[Senate Hearing 112-732]
[From the U.S. Government Publishing Office]
S. Hrg. 112-732
EMPOWERING AND PROTECTING SERVICE-
MEMBERS, VETERANS, AND THEIR FAMILIES IN THE CONSUMER FINANCIAL
MARKETPLACE: A STATUS UPDATE
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
ON
A STATUS UPDATE EXAMINING THE EMPOWERMENT AND PROTECTION OF
SERVICEMEMBERS, VETERANS, AND THEIR FAMILIES IN THE CONSUMER FINANCIAL
MARKETPLACE
__________
JUNE 26, 2012
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Laura Swanson, Policy Director
Catherine Galicia, Counsel
Andrew Olmem, Republican Chief Counsel
Beth Zorc, Republican Counsel
Dawn Ratliff, Chief Clerk
Riker Vermilye, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
?
C O N T E N T S
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TUESDAY, JUNE 26, 2012
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 2
Senator Reed................................................. 3
WITNESSES
Hollister K. Petraeus, Assistant Director, Office of
Servicemember Affairs, Consumer Financial Protection Bureau.... 5
Prepared statement........................................... 27
Responses to written questions of:
Senator Bennet........................................... 38
Senator Hagan............................................ 39
Colonel Paul Kantwill, Director, Office of Legal Policy, Office
of the Under Secretary of Defense (Personnel & Readiness),
Department of Defense.......................................... 7
Prepared statement........................................... 30
Responses to written questions of:
Senator Crapo............................................ 40
Joseph R. ``Beau'' Biden III, Attorney General, State of Delaware 8
Prepared statement........................................... 35
(iii)
EMPOWERING AND PROTECTING SERVICE-MEMBERS, VETERANS, AND THEIR FAMILIES
IN THE CONSUMER FINANCIAL MARKETPLACE: A STATUS UPDATE
----------
TUESDAY, JUNE 26, 2012
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:03 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 call this hearing to
order.
As we approach the Fourth of July and celebrate the
military men and women who keep our country free, it is
important for us to be reminded about the unique consumer
financial challenges the military community faces. As I have
often said, these issues are near and dear to me, 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 3,400 military
personnel at Ellsworth Air Force Base.
Last November, we held a hearing to examine how the
military community manages its financial needs. We learned
about the important role financial readiness plays in mission
readiness, and we looked at tools and protections available to
help the military community navigate the complex consumer
financial marketplace--including the Office of Servicemember
Affairs at the Consumer Financial Protection Bureau.
As a follow-up to that hearing, we are here today to
receive a status update and examine the progress made to help
military consumers. We will also hear about new approaches to
improve financial education training for servicemembers and
their families.
It is important to remember that military consumers differ
from other consumers. Many servicemembers are young, have debt,
and have 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. That mobile lifestyle also means they need
banking services that are accessible around the world. When a
servicemember deploys, he or she must be certain that family
members have appropriate access to family finances in order to
handle bills and other financial needs in their absence.
It was with those needs in mind that Congress created the
Office of Servicemember Affairs at the CFPB, and I am proud to
once again welcome to this Committee the head of that office,
Assistant Director Holly Petraeus. As a military daughter,
wife, and mother, Mrs. Petraeus is very qualified to lead this
office, and I am grateful for the work she does on financial
issues that impact the military community. She is a tireless
advocate on their behalf.
Since taking on this new role, Mrs. Petraeus has visited 37
separate military installations or units, met with the senior
leadership of 15 different State National Guards, and has met
with 13 different State Attorneys General. Last month, I had
the honor of hosting Mrs. Petraeus in South Dakota at Ellsworth
Air Force Base and Camp Rapid.
We are also joined today by Colonel Paul Kantwill and
Delaware Attorney General Joseph ``Beau'' Biden. Colonel
Kantwill is the Director of Legal Policy at the Department of
Defense Office of the Under Secretary for Personnel and
Readiness. His office works closely with Mrs. Petraeus' office
to improve the financial lives of the military community. He
will discuss what the Department of Defense is doing to educate
and assist servicemembers in this area. And Attorney General
Biden not only brings an important State law enforcement
perspective to these issues, but also the perspective of a
Judge Advocate General in the Delaware Army National Guard.
Welcome and thank you both for your service to our country.
In closing, I would like to recognize our veterans and the
thousands of servicemembers who continue to serve in harm's way
in defense of our country. I am grateful for their service and
to their families for supporting them. 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 as well as the
Senate Banking Committee, I will continue to work to ensure
servicemembers and veterans have the resources they need and
protections they deserve.
With that, I turn to Ranking Member Shelby for his opening
statement.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman.
Today the Committee will continue its oversight of the
available protections for our servicemembers, veterans, and
their families in the consumer financial marketplace. This
Committee held a hearing last November to examine this
important issue. During that hearing we heard about the unique
financial problems that confront servicemembers and their
families.
One problem is the disruption caused by overseas
deployments and other relocations. When Permanent Change of
Station orders, or PCS orders, are issued, servicemembers are
required to move, even if they owe more on their mortgage than
their home is worth. Under such circumstances, servicemembers
are faced with continuing to pay a mortgage for a house they no
longer live in or defaulting on their loans, which they do not
want to do.
At our last hearing, we were told that this problem is
compounded by the fact that a servicemember would not be able
to qualify for a loan modification or a short sale if the
servicemember was not yet delinquent. In response to this
challenging problem, several agencies have recently taken
action. The Federal Housing Finance Agency has announced that
it will allow a servicemember who is given PCS orders and is
current on a Fannie Mae or Freddie Mac mortgage to qualify for
a short sale. The FHFA policy change will also allow Fannie and
Freddie to waive any deficiency judgment against the military
borrower.
In conjunction with this announcement, our Nation's banking
regulators also issued guidance on how mortgage servicers
should treat military members who are struggling under the
weight of PCS-related moves and mortgage debt. Today I would
like to hear from the Bureau of Consumer Financial Protection
about how this guidance will help our Nation's servicemembers
who face these difficult choices when they receive PCS orders.
Last November, this Committee also heard about violations
of the Servicemembers Civil Relief Act by two of our Nation's
largest banks. We heard that these banks violated this law by
foreclosing on members of the military while they were on
active duty. This is the sort of problem no military member
should have to worry about while fighting overseas.
Presently, the Department of Justice is undertaking a
review of several large mortgage servicers to determine if any
other violations of the act have occurred. Accordingly, I hope
to learn whether additional violations have been uncovered as
part of this review and whether the affected servicemembers
have received the remedies to which they are entitled.
Mr. Chairman, during the last hearing I stated that while
often there appears to be very little upon which our respective
sides can agree, there is complete agreement, I believe, on our
joint commitment to supporting our men and women in uniform.
This hearing I believe is a demonstration of our continuing and
just commitment.
Thank you.
Chairman Johnson. Thank you, Senator Shelby.
