse is self-employed it's hard to keep a client
base when constantly relocating. And many installations happen to be in
rural areas where available jobs may be few and far between. Those are
problems I may not be able to solve, but I can certainly raise
awareness about them as I work with Federal and State agencies. And I
know that the Department of Defense is working to improve the
employment possibilities for military spouses through their new
Military Spouse Employment Program.
Last but not least, a continuing issue for the military is the
general issue of indebtedness. Many servicemembers don't enter the
military debt free. In fact, on a visit to Texas we were told that the
average Air Force recruit arrives at Lackland Air Force Base for basic
training over $10,000 in debt! \1\ Once in the service, military
personnel don't make a whole lot of money, especially at the beginning,
but it's a guaranteed paycheck in this time of economic uncertainty,
and it's subject to garnishment. That has led to a whole lot of
businesses looking to lend money to servicemembers for various products
(which are often overpriced to start with). This can be the kiosk at
the mall selling high-priced electronics at even higher financing, the
rent-to-own furniture store, or the latest installment loans that
manage to exist just outside the definition of payday loans as written
in the rule implementing the Military Lending Act.
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\1\ The Lackland Airman & Family Readiness Center (802d Force
Support Squadron) gathered debt information on airmen arriving at the
Technical Training Group at Lackland Air Force Base following Basic
Military Training from 1997 to 2009. The average debt increased from
$7,565 in CY 1997 to $10,431 in CY 2008, the last full year the data
was collected. A total of 109,048 airmen were surveyed during the
period.
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I'll give you an example of the type of installment lender I just
mentioned. When we recently put a notice in the Federal Register
seeking information about financial services provided to servicemembers
and their families, one respondee told us about an Internet lender that
caters to the military and will loan up to 40 percent of a
servicemember's take-home pay, without a credit check, for an interest
rate as high as 584 percent APR. The lender specifically mentions on
its Web site that it is not required to comply with the 36-percent APR
cap of the Military Lending Act because it offers an open-ended
revolving line of credit versus the closed-end credit products governed
by the Military Lending Act. And it tells the servicemembers who go to
its site: ``We believe that your membership in the armed forces
entitles you to special treatment.'' ``We speak your language.''
But when servicemembers get behind in their payments these lenders
are often very quick to turn their debt over to debt collectors. And
what we've heard leads us to believe that a number of these collectors
may not comply with the Fair Debt Practices Collection Act. They may
call the servicemember's home and unit 20 or 30 times a day, threaten
them with the Uniform Code of Military Justice, and tell them they'll
get them busted in rank or have their security clearance revoked if
they don't pay up. We've even heard of a debt collector harassing a
surviving spouse of a servicemember killed in action, insisting that
she had to use the money from his death gratuity to pay the debt
immediately.
Again, it will be a big part of my job to educate servicemembers
about their rights under existing consumer financial laws, and to give
them the information they need to make wise financial decisions.
Continuing financial education should have a central role in protecting
the financial future of military families, and I have had very
productive meetings on the subject already with Robert Gordon, the
Deputy Assistant Secretary of Defense for Military Community and Family
Policy, who oversees financial literacy programs within the Department
of Defense. No amount of prosecutors or Government agencies can stop
every scammer or predatory lender, so, in addition to enforcing the law
and writing rules as needed, the CFPB must also provide the right tools
and information to military personnel and their families so that they
recognize the red flags of a bad deal or scam and make sound financial
choices. And I will also continue to work with you and other Federal
and State agencies to help identify effective consumer protection
measures that will work on their behalf.
In conclusion, the OSA is already working hard to ensure that
servicemembers and their families, who devote their lives to protecting
our Nation, have a strong advocate to help protect them from financial
threats. We will make every effort to achieve the goal of every
military family being a financially educated family, armed with
knowledge of how to avoid scams and poor financial decisions, protected
by consumer laws as needed, and willing and able to invest towards
long-term financial goals.
Thank you for the opportunity to testify before the Committee.
______
PREPARED STATEMENT OF BONNIE SPAIN
Executive Director/Chief Executive Officer, Rushmore Consumer Credit
Resource Center
November 3, 2011
Introduction
Chairman Johnson, Ranking Member Shelby, and Members of the
Committee, thank you for the opportunity to speak to you today.
In my testimony, I will address some of the financial challenges
that military personnel and their families face. I will also explain
what our organization does to assist them. Further, I will describe how
additional funding and services could benefit military families.
Our agency has been providing housing and credit counseling and
financial education services to western South Dakota for more than 37
years. We also develop and publish financial education programs. Our
seven programs have reached more than 1.4 million consumers nationwide.
\1\
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\1\ Bonnie Spain is the Executive Director/CEO of Rushmore
Consumer Credit Resource Center and has been with the agency for over
25 years, serving as director for more than 21 years. Rushmore Consumer
Credit Resource Center has two divisions: Consumer Credit Counseling
Service of the Black Hills and the American Center for Credit
Education. Rushmore Consumer Credit Resource Center is a member of the
National Foundation for Credit Counseling (NFCC), a HUD-approved
housing counseling agency, an approved practitioner of the National
Industry Standards for Homeownership Education & Counseling, accredited
by the Council on Accreditation, approved by the Executive Office of
the U.S. Trustees and is a United Way agency.
The National Foundation for Credit Counseling (NFCC) is the
Nation's largest and longest-serving national nonprofit credit
counseling organization. The NFCC's mission is to promote the national
agenda for financially responsible behavior, and to build capacity for
its members to deliver the highest-quality financial education and
counseling services. NFCC members annually help more than three million
consumers through nearly 800 community-based offices nationwide.
