[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

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                 Available at: http: //www.fdsys.gov /



                  U.S. GOVERNMENT PRINTING OFFICE
74-319                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


            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

                              ----------                              

                       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.
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
     \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
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.