Are there any other Members who wish to make a brief
opening statement? Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Well, thank you very much, Mr. Chairman and
Ranking Member Shelby, for holding this hearing, and welcome to
our witnesses. I am particularly delighted that Holly Petraeus
is here. One of the more satisfying efforts that I undertook in
the Dodd-Frank debate was helping to create the Office of
Servicemember Affairs, and you are doing a superb job running
that organization. Thank you very much.
We all understand that our soldiers, sailors, marines,
airmen, and Coast Guard are all making a huge sacrifice for the
country, and we have to respond by protecting their best
interests and the interests of their families. And, again, I
will echo Senator Shelby's comments about the recent settlement
with FHFA and others in terms of providing protections for
servicemembers who are on orders but cannot sell their house
because they are underwater. And I hope that this new practice
will materially aid members throughout the military, so thank
you for that.
Colonel Kantwill, thank you for being here. You are every
day protecting active-duty men and women who are serving the
country. We have included in the Defense Authorization Act,
because we have jurisdiction under what is known as the
Military Lending Act, provisions that we hope will provide you
further leverage. We passed legislation, for example, that
tried to cap lending at 36 percent for active-duty personnel.
Some wily folks decided that since you defined it as ``closed-
ended lending,'' they would make it open-ended lending and
lower the ceiling. Well, open-ended lending is now going to be
subject to the cap, too. So we continue to try to work with you
to provide you the tools necessary to protect the service men
and women and anybody who has had the privilege of commanding
or being an XO of an infantry company understands some of the
practices that servicemembers are faced with, and what you do
to protect them is absolutely vital.
We are also working to aid in terms of providing extensions
in benefits for other housing protections under the
Servicemembers Civil Relief Act. One is to ensure that
surviving spouses of military personnel are also protected from
foreclosure. We have foreclosure protections for active-duty
service men and women, but I cannot think of anything more
disconcerting than to have a spouse lose a servicemember and
then be subject immediately to foreclosure. So we are trying to
fix that, and also make it easier to get out of the rental
contract and move back on base when you get housing. So there
are lots of things we can do and should do.
Finally, let me commend Attorney General Biden. No one has
led the effort to protect service men and women at the State
level--and not just service men and women. Your active
participation in the mortgage settlement by the AGs has been
inspiring. I think it comes from the fact that not only have
you served, but I think one of the first times we met, you were
in Iraq, Captain Biden, and so thank you for your service.
Thank you.
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. Now I will briefly
introduce our witnesses.
Mrs. Holly Petraeus is Assistant Director for Servicemember
Affairs at the Consumer Financial Protection Bureau.
Colonel Paul Kantwill is Director of Legal Policy in the
Office of the Under Secretary for Personnel and Readiness at
the Department of Defense.
The Honorable Joseph R. ``Beau'' Biden III, currently
serves as Delaware Attorney General and is a major in the
Delaware Army National Guard's Judge Advocate General Corps.
I thank you again for being here today. I would ask each
witness to please keep your remarks to 5 minutes, and your full
written statement will be included in the hearing records.
Ms. 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.''
In the 7 months since I first testified here, I have
traveled to 27 military installations across the country. Just
last month, Chairman Johnson was kind enough to invite me to
South Dakota to visit Ellsworth Air Force Base and to meet with
members of the South Dakota National Guard. Senator Tester also
invited me to Montana in January, where we visited the Montana
Guard and Malmstrom Air Force Base.
During my travels I keep hearing about certain hot-button
items. For example, in almost every town hall I conduct,
housing concerns come up. Active-duty servicemembers who own
underwater homes are faced with a true dilemma when they
receive Permanent Change of Station, or PCS orders and have to
move. What do they do when they cannot sell the house for
enough to pay it off?
Many of them have not been getting the timely assistance or
accurate information they need. They have been: told they had
to be delinquent before they could qualify for help and even
advised to skip payments; asked to waive their rights under the
Servicemembers Civil Relief Act; stalled with repeated demands
for loan documents; routed to a different person with each
call; denied SCRA protections; listed as failing to respond
while deployed; and given information about foreclosure
alternatives too late to do any good.
I am pleased to report that some progress has been made
this year. A recent settlement between the Federal Government,
49 States, and the five largest mortgage servicers addressed
SCRA issues and provided some short-sale opportunities and
deficiency waivers for servicemembers with PCS orders.
And last week the Federal Housing Finance Authority, which
oversees Fannie Mae and Freddie Mac, announced that PCS orders
are a qualifying hardship for a short sale and that a
servicemember on PCS orders with a Fannie or Freddie loan for a
property purchased on or before June 30, 2012, will not be
asked to make a financial contribution to receive the short
sale or be liable for the difference between the short sale
amount and the original mortgage amount.
I have also worked with the Department of the Treasury, and
now military homeowners who have to move because of PCS orders
are eligible for a HAMP Tier 1 mortgage loan modification,
provided they intend to come back to their house and do not buy
another house elsewhere. I was really pleased to see this
change from requirements that the home be owner-occupied.
Also last week, the CFPB, along with the prudential
regulators--the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System, the Office of
the Comptroller of the Currency, and the National Credit Union
Administration--issued supervisory guidance alerting mortgage
servicers that military homeowners with PCS orders should get
accurate and clear information from their mortgage servicers
early enough to make informed decisions that will minimize
damage to their financial readiness. We were very glad to have
all the prudential regulators see the importance of this
guidance and collaborate with us on it.
Now, on another issue: you may recall that I testified in
November about aggressive marketing to military personnel and
their families by certain institutions of higher education--
pushing not only enrollment, but also expensive private student
loans. CFPB's Office of Students posted on our Web site,
ConsumerFinance.gov, a beta version ``Know Before You Owe''
financial aid shopping sheet to help prospective students
determine the costs of their college degree and compare
financial aid offers, and asked for comments on how to improve
it. They have also developed a Student Debt Repayment Assistant
to help borrowers learn their options when repaying educational
loans.
On the same topic, on April 27th I was honored to go to
Fort Stewart, Georgia, when the President signed an Executive
Order establishing principles of excellence for educational
institutions serving the military. The order directed the
Departments of Defense, Veterans Affairs, and Education, in
consultation with the CFPB and the Attorney General, to take
steps to ensure that servicemembers, veterans, and their
families can get the information they need about the schools
where they spend their education benefits.
When I last appeared before you, I was taking a look at the
financial education given by the military at basic training. My
office is now developing a short financial education curriculum
to be delivered via smartphone or computer during the Delayed
Entry Program, or DEP, when an individual has committed to the
military but has not yet gone to boot camp. A recruit in DEP
has more time and less stress than at basic training and we
think will better retain some ``just-enough and just-in-time''
financial lessons.
Finally, I would like to highlight a few more of the
consumer issues that I have heard about.
The first is aggressive and deceptive tactics by debt
collectors targeting members of the military.