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Our agency in Rapid City also serves nearby Ellsworth Air Force
Base. The Ellsworth Air Force Base Airmen and Family Readiness Center
invites us to provide financial education programs onsite two to three
times each month. The programs we offer them include Money in Motion, a
basic 2-hour financial education program; Credit When Credit is Due, a
6-hour credit education program; and Make Your Move--A Guide to
Homeownership, which is a 6-hour homebuyer education program. We
provide other programs if the base requests them. \2\
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\2\ Money in Motion programs are sponsored by the South Dakota
Community Investment Fund. This fund is made possible through the
generosity of the following credit unions: Air Guard, Consumers, Dakota
Plains, Dakota Territory, East River, Good Samaritan, HB Telco,
Healthcare Plus, Interlakes, Med5, Minuteman, Northern Hills, Rapid
City Telco, Service First, Sioux Falls Bell, Sioux Falls, SODES, and
Mid America Credit Union Association.
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The Airman and Family Readiness Center refers airmen and women
directly to our agency for housing counseling if they are struggling
with their mortgage payments, and for our debt management program, if
they need additional help handling their debts. Occasionally, a
servicemember may come to our agency for pre-filing counseling or
debtor education for bankruptcy services, if necessary.
Problems Military Families Encounter
Military home ownership often comes with complications
When it comes to housing, military families face challenges that
civilians don't. When a serviceman or woman receives transfer orders,
their family must move. If their current house doesn't sell, military
personnel may leave their family behind or leave the unsold home empty.
In a good economy, it may take three months to sell a home, but in
today's economy, it can take years. If a military family cannot sell
their home, they are often separated and put under a tremendous amount
financial and emotional stress. Either way, military families can end
up with two housing payments--one for the home they are trying to sell
and one for the new place where they are living.
On the other hand, civilians can typically choose whether to move
or relocate. A civilian family has more choices, perhaps negotiating
with a potential employer to move after they sell their home, or
choosing not to move at all. A civilian isn't under the tight timeframe
a military member is and therefore, a civilian may have more time to
sell his home and move.
Agencies such as ours that provide housing and financial counseling
and financial education play a critical role in helping military
families. This counseling and education helps military personnel and
their families cope with difficult transitions demanded of them while
they are serving our Nation.
For example, our agency helped a 21-year-old airman who was
discharged from the military after becoming disabled. He was hoping to
get a short sale on his house so he could move back to his home State
of Rhode Island. After calling several Realtors, the airman could not
find one who would list his home. All the Realtors he spoke to said
there were too many problems with lenders not accepting short sales,
and they weren't willing to put the time and work into a deal that
wasn't likely to go through.
Before listing his house, he was advised to find a lender that
would agree to the short sale. At this point, the airman came to our
office. Our Certified Consumer Credit Counselor contacted his lender
and convinced the lender to agree to a short sale. Because of our
intervention, the airman was able to get a Realtor to list his home.
Another serviceman was retiring; he and his family were moving back
to Florida. He had a very difficult time selling his home and was
referred to our agency. Our Certified Consumer Credit Counselor helped
him get the lender to agree to a short sale. The lender, however,
refused to forgive the second mortgage on the home and required the
serviceman to sign a new note for $10,500. The lender also required the
serviceman to use his vehicles as collateral since he could no longer
use his home for collateral. But the serviceman owed more on the loans
than the vehicles were worth.
Even though the serviceman was facing a number of difficult
financial circumstances, he has been able to work through them because
of the help he has received from our agency. By using our Debt
Management Program, he has almost repaid his debts in full.
Predatory lenders, debt settlement companies claim to help, but cause
harm
Military personnel are always under pressure to maintain good
finances and credit; their jobs can depend upon it. If a serviceman or
woman has accounts in collections or is facing bankruptcy, these
financial issues can cause security clearance problems that ultimately
could destroy a military career. The unique financial pressures they
face make servicemen and women particularly vulnerable to lenders who
charge high rates of interest.
Predatory lenders, for example, continue to target the military--in
spite of protections that the Military Lending Act is supposed to
provide. Often, these lenders charge more than the 36 percent interest
cap. This is the case for an airman who turned to the Ellsworth Air
Force Base Airmen and Family Readiness Center for help with his five
payday loans.
He'd applied for four of these payday loans online, and only one
loan was from a local company. All were charging interest rates higher
than 36 percent. Payday lenders call these transactions open-ended,
treating them like revolving lines of credit, in order to bypass the
law. The airman sought the help of the legal assistance office at the
base. Unfortunately, the companies refused to change their interest
rate, and the airman's only other recourse was to sue the companies.
However, the base legal assistance office can't represent the airman if
he decides to sue the payday lenders. If he chooses to sue, the airman
would have to hire an attorney. Payday lenders know that people who
borrow from them don't have the money to hire an attorney.
Payday lenders also count on the fact that prospective borrowers
won't ask questions. On many payday lending sites, such as
militaryfinancial.com, there is no physical business location listed
anywhere on the site. There is no location listed in their disclosures,
privacy policy or ``contact us'' links. There is no disclosure anywhere
of the cost of loans militaryfinancial.com provides. Borrowers have no
idea who the company is, where it is located, or what they'll be
charged for a loan, but they are immediately asked to provide personal
information. For example, the very first question militaryfinancial.com
asks is for the borrower to provide his or her Social Security number
on the Web site and on any documentation they submit.