The second concerns abuses connected with the veterans
benefit known as Aid and Attendance. I have heard about an
increasing number of individuals and companies that use Aid and
Attendance as a hook to sell their services to elderly
veterans.
And one final area of concern is loans marketed to the
military, some with very high interest rates.
In conclusion, the CFPB's Office of Servicemember Affairs
is working hard on financial education and consumer-protection
measures for our military personnel and their families, and it
is our honor to serve them through our work.
Thank you for the opportunity to testify before the
Committee.
Chairman Johnson. Thank you, Mrs. Petraeus.
Colonel Kantwill, you may proceed.
STATEMENT OF COLONEL PAUL KANTWILL, DIRECTOR, OFFICE OF LEGAL
POLICY, OFFICE OF THE UNDER SECRETARY OF DEFENSE (PERSONNEL &
READINESS), DEPARTMENT OF DEFENSE
Colonel Kantwill. Good morning, Chairman Johnson, Ranking
Member Shelby, and Members of the Committee. It is a great day
to be a soldier. It is always a great day to be a soldier. And
it is an honor to appear before you this morning and represent
the Department of Defense and all of our great men and women in
uniform.
It is a pleasure to testify before you regarding the
consumer financial issues we see affecting servicemembers and
their families and the Department's response thereto. I serve
currently, as was noted earlier, as the Director of Legal
Policy at OSD, but my perspective on these issues will also be
that of a practitioner and a servicemembers' advocate. I am a
career active-duty Army Judge Advocate with more than 22 years
of experience, and my primary motivation in many tours of duty
across the globe and in active theaters of operation has been
to provide first-class legal support to our troops and their
families.
I have seen, therefore, firsthand and I keep in mind daily
in my present capacity that a servicemember burdened with
concerns outside of the parameters of his or her mission cannot
reach full combat effectiveness. I assure you this perspective
is shared across the Department of Defense.
Just last month, the Department received the report of the
Consumer Federation of America. The report concludes that the
Military Lending Act has had the desired effect of curtailing
the use of payday, vehicle title, and refund anticipation loans
by servicemembers and their families. The overriding theme of
the report, however, is that we have achieved much, but we have
much work to do.
The CFA's findings and recommendations echo what we have
been hearing from our practitioners in the field. While they
concur that the act has largely stamped out the majority of
abuses, they still report seeing payday loans and auto title
loans charging more than the statutory cap of interest, as
Senator Reed noted, or lenders modifying products or procedures
to avoid falling under the act.
The use of pay allotments in consumer credit transactions
remains a subject of continued discussion, and there is an
increase in the use of lending over the Internet: Many of the
worst sites are offshore and, therefore, outside the
applicability of the act.
Yet another concern in the field is that automobile
dealers, especially used-car dealers and buy-here, pay-here
establishments, are using unusually high interest rate loans.
We are not, of course, out of the woods on mortgage
foreclosures, and SCRA remains a very high priority.
In response to these challenges and in support of our
servicemembers and their families, the Department has remained
vigilant and proactive, implementing an aggressive and
multifaceted financial education and training program,
providing first-class legal assistance, and working with other
agencies and the financial industry.
The DOD Financial Readiness Campaign is a concerted effort
to enhance the financial readiness of all servicemembers and
families through education, resources, programs, and
protections. The campaign's goal is to alleviate financial
stressors on the military to enhance family, financial, and
overall mission readiness.
The Services Legal Assistance Programs have risen to the
occasion, offering unprecedented legal support across all legal
disciplines. The primary effort is the provision of legal
assistance where it is needed most: to individual clients at
the installation level. This include tip-of-the-spear services
in all consumer law areas to include SCRA issues, suspect
lending, and aggressive debt practices. The American Bar
Association's Pro Bono Project has been invaluable to us.
The interagency process is alive and well. The Department
and the services are working with the CFPB and the OSA, the
Department of Justice and the Federal Trade Commission, to name
just a few, to ensure that our servicemembers' voices are heard
and their needs are met.
We remain engaged with the financial illiteracy. The
Department has sustained engagement with industry on the SCRA
and the Military Lending Act. Our close working relationship
with the Financial Services Roundtable and the Housing Policy
Council continues. The industry has been highly complementary
of the Department's enhancements of the Defense Manpower Data
Center's data base capabilities. The Department has worked
closely with the Financial Roundtable and other entities to
develop the Military Orders Short Form, a vehicle allowing
servicemembers to invoke their SCRA protections more easily.
Our work with the industry, the interagency and Congress is
producing protections and benefits for military members
disadvantaged by PCS orders.
In response to these concerns and developments, the
Department has already undertaken efforts to acquire the best
available current data from the field. Underway is the
formulation of a survey to be propounded upon the experts in
the field--the boots on the ground, if you will, those who work
with our families on a daily basis. The results of this survey
will inform the way ahead.
In conclusion, the Department is committed to our
servicemembers and our families, and we remain steadfast in
supporting them in every way, especially as it concerns their
financial futures.
On behalf of the Department, I thank you for your
assistance and your support. It is my privilege to appear here
before you, and I look forward to your questions.
Chairman Johnson. Thank you, Colonel Kantwill.
Attorney General Biden, you may proceed.
STATEMENT OF JOSEPH R. ``BEAU'' BIDEN III, ATTORNEY GENERAL,
STATE OF DELAWARE
Mr. Biden. Thank you, Mr. Chairman, and thank you, Senator
Shelby and Members of the Committee. Thank you for the
opportunity to share my perspective as the Attorney General of
the State of Delaware, as a member of the JAG Corps, and as a
veteran on the work being done to help servicemembers,
veterans, and their families meet their unique consumer
financial challenges. Thank you for focusing on this issue and
other needs of military families with the hearings you have
held in November and today, as well as the important
initiatives so many of this Committee's distinguished Members
are pursuing.
Along with this critically important advocacy and action of
many others in Congress, your work is vital to ensuring that
the concerns of family members remain a national priority. For
example, the support of many of the Senators in this Committee
room was instrumental in establishing the Consumer Financial
Protection Bureau and within it the Office of Servicemember
Affairs, which have proven to be the strong Federal partner
needed by States like mine to reach the most people with the
most valuable solutions. I am glad once again to be with Mrs.
Petraeus, whose leadership at the OSA is driven by a personal
commitment to these issues and to the families members they
affect.
Since this Committee last met in November on this issue, 48
Attorneys General and I joined together with the U.S.
Department of Justice and the Department of Housing and Urban
Development to work collaboratively in a bipartisan fashion, as
you mentioned, Senator Shelby, to collaborative reach a $25
billion historic settlement with the Nation's five largest
mortgage-servicing banks announced earlier this year. That
settlement included several provisions related to the
Servicemembers Civil Relief Act--the SCRA, as you know--that
address some of the most significant mortgage-related issues
military families face. I would not have joined this settlement
without those measures being included in that settlement.
Military families have been hit especially hard by the
housing crisis, as you know. They are often backed into
financial corners by the realities of military life. While the
SCRA and the older statutes from which it developed have
provided important protections to servicemembers since the
Civil War, those various incarnations of the law reflect its
need to evolve. Our enforcement must evolve as we evolve.
I would like to address, if I may--we tried to address some
of the most important prevalent and pressing issues they face
as part of the problems facing servicemembers as we speak.
Specifically, the settlement establishes three points I want to
highlight.
Number one, it establishes that PCS orders must now be
considered when banks or servicers are making hardship
determinations about short sales, deeds in lieu, and loan
modifications. Additional protections guard against inaccurate
reporting of servicemembers to credit reporting agencies for
using loss mitigation options in these circumstances.
Number two, the settlement increases servicemembers' access
to loss mitigation options, including mandating that
information and contact with SCRA-trained employees is readily
available, and that servicers go beyond the requirements of the
SCRA to ensure that more borrowers who are entitled to
assistance before foreclosure receive it. It is critically
important that people know what they are talking about when
servicemembers contact them.
And, number three, the settlement states that the homes of
active servicemembers deployed in combat areas cannot be
foreclosed on in most instances, even if the debt was incurred
after they entered military service. This was a significant
expansion beyond the terms of the current SCRA, which only
provides this protection for debt incurred before entering the
armed services. And this is a critically important point. It is
one I dealt with when I was in Iraq, one that you are all too
aware of, when you have servicemembers who are facing
foreclosure and they should be focused on the mission that they
are sent to achieve for our Nation.
In addition, Assistant Attorney General Tom Perez and his
staff at the U.S. Department of Justice Civil Rights Division
negotiated provisions that direct payments to servicemembers
who experienced wrongful foreclosures and interest charged in
excess of the 6 percent allowed under the SCRA. The payments
will come from funds secured on top of the $25 billion
settlement.
We were able to achieve a great deal with this bipartisan
settlement, but as is evident from the servicing guidelines
issued by the CFPB last week, we must work to make these
changes permanent. My fellow Attorneys General and I stand
together across State and party lines in our commitment to
vigilantly enforce the ongoing investigations of these
practices. This settlement was an important step in the right
direction, but just one step in that direction.
I would like to reserve the rest of my remarks and submit
them for the record and answer any questions you have. Thank
you for the opportunity to you have given me here today, and
thank you for your focus on this critically important issue to
military families and veterans.
Chairman Johnson. I would like to thank all of our
witnesses for their testimony.
As we begin questions, I would ask the clerk to put 5
minutes on the clock for each Member.
Colonel Kantwill, when Mrs. Petraeus and I were visiting
Ellsworth Air Force Base last month, concerns were raised about
the impact of PCS orders. This fall, an airmen from Creech Air
Force Base in Nevada will be transferred to Ellsworth to
support a new MQ-9 Reaper mission. What information will they
receive to address mortgage problems when they are transferred?
Would you be willing to share them with my staff so that they
can better serve and assist servicemembers?
Colonel Kantwill. Yes, Senator, I would be happy to do
that. And in direct response to the question now, I can tell
you that, as I noted during my opening comments, our legal
assistance authorities are doing an unbelievable job on behalf
of servicemembers in the field. One of the great aspects of my
current duties is the fact that I work daily with the service
chiefs of legal assistance. They are also involved in many of
the efforts of the CFPB and the OSA. They are tied into the
industry as well. They can keep a pulse on what is happening in
every respect. And they feed the information that we gather
right down to the attorneys in the field.
So the legal practitioners at post camps, stations,
installations, et cetera, are completely up to date on all of
the developments. They have the opportunity to meet with
soldiers, sailors, airmen, and marines on a regular basis,
obviously assist them in their office, provide briefings when
they move from installation to installation, provide pre- and
post-mobilization briefings, provide pre- and post-deployment
briefings as well, all with a view toward getting as much
information as they possibly can to the servicemembers in order
that the servicemembers may make better and well-informed
choices.
Chairman Johnson. Attorney General Biden, last month you
and 21 other Attorneys General, including Marty Jackley from my
home State, wrote to Members of the House and Senate regarding
the 90/10 rule. I am a cosponsor of legislation that would
close the loophole that incentivizes for-profit colleges to
enroll vets and other servicemembers.
How have you seen the 90/10 issue affecting military
families in Delaware? And what are you and other AGs doing to
try to protect students from unfair and deceptive marketing
practices?
Mr. Biden. Thank you, Mr. Chairman.
Number one, Jack Conway, the Attorney General from
Kentucky, is leading the charge at investigating in a
bipartisan, multi-State fashion for-profit colleges, not the
least of which is the 90/10 rule. I joined with Jack Conway
and, as you said, a number of other Attorneys General,
applauding the effort by this Committee and Members of this
Committee and Senator Carper in the legislation you cosponsored
on the 90/10 rule specifically.
What we see in Delaware and what I see wearing my JAG hat
in the military is that soldiers are marketed to in a very
aggressive fashion. This is something that Mrs. Petraeus and I
have discussed on a number of occasions, and she sees it as she
travels the country, I am sure, and can speak to it as or more
eloquently than I. But we see these folks targeting and
marketing to soldiers who they know have money and access to
both money as well as the GI bill.
There is no question in my mind and the part of many of my
colleagues, if not all, that the 90/10 rule should be changed,
and we highly support, at least those who sent the letter to
you, a change in making sure that the GI bill monies are on the
90 side and not on the 10 side.
Chairman Johnson. Mrs. Petraeus, once again thank you for
coming to South Dakota and sharing your knowledge with members
of the South Dakota National Guard and the airmen at Ellsworth
Air Force Base.
Military installations have either a bank or credit union
onsite. What can these institutions, which have special
permission to operate on military installations, do to provide
better and more innovative products and services to members of
the military?
Ms. Petraeus. Thank you for asking that. The banks and
credit unions that operate on military installations do so
under a contract with the Department of Defense, and part of
that contract is that they provide financial education. When
those contracts are up for review, certainly the Department of
Defense can speak to them about improving their offerings.
My office held what we called the ``Financial Fitness
Forum'' last December, where we asked the banks and credit
unions that dealt with the military to come together and tell
us about what they were doing for their military customers. And
we did have about 45 credit unions and 8 banks participate in
that. There were some that had some innovative, small, short-
term credit products that they felt they were able to make
enough of a profit on to present, which would help young
servicemembers who so often have a thin credit file or no
credit file and are considered a risk for more conventional
loans.
So I think there is a lot that can be done. I hope we can
continue the dialog, as we did back in December, and I know the
Department of Defense is also able to look at things when these
banks do come up with for renewal and talk to them about what
they might offer for their customers on base.
Chairman Johnson. Thank you.
Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Mr. Biden, as the Chairman mentioned, you were part of the
recent settlement with the Nation's five largest mortgage
service banks. You stated in your testimony that, as part of
this settlement, servicemembers who were wrongfully foreclosed
upon and charged interest in excess of the limit under the
Servicemembers Civil Relief Act would receive compensation for
these violations.
My question today basically is: About how many
servicemembers have been helped by this settlement?
Mr. Biden. I do not have an exact number for you, but I can
get you exact numbers.
Senator Shelby. Can you do it for the record?
Mr. Biden. I would have to guess what the exact number
would be.
Senator Shelby. Is it a good many?
Mr. Biden. It is a good many, and what we have seen is the
banks, the servicing banks, have seen the writing on the wall
based on being called before this Committee.
Senator Shelby. Absolutely. What is basically--in the ball
park figure, what is the total amount that has been paid out to
servicemembers? If you do not know, can you furnish that for
the record?
Mr. Biden. That is a number I would have to--I would be
more comfortable getting you the exact number.
Senator Shelby. Is it a good bit of money?
Mr. Biden. It is a significant amount of money, yes, sir.
Senator Shelby. Roughly, how many total servicemembers do
you expect to ultimately help?
Mr. Biden. We expect to help hundreds and hundreds of
servicemembers and their families by way of this settlement.
Servicemembers are no different than civilians. They have been
greatly affected by the housing crisis. You have one-third of
the American population underwater, and so this is a population
no different than the civilian community that has been
significantly impacted and will be benefited by this statement.
Senator Shelby. Ms. Petraeus, the Bureau recently announced
that it would delay its release of the qualified mortgage final
rule until the end of this year. I believe this rule will
determine who has access to mortgage credit. It could have a
substantial impact on members of the military because generally
members of the military, as you know well, are young, have a
small credit file, and basically have few assets.
Do you have any concerns about how this rule may impact the
ability of servicemembers, our soldiers, to obtain mortgage
credit? And if so, has your office expressed your concerns to
the staff at the Bureau who are writing this rule? I think this
is important.
Ms. Petraeus. Well, thank you for asking that question. We
do have some very talented people on our mortgage team that are
far more qualified to address the intricacies of the Qualified
Mortgage Rule than I am, so I do not want to get down in the
weeds and say what is not right.
I will say I work with our mortgage team quite often. We
have certainly been talking to them a great deal over the past
year as we tried to work out some of the protections that you
mentioned that have recently come into place, both the Mortgage
Servicer Guidance and also the announcement by the FHFA that
they were going to provide some principal forgiveness.
So I am learning about the mortgage issues, but I would
never want to put myself up as the expert at the Bureau on
that. So I will defer to them. If you would like to submit us a
question for the record, I would be happy to have us respond in
that way.
Senator Shelby. Well, I think that most of us as
policymakers would want to make sure that our soldiers are not
cutoff from credit arbitrarily or maybe unintended, but work
that way. Do you have any comments?
Mr. Biden. One of the benefits of the settlement is that it
limits the banks--the servicing banks have agreed to limit the
information that they pass on to the credit bureaus that ends
up having a negative impact on a soldier, sailor, airman, or
marine's ability to get a house or get a credit card or any
other thing that requires a credit history when they return.
So the servicing banks by way of this settlement are going
to be much more careful and much more circumspect about what
and where they report and whom they report it to.
Senator Shelby. Thank you.
Colonel Kantwill, we have heard testimony today that some
lenders are evading the Military Lending Act by structuring
their loans as open-end credit. In its 2007 rule, the
Department of Defense, as you well know, opted not to cover
open-end credit products under the Military Lending Act.
Do you know what were the original reasons for excluding
open-end credit products from coverage? And have any of these
reasons changed?
Colonel Kantwill. I do not know all of the reasons, Senator
Shelby, but I can certainly tell you that part of it goes back
to the comment that you just made, and that is the availability
of credit. Everything that we do in the Department and in this
industry, I think, has to be balanced in making sure that we do
have some accessibility to credit for people who may not
otherwise qualify.
Senator Shelby. Soldiers and their families have got to
live like all of us, and under difficult circumstances.
Colonel Kantwill. Yes, sir, absolutely. And by the same
token, we have to protect them as much as we possibly can. And
that is one of the reasons, sir, I noted at the outset that we
are now undertaking a survey, and we are going to go directly
to the people who work with families on a regular basis to
determine exactly what is going on in the field, and that will
help us when we go through, if we go through the rulemaking
process, the definitional process heretofore. We are also happy
to have the recent CFA report, which reports on a lot of those
issues as well, and we will consider the findings and
recommendations carefully there as well.
Senator Shelby. Colonel, you might know. I do not know what
the average age in America is of all our forces, armed forces,
but it is young.
Colonel Kantwill. It is, sir. Approximately 50 percent of
the force is 25 years of age or younger.
Senator Shelby. If they are like me, they have got a lot to
learn, you know, all of us.
Ms. Petraeus, you described the recent efforts of Federal
agencies to address the financial problems that military
personnel may experience when they move because of a Permanent
Change of Station order, which you know. In your testimony you
also noted that, from a personal standpoint, you and your
husband, General Petraeus, moved 24 times in 37 years, and you
did not live in a house for more than 4 years straight. I know
you are a military family.
Based on your own personal experience, how did your
frequent moving impact your financial planning? It had to have
some impact.
Ms. Petraeus. Well, certainly it did. You know, it is a big
consideration when you arrive somewhere. I have had people in
the financial community ask me why military buy houses at all.
And, of course, you know, they have the same motivations that
the rest of Americans do.
Senator Shelby. Sure.
Ms. Petraeus. They want a part of the American dream. But
it is a consideration when you know that you may be moving on
in a short time.
I think many of them certainly have been caught up in the
economic downturn. They bought a house and assumed that it
would hold its value, if not go up.
My husband and I just happened to be fortunate and hit it
right the couple of times that we did opt to buy rather than to
rent. But it was always a consideration; how are you going to
work it.
So the ideal thing would be to have bought a house and have
a decent amount of equity in it by the time you come to retire.
And my husband and I really were not able to do that. So I can
certainly sympathize with these families who are making tough
decisions as they move.
Senator Shelby. What advice would you, coming out of a
military family yourself and married to a famous general, whom
we all know, what would your advice be to young servicemembers
who are considering becoming a homeowner? And I think it is
important to counsel them in some way.
Ms. Petraeus. I think the most important advice is to go
into it very well-educated and to make a plan. And the fact is
that the Department of Defense has financial education and
financial counselors that can really assist you in that area.
So the first thing I would tell them is go and ``know
before you owe,'' as we say at the CFPB. Go and get the
information that is provided for you before you make that
decision and sign on the dotted line, because it is a very
long-term contract that you are going to be living with for
quite a while.
Senator Shelby. Thank you.
Any other comments, Mr. Biden?