One client who got a payday loan online had no idea the money came
from Croatia. The client had a difficult time getting anyone to respond
to his requests for information. In the meantime, the company had
access to his bank account and continued to take payments directly from
his account. The client finally had to close his bank account.
When servicemembers are knowledgeable about their finances, they
are less likely to fall victim to predatory lenders and schemes
designed to take advantage of them.
The following story illustrates one type of financial pitfall that
our clients can face. A former car salesman said that one of the first
questions he would ask potential buyers is whether the buyers knew if
they had good credit. The buyers' answer determined the offer they
would receive from the dealership. If buyers had not seen their credit
report or didn't know their credit score, the salesman excused himself
and said he would pull their credit report.
Instead of actually pulling a credit report while he's gone,
however, the salesman simply left for several minutes. The salesman
then returned and told buyers there were issues with their credit
report, but assured them they could still buy a car. The salesman
quoted the buyers a monthly payment, making them believe this was the
best rate they could receive. The buyers have no idea they would end up
paying a higher rate of interest than necessary, and the salesman
earned a bigger commission.
Unfortunately, our agency sees many servicemembers who seek
financial services, only to find that the help they receives pushes
them further into debt. Debt settlement is particularly destructive.
Servicemembers seek the help of debt settlement companies, not knowing
that these companies can do them more harm than good.
In one case, a servicewoman had paid $1,500 to a debt settlement
company before the Airman Family Readiness Center advised her to stop
making payments. Of course, she did not have $1,500 to lose, but
thankfully she didn't lose any more.
One of the worst examples of problems caused by debt settlement was
the case of a civilian family of six who came to us in April. By the
time they came to our agency, they had paid more than $6,000 in fees to
a debt settlement firm; only $600 of that had actually been aside by
the firm for debt negotiations. By October, they would have paid the
debt settlement firm more than $10,200, but the firm would have only
set aside $1,500 to settle the family's debts. We are currently working
with this family so they can repay their debts and rebuild their
finances. Military or civilian, people who are already struggling
financially cannot afford to pay for services that never happen.
More financial problems, striking clients of all ages
Our client demographic is shifting and so are the financial
difficulties these clients are encountering. Several years ago, our
average clients were young couples in their thirties raising children.
Traditionally, that was a time in their lives when their expenses were
high, but their incomes were lower. Our client base is now much more
diverse. We work with clients in their 20s who are often struggling to
pay back their school loans; young parents raising small children;
couples who are raising teens, while also taking care of their own
aging parents; and couples at or near retirement who are struggling.
Frequently, our clients find themselves facing multiple financial
problems at once. For instance, a young man leaving the service came to
our office because he was in the process of filing bankruptcy. He told
his counselor that he had made almost every possible financial mistake.
His initial problems began when he was using the services of payday
lenders while he was still in the military. Later, he got a divorce,
which further disrupted his finances.
Then, he agreed to let an elderly woman handle his finances while
he was stationed overseas. The woman, who seemed trustworthy, spent his
money instead of paying his bills for him. To make matters worse, he
let a friend drive a rental car and they had an accident. The rental
insurance did not cover the friend, so the insurance company sued the
serviceman for damages.
Like this serviceman, most people filing for bankruptcy do so
because of multiple financial problems. Before they file for
bankruptcy, most people have never taken a financial education course.
Financial counseling and education are key to helping people overcome
financial crises.
People often lack the knowledge to handle their finances successfully
Unfortunately, financial matters can often be confusing, and many
consumers don't have the information they need to make wise decisions.
A young airman or woman, for example, might seek a friend's advice,
which ultimately turns out to be incorrect or inappropriate for their
situation. What they don't know leads them to make financial decisions
that they later regret.
Financial education is key to helping consumers protect themselves
and their money. We know that financial education works. After 25 years
of working with people in financial duress, I can unequivocally tell
you that the most important thing people can do to get their finances
under control is to complete a financial education program appropriate
for their needs.
Counseling is very helpful and provides insight, and a plan, but
counselors can't impart everything they know to their client in one or
two sessions. On the other hand, a good financial education program
provides information people can use to make better financial decisions
now and in the future.
All of our financial education programs are relevant to the
financial issues people are experiencing today. We teach a program
called Money in Motion twice a month at Ellsworth Air Force Base. We
also teach Credit When Credit is Due and Make Your Move--A Guide to
Homeownership at the base. All of these programs are updated to reflect
our ever-changing financial environment.
Some of our programs are uniquely tailored to fit the needs of
military and civilian clients in our community. In 2009, our agency
developed an assistance program to help families qualify for
forbearances and loan modifications. With United Way funding, we
provide direct assistance to qualifying homeowners to help them save
their homes; specifically, we have used $68,171 to help 32 families
save their homes. Per family, this is a cost of about $2,100 to
intervene in homeowners' lives when they urgently need our help.
Our financial education programs have benefited military personnel
nationwide. In addition to Ellsworth Air Force Base, our programs have
been used at Langley AFB, Mountain Home AFB, Fairchild AFB, Tinker AFB,
Sheppard AFB, Shaw AFB and Randolph AFB, Virginia Air National Guard,
Florida Air National Guard, Tennessee National Guard, and Virginia
National Guard.
Our financial education programs also have reached troops overseas.
In May, we received a request from a former client who was serving in
Afghanistan. He asked us to send Credit When Credit is Due books so
Marines could learn more about managing their finances; we shipped a
box of books to him. In 2007, our agency received a request to provide
Credit When Credit is Due and Money in Motion to troops in Iraq. With
the support of several local and regional credit unions, we were able
to provide books to the troops in Iraq. \3\
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\3\ The following credit unions gave our agency support to send
financial education materials to Iraq: Aberdeen, Air Guard, Black
Hills, Consumers, Dakota Plains, Dakota Territory, East River, Empire
Corporate, Healthcare Plus, Huron Telco, Interlakes, Minuteman
Community, Northern Hills, Rapid City Medical, Service First, Sioux
Falls, Sioux Falls Bell, SODES, and Turtle Creek.
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When military personnel themselves ask for financial education,
that speaks volumes about their need for information and about the
quality of our programs.
What More Can We Do To Help Military Families?
To provide our financial education programs for the military, we
need to seek grant money. Unfortunately, grant funding is becoming more
difficult to find. What's more, Family Support Centers are only able to
offer a few approved programs.
I would like to recommend the following actions that could give our
military personnel and families the support they need and deserve.
For the Consumer Financial Protection Bureau (CFPB):
Close the loopholes on payday lenders, making it impossible
for them to charge military personnel more than 36 percent for
a payday loan.
Require online businesses to list a physical business
location and to list their fees, or range of fees, before being
able to collect personal information such as a Social Security
number.
Strengthen regulation of for-profit debt settlement
companies so that consumers are protected from abusive and
predatory debt settlement practices.
Apply the same Federal standards, regulations and consumer
protections to nonprofit credit counseling agencies and for-
profit credit counseling agencies.
For Congress and the CFPB:
Continue supporting financial education for military
personnel. All Readiness Centers, Family Support Centers and
bases should be authorized to use their operating funds to
purchase the materials they know are most helpful and relevant
to their military personnel.
Require homebuyer education for first-time homebuyers, as
well as those using specialized loan products. The housing
industry is an integral part of our economy. Many consumers may
have avoided foreclosure, or other problems, if they had been
well-educated before they signed home loan documents. Having
qualified buyers seeking homes they can afford will help to
revitalize our troubled economy.
For Congress:
Support and fund HUD homebuyer education. Buying a home is
a complicated process. The average consumer simply has no way
of understanding the details of the home-buying process without
taking a comprehensive homebuyer education course. This is
particularly true if an individual or family is new to the
area. Military personnel who transfer to a different location,
for example, would benefit from homebuyer education.
Support and fund HUD-approved housing counseling. Military
personnel need the assistance of trained and knowledgeable
foreclosure specialists to help them find resolutions for their
housing issues.
In closing, on behalf of the Rushmore Consumer Credit Resource
Center and, more importantly, on behalf of the men and women who are
serving our Nation and who come to us for financial counseling,
education and help, thank you for this opportunity to tell you their
stories and their needs. I would be happy to respond to any questions
you may have.
PREPARED STATEMENT OF ADMIRAL CHARLES S. (STEVE) ABBOT
U.S. Navy (Ret.), President, Navy-Marine Corps Relief Society
November 3, 2011
Mr. Chairman, Senators, good morning, and thank you for the
opportunity to appear before the Committee to discuss the conditions
which military servicemembers face in the financial marketplace. The
information which I provide to the Committee comes from my perspective
as President of the Navy-Marine Corps Relief Society, a private,
nonprofit charity which supports active duty and retired Marines and
Sailors, and has been doing so for over 100 years. Last year, in 2010,
we saw 73,000 individual Sailors and Marines in our offices around the
world, some of them more than once. When you count the repeat clients,
it adds up to a total of 100,000 cases in 2010, and we are on that same
pace this year. That amounts to almost one out of every five active
duty Sailors and Marines, or 20 percent of the force in just a single
year.
Although it is always great to wear a military uniform, being a
junior enlisted man or woman in these recessionary times, especially if
you have a family, is tough sledding. While the servicemember's
employment may be stable, many military spouses have lost jobs in the
civilian economy. These families are turning to the Society in record
numbers. The financial assistance we provided in 2010 is the greatest
since 1993 when the size of the force was significantly larger.
The Military Lending Act (MLA), which became effective in October
2007, has dramatically curtailed payday loans to active duty
servicemembers--our annual assistance to those stuck in the payday loan
trap went from a high of $1.4 million in 2006 to just $168K thus far in
2011. That is very good news, and we credit the MLA, and improved
personal financial management education and training. But the Military
Lending Act was implemented on a limited scope. Financial institutions
have found loopholes in the regulations and new predatory lending
practices have arisen which continue to victimize our clients. Before
my visit this morning, I contacted all 51 of the Society's Directors
around the world to ask what practices they are seeing that send their
clients into a downward spiral of debt.
Examples Illustrate the Problems
Fort Worth, TX. Assisted a retired Navy E-5 with rent,
food, and utilities because he used his retirement check to
repay a payday loan. He had borrowed $950 at an APR of 277.65
percent. His finance charge was $216.80.
Camp Lejeune, NC. Helped a Marine Lance Corporal with food
and utilities since his paycheck had been withheld due to
overdrafts and associated fees.
Newport, RI. Assisted a Navy E-5 seven times with loans
totaling $3,652. Most recently he got a high interest loan from
one of the on line lenders to repair his car ``because it was
available, quick and immediate.''
Norfolk, VA. Helped a Navy E6 suffering from a 365 percent
motor vehicle line of credit with a title loan company in
Virginia Beach. Sailor had title to the 1998 Nissan Maxima, was
paying $200 per month on a $1,000 loan and had recently filed
Chapter 13 Bankruptcy.
Quantico, VA. A Navy E2, seen one month after his 21st
Birthday, with a wife and one child, had overdraft protection
payments due after every payday. When seen by our office, the
member had six credit cards, one loan consolidation debt and
one personal loan. Society helped with a loan for food, gas and
diapers, as well as financial education and referrals for more
in-depth counseling.