Mr. Biden. I would just like to add, one of the points that
is important to highlight in this settlement is the PCS issue
that you were highlighting. What has been done heretofore is
military families have been literally ripped apart. Banks have
required if not advised families to claim something that is not
true, and that is, in order to qualify for hardship----
Senator Shelby. That is totally wrong to do that.
Mr. Biden. Correct. It is not only wrong, but it is illegal
and immoral. And so what the banks have agreed to do is not do
that.
For instance, they have actually, in my experience as a JAG
and my experience as Attorney General, encouraged people to not
make a payment. That thereby allows them to qualify for a
hardship, and the discussion about whether or not there is
something other than a foreclosure that can take place. You
should not force someone into damaging their credit to have a
discussion about something short of a foreclosure. The
settlement will end those practices.
More importantly, what relates to the military families is
that it used to be that in order to qualify for a hardship, you
had to have the home that you were seeking a modification of
the mortgage of to be your primary residence. This is the issue
that the Colonel and Ms. Petraeus saw time and time again. What
that did was it forced someone to stay at Dover Air Force Base
and leave their family behind when they moved on to Ellsworth.
We should not rip and tear families apart to qualify for a
hardship which then gives them a chance to have a discussion
about something short of foreclosure.
This settlement changes that, Senator.
Senator Shelby. Good.
Mr. Biden. And Mrs. Petraeus in her agency has been able to
leverage that throughout the system to remove some of those
kind of impractical and harmful effects that currently existed.
Senator Shelby. Colonel, do you have a comment?
Colonel Kantwill. I do, sir. This is a substantial
protection, and I thank General Biden and Mrs. Petraeus and all
of the people who have been working on it.
It is particularly noteworthy because this is a problem
that affects the active-duty force. As you know, many of the
SCRA protections, because they deal with preservice
obligations, affect more the Reserve component force. And the
PCS issue and the homeownership issue is something that hits
very, very close to home for the active-duty population and,
therefore, we think this is a wonderful initiative, and we
appreciate all the assistance and support.
Senator Shelby. Thank you, Mr. Chairman.
Chairman Johnson. Senator Reed.
Senator Reed. Well, thank you, Mr. Chairman.
Colonel Kantwill, thank you for your work. The Military
Lending Act, as Senator Shelby pointed out, imposed certain
limits on lending, and DOD chose to make that sort of closed-
end lending.
I think it is important to point out that the cap is 36
percent, so in terms of credit availability, particularly in
this market, when people are, you know, charging 36 percent
interest rate, I do not think we are talking about losing good
access to credit. You are looking at being sort of taken for a
ride in terms of credit.
Administratively, you are considering, I presume, changes
that would cover open-ended credit. Is that correct?
Colonel Kantwill. It is, sir. And as we go into the study,
that is one of the things that we will look at very, very
closely. The CFA report was rife with recommendations with
respect to those particular provisions, and, yes, sir, we will
examine that very, very closely.
Senator Reed. And I think you are aware that in the pending
Military Authorization Act there is language directing you to
include open-ended credit.
Colonel Kantwill. Yes, sir. And if I may add, Senator Reed,
we are especially grateful for the very good relationships that
we have had with your staff over the many months that I have
been in these duties. I have had countless occasions to work
with your staff members, and they have been very supportive and
very proactive in this area, and we appreciate it very much.
Senator Reed. Thank you very much, sir.
Let me turn to another issue that is pertinent
legislatively, that is, the Servicemember Housing Protection
Act. I know Attorney General Biden is familiar with it; I think
you all are. There are three key provisions in it, and I would
like you all to comment upon the need and necessity to get it
done quickly.
One is it would make it easier for servicemembers to claim
deployment-related financial and credit protections by
expanding the notion of military orders to include a letter
from the commander indicating--now I think you understand there
are people waiting on orders, sort of they are in flight and
they get the orders, and that is just disruptive to try to
claim these protections.
Second, as I mentioned in my remarks, extending protections
to surviving spouses from foreclosure, which I think, again, is
absolutely essential.
And the third is to ensure that members who are living off
post when on-post housing is available, they can move in
without penalty. There are several States--Georgia, Virginia
among the States--that already have this as a State protection.
Starting with Mrs. Petraeus, should we move very quickly
and get this done on these critical issues?
Ms. Petraeus. Thank you for your work for the military.
Certainly on the part of allowing somebody to use a letter to
substitute for orders, I have heard more than once what a
challenge it was when the financial institution would only
accept a certain written order, especially for reservists,
frankly, who go on and off active duty very frequently and
sometimes very rapidly.
The surviving spouses, I am very happy to see you consider
them. I do remember the military's HAP program actually did
recognize that they also should be taken care of. So I
appreciate that.
And certainly we have all heard stories about
servicemembers who got housing on-post, and tried to break a
lease. Most recently when I was in Montana, at Malmstrom Air
Force Base, we had a servicemember who told us about his friend
who ended up being held up to the tune of several thousand
dollars by the landlord in order to get out of the apartment
and move onto the air force base. So it is another issue that
needs to be addressed.
Senator Reed. Thank you.
Any comments quickly, Colonel?
Colonel Kantwill. Yes, sir. Those are three great
initiatives, and we support them very much.
I am proud to say that as far as the military orders go,
certainly as you know from your experience, and my colleagues
here do as well, it can take a while to produce orders, they
can be confusing, et cetera, and we have enjoyed a good
relationship with the financial industry, and we have been able
to develop this forum that our folks in the field are now
using, and the industry recognizes as well as a convenient way
to do just as you describe.
The surviving spouse provisions, of course, speak for
themselves. If there is any group of people we need to protect
with vigor, it is those who have given so greatly for their
Nation.
And the move on post, sir, I have been very, very proud to
work with you and your staff on, and we support that
completely. That is something that we hope to see in effect
very, very soon.
Senator Reed. General Biden.
Mr. Biden. I think your legislation is critically
important, Senator. We have been a Nation at war for nearly a
decade, and at any given time, I understand that nearly half
the boots on the ground have some from the reserve forces. And
it is critically important for reservists, both Guard and
Reserves, to have this fixed. And I applaud your efforts for
fixing at least--all three, but especially the orders piece.
Often I have deployed, deployed with and helped deploy
soldiers who receive their orders, if they receive them, as
they are getting on the plane, and there is no way to do what
you need to do by way of taking advantage of the SCRA if you do
not have those orders. And the banks need to understand this.
They do, but sometimes in the 1-800-HELL that sometimes exists
out there, people do not know even if there is a policy within
their banks that they should know, so thank you.
Senator Reed. Thank you, General. My time has expired, but,
Colonel Kantwill, we are going to send a written question about
this whole allotment process you alluded to, because, again, in
the old days, in my sense, the allotment was really made to be
sent home to Mom and Dad or to your wife, et cetera. Now it is
being used to secure or pay for electronic devices, and I think
there is a lot of room to tighten it up within the Department,
and if there is legislation, you can inform us, and I will
reserve that for a written question.