Corpus Christi, TX. An active Duty E-5 with a wife and two
small children was in a cycle of overdraft that he had been
unsuccessful in resolving following a high interest Internet
loan. The family went into their overdraft when his child
required medical care at a facility in another town, but the
distance was not far enough for Tricare to cover travel
expenses. By the time the couple sought assistance, they had
suffered four back to back paydays on which $500 was taken by
the bank to zero overdraft funds and fees. We helped the family
with basic living expense and provided financial counseling.
Most Egregious Trends
Banks and credit unions on and near military bases continue
to charge exorbitant and multiple fees associated with
overdraft protection and direct deposit advance loans. With an
overdraft, the bank agrees to cover a transaction despite lack
of funds in the account, charges a fixed fee and takes payment
out of the next deposit to the servicemember's account before
other banking transactions. This problem is compounded by the
common practice of processing checks from largest amount to
smallest in order to charge additional fees. Common
nonsufficient (overdraft) fees range from $25 to $35 per
transaction.
Online predatory lending is hard to monitor. Many evade
State regulation by being offshore, hide behind anonymous
domain registrations and have no physical address.
By structuring loans for a longer payback period and making
them open-ended instead of close-ended, and for a larger
amount, banks and other lending institutions offer installment
loans that avoid the 36 APR cap instituted with the Military
Lending Act and legally charge as much as 500 percent APR.
Today's young military families are technically savvy but
not necessarily financially savvy. A military lifestyle adds
additional challenges with frequent family separations and
relocations. This can impact spouse employment and education
opportunities.
Recommendations
Continue to improve financial education and consumer
awareness.
Plug loopholes in the laws and regulations governing
predatory lending practices.
Stimulate additional reasonable cost alternatives to
predatory loans.
Direct local senior military leaders to urge local banking
and credit union executives to alter abusive banking practices.
Extend the protections of the Military Lending Act to
retirees and to veterans.
Banks and credit unions located on military installations
should be held to a higher standard of service, offering
military families, including military retirees, lower fees and
better protection from predatory lending practices. They should
also offer financial education to inexperienced consumers
before they commit to loan contracts and agreements. Adopting
better business practices would go a long way toward
ameliorating if not fixing the problems that these
servicemembers are experiencing. Some institutions are moving
in that direction and I applaud those steps. I appreciate this
opportunity to meet with you today and thank you for the work
you do to empower and protect servicemembers, their families,
and veterans in the consumer financial marketplace.
______
PREPARED STATEMENT OF MAJOR GENERAL KEVIN BERGNER
U.S. Army (Ret.), Executive Vice President and Chief Administrative
Officer, United Services Automobile Association
November 3, 2011
1. Introduction
Chairman Johnson, Ranking Member Shelby, and Members of the
Committee, I am Kevin Bergner, Executive Vice President and Chief
Administrative Officer of USAA, the United Services Automobile
Association. As a retired U.S. Army Major General and 30-year veteran
who served [six] overseas tours of duty, I have first-hand experience
with the financial needs and challenges of our servicemembers, their
families, and veterans. I want to thank you for holding this important
hearing and for giving USAA the privilege of testifying. USAA was
founded in 1922 by 25 U.S. Army officers who joined together to insure
each others' automobiles because they were deemed to be too risky by
traditional insurers because of their transient and perilous careers.
Our core mission, and the manner in which we have always conducted our
business, honors our history and legacy--rendering USAA uniquely
positioned to empower and protect America's servicemembers, their
families, and veterans in the consumer financial marketplace.
Today, USAA is proud to serve more than 8 million active-duty
servicemembers, veterans, and military family members. We are a
membership-based association open to all who have honorably served in
the U.S. military, as well as their families. We support the financial
security of our members and their families with a full range of highly
competitive financial products and services, including insurance,
banking, credit, and investment resources. Our core values of service,
honesty, loyalty, and integrity drive our business.
Our efforts have paid off in member satisfaction and loyalty. Year
after year, USAA receives top customer service rankings from leading
independent research firms. We have a 98 percent member retention rate
and 97 percent member satisfaction rate. In fact, 94 percent of our
members plan to stay with us for life.
2. USAA Services Are Tailored to Military Families' Financial Needs
Servicemembers, who are willing to risk their lives in service to
our country, deserve our highest respect and our strongest endeavors to
support their efforts and to accommodate the special burdens placed on
them and their families. While servicemembers and their families need
the same financial products and services as other consumers--including
insurance, home mortgages, checking and savings accounts, investment
products, financial planning, and retirement resources--they also face
unique challenges in the consumer financial marketplace. Military
events, such as deployments, involve stresses and financial
consequences with no equivalent in the civilian world. Even when they
are not deployed overseas, servicemembers are often required to be
highly mobile due to temporary relocations, changes of duty station, or
other travel in connection with, or in support of, our national
security. Moreover, military careers may leave servicemembers with
limited time to manage their financial affairs, especially when serving
in combat situations.
We strive to provide financial stability and support for military
families, so that our members can focus on serving our country. To
address these unique challenges, USAA offers a full suite of financial
products, tools, and advice tailored to the needs of military families,
and we are a market leader in developing ``best practices'' for
empowering and protecting servicemembers and veterans. Along those
lines, I would like to highlight for the Committee, in more detail,
some specific examples.
A. Products and Services for Military Milestones
USAA has found that it is crucial to address military milestones
when developing financial products for the military community. The way
in which we serve our members and help them identify the financial
products they need is based on significant life events. Included in
those life events are milestones that impact all customers: marriage,
divorce, birth of a child, etc. But, at USAA, we also focus heavily on
life events that are unique to military service: deployment, life-
altering injury, separation from the military, permanent change of
station, to name a few. This specialized focus on life events--from a
military perspective--is crucial to identifying and meeting the unique
needs of the military community.
(i) Deployments
Active-duty servicemembers may experience multiple overseas tours
of duty during their careers, including deployments to combat zones. We
have seen a spike in those deployments since 2001, rendering this one
of the most critical life events facing servicemembers and their
families today. The financial issues and changes relating to
deployments--and redeployments--are multifaceted and challenging--even
to the savviest consumer. To help ease the burden and ensure that each
of our deployed members is prepared financially, we offer the ``USAA
Deployment Kit'' to help servicemembers and their families prepare and
organize for deployment. We also have specially trained employees whose
sole purpose is to ensure that our military members and their families
are able to seamlessly transition into deployment. These employees will
help teach--to the extent necessary--soldiers and families how to
manage their finances during a deployment. This includes ensuring the
spouse's access to all accounts; setting up automatic bill pay, if
required; arranging for powers of attorney, as needed; adjusting
insurance premiums for vehicles that will not be driven during the
deployment; changing insurance for household belongings that will be
stored or moved during deployment, and helping servicemembers manage
their new financial picture, which often includes hazardous duty pay
and deployment tax relief. Active-duty soldiers who contact us from
Afghanistan and Iraq are transferred immediately to those specialized
USAA representatives. Because deployed servicemembers may have limited
access to computers and telephones, as well as limited time, these
specialized resources are critical.
In addition to the specialized customer care we provide in this
vein, USAA also offers financial products and services specifically
designed to protect the financial interests of our deployed
servicemembers and their families. For example:
We offer life insurance without the standard ``wartime
exclusion'' to servicemembers, including those that are
deployed or facing deployment in combat zones.
Some of our insurance products provide additional coverage
for personal property that may be abandoned, destroyed, or
damaged while a servicemember is deployed overseas in wartime.
We reimburse foreign transaction fees for debit and credit
cards.
USAA often goes beyond the standards set under the
Servicemembers Civil Relief Act to make interest rate
accommodations on credit cards, auto loans, and other payments
for deployed servicemembers.
For our credit card holders who fall behind on payments
during deployment, we provide options for long-term workout
programs and ad hoc settlements.
Finally, USAA offers innovative financial tools and
specialized customer service resources to assist deployed
servicemembers. For example, we seek to deliver documents via
email or our secure Web site, and our representatives are
available 24 hours a day to assist active-duty members with
most needs.
In addition to providing a full suite of online and
telephone services, USAA was an early adopter in providing bill
pay and bank deposit tools for mobile phones and iPads. There
are nearly 15,000 logins through USAA Mobile every hour. These
benefit all our members--but are especially crucial to our
deployed members.
(ii) Change-of-Station Moves and Overseas Assignments
Frequent relocations, often on short notice, are another common
component of the military lifestyle. Moreover, members of the military
often complete at least two or three overseas tours during a full
career. Servicemember mobility creates special financial challenges.
Those challenges have been exacerbated by the volatile housing market,
as many servicemembers find themselves forced to move from homes in
which they have little or no equity. At USAA we stand ready to address
this and other unique needs brought on by repeated relocations. For
example:
We make great efforts to assist all members who encounter
credit difficulties and financial hardships. We strive to
identify solutions that allow our members to remain in their
homes, including member assistance programs, such as, loan
extensions, modifications and short sales.
Specifically, when members who are distressed homeowners
are not able to meet their financial obligations for USAA
serviced loans, USAA works to identify foreclosure
alternatives. We provide payment deferrals and loan
modifications appropriate to the circumstances to help keep
soldiers and their families in their homes. When members are in
an unfavorable equity position, we help them navigate the
short-sale process and avoid the pressure of imminent
foreclosure. Our sizeable number of member modifications and
short sales compared to our relatively small number of
foreclosures demonstrates that USAA has devoted substantial
resources to assisting our members in maintaining homeownership
where possible, and where not possible, helping them leave
their homes responsibly and with dignity.
With our HomeCircleTM solution, we are the first
company to enable consumers to carry out most components of the
home-buying process from their computer or mobile device, from
research to financing to insuring.
USAA tailors our products to help members cope with the
financial consequences of frequent or rapid relocations within
the United States and across the globe, such as transferring
automobile and insurance registration across State lines or
facilitating the sale and purchase of their homes.
For members living abroad, we continue to service their
bank accounts with us and provide free wire transfers, and
foreign automobile and renters insurance in certain countries.
Our emphasis on remote and mobile banking tools provides a
seamless transition for our members when they relocate.
Members can deposit checks from most UPS store locations.
Our AutoCircleTM solution provides a similar
ability for members to find, finance, and insure new or used
vehicles online or through a mobile device.
USAA does not charge a fee for members' first 10 monthly
ATM withdrawals and refunds other banks' ATM usage fees up to
$15 in each month, enabling access to all ATMs regardless of
where servicemembers live or travel.
(iii) Survivorship
Financial institutions serving the needs of servicemembers must
also be prepared to address the difficult issues of untimely death and
survivorship in a simple, fair, and efficient manner. Moreover--because
new technology and armor has reduced wartime deaths, financial
institutions should also be able to help soldiers and their families
navigate the world of severe injury and disability--as they have become
commonplace in today's military.