Thank you, Mr. Chairman.
Colonel Kantwill. Thank you, sir.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. Thank you all
for your testimony and your service.
At our hearing last November, I expressed concerns about
the Military Lending Act, which caps interest rates for
consumer credit to military borrowers at 36 percent but does
not cover all loans. And, in addition, a lot of lenders have
created work-arounds to circumvent the rules and market
predatory loans to servicemembers. So, Colonel, in the National
Defense Authorization Act, there were some provisions to
strengthen the Military Lending Act which we hope close
loopholes and clarify definitions of prohibited practices.
Have you had a chance to review that? And if you have, do
you believe that language helps us achieve the goals that we
were seeking to?
Colonel Kantwill. We are in the process of reviewing all of
the legislation, sir, and that is an issue, as I indicated
earlier, that we are going to take a very, very close look at.
It was focused upon by the Consumer Federation of America. It
is something that Mrs. Petraeus brings back from her visits to
installations, something that we have heard from State
enforcement officers about as well, and we will look at those
very, very closely, sir, and we appreciate it very much.
Senator Menendez. Well, I would hope that in your review
and analysis, if you would tell us--and, Mrs. Petraeus, if you
would tell us--whether or not our goals are accomplished by
that language or whether there are still shortcomings that we
should pursue.
Colonel Kantwill. We will do just that, sir. Thank you.
Senator Menendez. Mrs. Petraeus, have you had an
opportunity to review that language as well? Have you had that
chance yet?
Ms. Petraeus. Not in enough detail that I want to address
it specifically, but I did want to note that our agency has
signed a joint statement of principles with the Department of
Defense specifically on the subject of small-dollar lending. So
we hope to share information back and forth, including what we
hear from the field and also what they hear so we can work
together to address this effectively.
Senator Menendez. Well, back in November when I pursued
this with you, you said supported broader protections but the
devil is in the details, so I am looking to see what you find
in the details.
I also was concerned about the Servicemembers Civil Relief
Act not being properly understood or enforced, resulting in
illegal foreclosures, and we held a hearing on that issue as
the Subcommittee on Housing.
General Biden, I am very interested in ensuring that the
not-so-independent foreclosure review process, as I call it, is
fair, comprehensive, and accountable. And as one component of
that process required by the bank regulators due to banks
harming military members, independent consultants hired by the
mortgage servicers are going to conduct a file review of
foreclosure cases involving borrowers subject to the act, and
compensation is supposed to be provided to servicemembers who
suffered financial harm through the violations.
I am encouraged by the decision to review all of the files
that are subject to the Civil Relief Act, but I remain
concerned that firms hired by the mortgage servicers may not be
truly independent at the end of the day.
Have you had a chance to look at this? And can you discuss
your level of confidence that servicemembers who suffered under
violations of the act will be consistently and fairly
compensated?
Mr. Biden. I share your concerns. I think they are well
placed. And I am hopeful with the pressure brought to the
servicers by you and this Committee as well as the U.S.
Department of Justice Civil Rights Division, as well as the
Attorneys General, will hold their feet to the fire. I do not,
as I sit here this morning, have any indication that they are
not doing what the settlement requires them to do. But I also
did not think that they would have to be called before your
Committee and be told to enforce a law that has been around
since the Civil War.
So I am hopeful that they will comply with both the
settlement and SCRA, which I believe that they are well aware
of, but apparently they were not.
Senator Menendez. And that brings me to my final question.
Can you discuss the differences between the provisions in the
National Mortgage Settlement and foreclosure reviews and the
impact on servicemembers and their families? Are these reviews
sufficiently coordinated, do you think?
Mr. Biden. I believe they are. That is a question I would
have to take back and get back to you on with Tom Miller, who
led the State investigation, as well as the Assistant Attorney
General in charge of the Civil Rights Division. I believe there
is coordination--in fact, I am confident there is. I can get
back to you on the level of that coordination.
As you know, the resolution as it relates to the SCRA
violations, pieces of that are on top of the settlement. And so
I believe there is coordination that is adequate.
Senator Menendez. Well, we appreciate your vigilance and
look forward to your input.
Thank you all.
Chairman Johnson. Senator Tester.
Senator Tester. Yes, thank you, Mr. Chairman. I want to
thank all the panelists for their testimony and thank you all
for your work.
Holly, you have been very, very busy, and you are right to
point out that when we did visit those 450 airmen at Malmstrom,
there were some issues with rental agreements. And we have got
a very young force up there, as you well know, and they
encounter some problems when they have to move off base and
when they move back on base. And I want to go to where Senator
Reed was heading, because the termination of some of these
leases ended up in penalties, and sometimes these leases were
very difficult to get out of.
You have all expressed your support for Senator Reed's
bill, which I am proud to be a cosponsor of, on extending the
protections to the servicemembers when it comes to getting out
of these leases. I guess the question I have, to kind of play
the devil's advocate--and, Holly and Attorney General Biden,
you can answer this, and if you want to throw in some stuff,
Colonel, you certainly can, too. I want to extend the housing
protection to servicemembers. I think it is important we heard
about up at Malmstrom. But I also do not want to make it so we
are inadvertently making them less appealing as potential
renters.
Can you folks talk about that, if there are ways we can
make sure of that--just give me your perspective on that. I do
not want to head one direction too far either. Go ahead, Holly.
Ms. Petraeus. Well, I would simply say that I think with
any new provision you have to think about unintended
consequences, and it is something to consider in a rental
market. If you are now allowing a large proportion to break
their leases to move on base, that is going to have an impact.
And I think it is one that needs to be studied carefully.
Senator Tester. OK. Attorney General Biden.
Mr. Biden. I agree with that, and I think that it has to be
done with everyone's eyes wide open, and I think it is a
worthwhile thing to focus on, Senator.
Senator Tester. If there are ways to mitigate it, I would
certainly be happy to take your perspective.
Colonel, I do not know if you had anything to say on it. If
not, we will move on. Go ahead.
Colonel Kantwill. I concur, sir. It is something that does
require study, and we will certainly do that.
Senator Tester. Well, thanks.
Now I want to talk about potential rent gouging. Right now
the allowance rate is accessible to the public. And if, in
fact, you happen to live in a community where that allowance
rate is higher than the going standard, then rental rates can
be raised and thereby enable some to take advantage of the
situation. And this is to all of you. What can we do to more
effectively help servicemembers navigate the housing market,
particularly in rural areas where the availability of rental
housing may be limited and may be jacked up due to the fact
that the rental allowance rates are public information? Go
ahead, Holly.
Ms. Petraeus. I would just say, again qualifying this as a
nonlawyer and nonexpert, that if they are raising the rates
specifically for military personnel because they know what
their housing allowance is, that might be something that would
fall under one of the consumer financial laws such as the Truth
in Lending Act or Equal Credit Opportunity Act. So it might be
one that could be looked at in that way by our agency.