USAA provides special benefits to servicemembers and their families
in the event of a member's injury or death. For example:
USAA offers severe injury benefit riders on certain life
insurance policies. In the event of a severe injury, these
features provide a payout to meet immediate needs such as
enabling family members to travel to the military hospital
where the injured servicemember is being treated.
If a servicemember is severely injured, certain USAA life
insurance policies also permit servicemembers to purchase
additional coverage when they leave the military and lose their
Servicemembers' Group Life Insurance coverage.
USAA has a dedicated team of employees that are specially
trained to assist the families of terminally ill and deceased
members, with a special outreach team for servicemembers killed
in action. This Survivorship Response Team provides a single
point of contact to assist with executing members' wills. We
act as advocates and help family members to access the military
benefits to which they may be entitled.
B. Service and Education
USAA believes that financial literacy and education are essential
to empowering military families in the consumer financial marketplace.
Financial literacy is especially crucial for younger soldiers who have
little experience in such issues but have very serious responsibilities
in their service to the Nation. In a war zone, commanders and soldiers
should not be distracted by financial problems, uncertainty and
hardship. Thus, at USAA we take our financial literacy mission very
seriously.
At no cost to our members, USAA.com, features tremendous resources
including market news and research, articles, calculator tools, and
online communities. Our Web site provides information to all military
families preparing for deployment, permanent change of station (PCS)
and leaving the military. For example, our ``Deployment'' page provides
articles and checklists teaching servicemembers about the importance of
having a will and durable power of attorney, making your spouse a joint
account holder, and notifying your insurance company if your home will
be unoccupied or your car will be in storage. In addition, this page
provides information for spouses during deployment and articles to help
servicemembers readjust to family life upon their return from
deployment. Further, USAA.com has a ``Military Spouse Community'' page
for military spouses to get in touch with each other and help one
another on issues such as PCS, deployment, converting to civilian life,
and finances. In addition to the services available on USAA.com, we
provide fee-based financial planning services by licensed salaried
professionals to help members plan for and achieve their financial
goals, including retirement and estate planning.
USAA also protects our members by helping them navigate the wider
consumer marketplace. For example, purchasing a vehicle is a major
financial milestone, especially for our younger members. Members can
use USAA's AutoCircleTM solution to find, finance and insure
a vehicle from their computers or mobile phones. USAA certifies dealers
across the country and offers a Lowest Price Guarantee so members can
get the best price on the vehicle they want, without time-consuming
negotiations. In 2010, we helped members and customers save over $165
million through our car-buying and mortgage refinancing services.
Last but not least, we proudly sponsor The USAA Educational
Foundation, a nonprofit organization dedicated to helping individuals
make informed financial decisions through education (the Educational
Foundation). The Educational Foundation offers a wide range of
materials on financial management, safety concerns, and life events
that are available to the general public at no charge. Over 4.7 million
of these publications were distributed online and by mail in 2010, and
the Educational Foundation will exceed that number in 2011. The
Educational Foundation also delivers personal financial management
presentations to ROTC cadets, military servicemembers, and their
families, reaching 51,000 individuals in 2010 alone. This year, the
Educational Foundation also produced a short video on the importance of
Financial Readiness for members of the military.
We also sponsor another nonprofit organization known as The USAA
Foundation that is active in providing funds to the military community,
especially those in need. In 2010, USAA, the USAA Federal Bank and The
USAA Foundation distributed more than $3.4 million to nonprofit
organizations that support the military and their families. Examples of
organizations funded include the American Red Cross, the Fisher House
Foundation, National Military Family Association, Tragedy Assistance
Program for Survivors, the Military Aid Societies, Intrepid Fallen
Heroes Fund, Armed Services YMCA and Our Military Kids. Distributions
for 2011 are projected to be at a similar level. Neither the USAA
Educational Foundation nor The USAA Foundation endorses or promotes any
commercial supplier, product, or service.
3. USAA Offers a Military Friendly Workplace
USAA works hard to recruit military spouses and former
servicemembers to our employee team. We strongly believe that employing
veterans and military family members improves our capacity to serve our
unique customer base. We have endeavored to hire employees with
military knowledge and expertise at ALL levels of the organization--
from the member service representative that takes member calls to our
CEO, who began his career as an Army Private and retired as a Major
General. USAA has over 22,000 employees globally. Employees deployed in
the Guard and Reserve continue to receive USAA paychecks that make up
the difference between their military and civilian pay. About one in
five of our employees is actively serving in the U.S. military, has
served, or is a military spouse. Many more employees are the children,
siblings, or parents of servicemembers. We review employment
applications from veterans and military spouses before any other
applications, and we also make a special effort to hire wounded
veterans. This hiring strategy has improved our capacity to serve those
who serve this Nation and to ensure a basic understanding of the
military lifestyle throughout our organization.
Beyond our focus on military hiring, we also work to ensure that
all our employees are indoctrinated into, and fully understand, the
military lifestyle. Each employee at USAA attends training and
educational programs designed to help him or her understand the
specialized needs of servicemembers and their families. As a result,
when a servicemember calls USAA, he or she will work with an employee
who not only understands the current financial product the member
needs, but is also trained to understand that extra stress that the
member faces because of his/her career in the military.
In 2011, GI Jobs magazine, CivilianJobs.com and Military Times EDGE
all ranked USAA among the best employers for veterans. USAA was also
ranked high on the Fortune Magazine list of ``100 Best Companies to
Work For'' \1\ and was named by Computerworld as the ``No. 1 Best Place
to Work in IT'' for the second year in a row. \2\ As an employer of
choice for military families, we offer resources to support the
transition from military to civilian life and provide ongoing
professional development for veterans.
---------------------------------------------------------------------------
\1\ ``100 Best Companies to Work For'', CNNMoney: A Service of
CNN, Fortune, and Money, available at http://money.cnn.com/magazines/
fortune/bestcompanies/2011/full_list/.
\2\ ``100 Best Places to Work in IT 2011'', Computerworld,
available at http://www.computerworld.com/s/article/9216935/
Best_Places_to_Work_in_IT_2011.
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4. Our Members' Success Is Our Success
USAA is committed to doing the right thing because it is the right
thing to do. And consistently doing the right thing is not only what
our members expect and deserve; it is consistently good for our members
AND our business. Despite the difficult economic landscape, after
meeting our financial obligations last year we were able to give back
$1.3 billion to our members in dividends, distributions, bank rebates,
and rewards. That figure represents a 12 percent increase over the
previous year.
Focusing on our core values of service, honesty, loyalty, and
integrity, USAA offers best-in-class financial services and products to
servicemembers, veterans, and their families. We appreciate and share
the Committee's commitment to empowering and protecting servicemembers
in the consumer financial marketplace. We are proud of our efforts and
successes to date, but we continue to look for new ways to serve the
Nation's military families.
Thank you again for the opportunity to testify today. I look
forward to answering any questions that the Committee may have.
______
PREPARED STATEMENT OF FRANK POLLACK
President and Chief Executive Officer, Pentagon Federal Credit Union
November 3, 2011
Good afternoon, Mr. Chairman and Members of the Committee. On
behalf of the Board of Directors of the Pentagon Federal Credit Union,
I want to thank you for the opportunity to testify today on these
important issues that affect those who are sacrificing so much to
protect this Nation.
When we think about financial issues within the military community,
we believe that more can be done to provide financial education and
tools necessary for servicemembers to better manage their money. Too
many servicemembers are ill prepared to protect themselves from those
who would take advantage of their lack of financial sophistication. We
would never send our troops into battle that way but we have not
similarly focused on their financial preparedness.
I would be remiss if I failed to recognize the laudatory efforts of
credit unions in general, and defense credit unions in specific.
Because defense credit unions are member owned, not-for-profit
cooperatives, we can create unique programs to meet the financial needs
the military servicemember.
I would like to share with you some of the programs the Pentagon
Federal Credit Union provides to its membership.
Recognizing the need to address the lack of financial education and
in conjunction with our PenFed Foundation, we have established
relationships with partners like MoneyU and MathMastery to develop
financial educational materials that will assist in teaching military
personnel how to properly manage their money. We provide these services
free of charge to members between the ages of 17 and 25.
While all of our materials and legal documents are already in
``plain English,'' we do believe that the lack of clear and easy to use
disclosures prevents members from comparing and thus selecting the best
financial option available to them. As a result, in collaboration with
the Pew Trust, we have introduced a checking account disclosure that is
much more transparent and enables members to easily understand the fees
and costs associated with their account. We hope to roll out similarly
easy to use disclosures for all of our savings and loan products by the
end of the first quarter of 2012. We believe the disclosure format
created by Pew Trusts represents a better way forward for all financial
institutions, and we are proud to be a leader in rolling this out.
The fact is that when a servicemember is fighting in Afghanistan or
Iraq, they should not have to worry about fees and charges on their
accounts even when they do make a mistake.
In 2009, we introduced a program for active duty servicemembers
called Warriors Advantage, which waives checking account fees
associated with insufficient funds for up to two occurrences in any
rolling 3 month period. We have also waived ATM surcharge fees at all
of our ATMs on military installations and we provide free bill pay
services to all of our members as well. In a recent survey of fees by
the Military Times newspaper, we had the lowest average fees of any
financial institution serving on military bases in the United States.
Importantly, we intend to continue driving our fee revenue even lower
as we look to the future.
Our efforts extend to borrowers as well as savers. Because we do
not price based on risk, every qualified member receives the same price
for a loan. Our present rate for used car loans, a staple in the
military community, is 2.49 percent APR. We provide a credit card
offering that has no annual fees, no late charges; no foreign
transaction fees; and the annual percentage rate is a market leading
7.49 percent. In short, we are trying to doing everything we can to
insure that the military member has low cost credit available to them
for any need they might have.
We do know that military members can and do get into trouble with
debt. When they do, some turn to payday lenders for assistance. For the
past 8 years, we have provided an alternative to our members in such
circumstances. Through our ARK (Asset Recovery Kit) loan, we provide up
to a $500 emergency loan (or 10 percent of take home pay, whichever is
larger), for a flat fee of $5. If a rollover is requested, the member
is required to go to Consumer Credit Counseling, free of charge, to
develop a plan to get them out of trouble. We provide up to five
rollovers free of any additional charge. Through our Pentagon Federal
Credit Union Foundation, we cover the losses for 12 other defense
credit unions who participate in the ARK loan program.
Our Foundation's DreamMakers program provides matching grants of up
to $5,000 for active duty military members seeking to purchase their
first home. Because we have never done subprime lending, our
delinquency and losses have remained low. As a result, our collection
efforts are focused on helping the member in trouble rather than
harassing them.
We are but one of many defense credit unions that view our reason
for being as a labor of love for those who defend our country. The men
and women who give so freely of themselves so that we may be free at
home deserve nothing less.
We appreciate the opportunity to testify here today and we thank
all of you for taking your precious time to focus on an issue of real
importance to the long-term security of our Nation.