Senator Tester. OK. Anybody else?
Mr. Biden. I think education as well as I sit here as the
Attorney General, not wearing my military hat but as a JAG, I
think it is something that those in the military have to be
able to make sure they take advantage of the legal services
provided in the JAG offices to help make sure they are not
being gouged.
Senator Tester. OK. Go ahead, Colonel.
Colonel Kantwill. I would add only, sir, that our legal
staffs do look out for these things.
Senator Tester. OK, good.
Colonel Kantwill. And the best of them maintain contact
with local landlords, and they try to advocate on
servicemembers' behalves.
Senator Tester. Super. I want to talk about pension
poachers very, very briefly. Holly, we visited about it a
little bit before the hearing. GAO recently took a look at the
companies and individuals who market financial products and
services to disabled and elderly veterans. There are over 200
organizations that they found scammed veterans into hiding or
restructuring their assets to qualify for VA assistance
programs. I think you know the story. It is somewhat--not just
somewhat distressing. It is incredibly distressing. And I was
just curious if the CFPB is engaged in educating veterans about
these schemes or shedding light on some of the bad actors out
there, if they are playing a role in this at all.
Ms. Petraeus. Well, this is an area at CFPB where two of
our special population offices overlap--my office and the
Office for Older Americans--because these schemes are directed
at elderly veterans for the most part. It so happens that our
Office for Older Americans now, as of late last week, has a
Request for Information in the Federal Register for examples of
elder financial abuse, and we made sure that the Veterans
Service Organizations knew that that Request for Information is
out there. We are really hoping to spread the word widely. We
have also told our DOD friends because that is the initial
step. We need to look at it and then see how we might address
it.
Senator Tester. Very good. Just a quick follow-up. You are
working with VSOs. Have you been able to work with the VA at
all on this issue? Have they reached out to you or have you
reached out to them?
Ms. Petraeus. We talk to the VA fairly often. This issue I
think is one that has really kind of blown up in the last few
months. I first heard about it when I was in Montana with you
in January, and then it seemed like every subsequent State I
visited, the head of the Veterans Affairs for the State would
ask me if I had heard about problems with it.
So I think it is on the radar, and we do look forward to
working with the VA to see how we can educate people to avoid
these scams as well as possibly address it in other ways.
Senator Tester. OK. Well, I certainly appreciate working
all the panelists. Thank you very, very much for being here
today.
Chairman Johnson. Senator Hagan.
Senator Hagan. Thank you, Mr. Chairman. Thank you for
holding this hearing. I really want to thank all of our
witnesses for your testimony and for the service that you
perform for our country each and every day.
Mrs. Petraeus, the last time that you came before this
Committee, you testified about the aggressive marketing and
recruiting of military personnel and their families by certain
institutions of higher education. I expressed my strong
concerns about the egregious behavior of some of these
institutions then. I want to reiterate those concerns now.
In fact, I have heard of instances of aggressive
recruitment taking place at the Wounded Warrior barracks at
Camp Lejeune and in other places in North Carolina. I know the
President has issued an Executive order to be sure that such
egregious behavior does not take place.
When we look at the amount of funding going into the post-
9/11 GI bill--which I really want to be sure that all of our
military personnel use that to further their education for
themselves and their families--eight of the top ten recipients
of that post-9/11 GI bill are for-profit education companies.
They are training about 25 percent of the veterans, but are
receiving close to 37 percent of the funds.
I introduced a bill called ``Protecting Financial Aid for
Taxpayers and Students Act'' (S.2296). The bill says that
revenues derived from Federal student aid programs, including
the GI bill, may not be used for marketing, recruiting, and
advertising. They can still do all the marketing, recruiting,
and advertising they want with private tuition dollars, but not
with Federal Government assisted dollars. Right now we know by
law that for-profits can get about 90 percent of their funding
from the Federal Government. Some of these for-profits are
spending close to 30 percent on marketing, recruiting, and
advertising.
I want to be sure that our veterans and our military
individuals are not being targeted in inappropriate ways.
I applaud the efforts of the CFPB's Know Before You Owe. I
believe it is going to go a long way toward ensuring that
students have a clearer idea of how much their education is
going to cost and what they are expected to have to pay back.
In your testimony, you mentioned that aggressive marketing
results in students taking out expensive private student loans
to pay for tuition and fees not covered by the GI bill. Do you
have any idea how often veterans are in situations in which
their benefits do not cover the cost of their tuition?
Ms. Petraeus. I think it has been difficult to get really
accurate information on the numbers of that sort of thing. It
has also been hard to tell what you are paying with. A lot of
the money is just all lumped together. We have certainly heard
that servicemembers and veterans did not realize that part of
what they were paying was their GI bill, but then they were
almost involuntarily being put in for private student loans
versus being advised: ``Here is what your GI bill will pay,
next you should look at Federal student loans, then you should
go to private loans as a last resort.'' And if the program
costs that much money, I would think then you also might want
to think about: is that the best place to spend your dollars?
But it has been very hard to tell that because it has all
been kind of lumped together in one big package, and you are
just told it will all be taken care of.
Senator Hagan. Will the Know Before You Owe Web site
actually educate servicemembers and veterans on the difference
between a private student loan and a Federal one? And will it
also explain how to use the GI bill benefits? If you type in
``GI bill'' now on a search, instead of the official Department
of Veterans Affairs site coming up, in many cases there is a
site that asks for a lot of collecting of information on behalf
of paying for for-profit clients is what the individual veteran
or military servicemember is now getting. Will you all have any
way to look at how the Web site comes up under Know Before You
Owe?
Ms. Petraeus. I think there are a lot of people interested
in addressing that. Both the agencies that are working on the
President's Executive order in consultation with us and also
some of the Attorneys General have addressed it as well. So we
really do want people, when they go online, to find really
impartial advice, not a lead generator for for-profit schools,
that masquerades as helpful GI bill advice when it is anything
but. So that is very much on the radar, and I think a number of
groups are working to address that.
Senator Hagan. Attorney General Biden, do you have any
comments on this question?
Mr. Biden. First of all, I would like to applaud your
leadership on this. We have spoken about it, and thank you for
shining a bright light on this issue of critical importance.
Fixing the 90/10 rule I think is critically important. It will
take some of the pressure off of the--you know, the pressure
that these for-profit colleges feel to market to those folks,
stating it nicely, so thank you for your effort on that
legislation as well as your own.
Attorney General Conway of Kentucky has been leading the
charge on many of these issues for the Attorneys General in a
bipartisan, multi-State fashion. He will be making a big
announcement tomorrow regarding some of the marketing issues
and with regard to one of the specific marketers that I think
will please you and this Committee. And I can give you some
more guidance on that after General Conway is able to speak to
it tomorrow.
Senator Hagan. I will look forward to that.
Colonel Kantwill.
Colonel Kantwill. Ma'am, this is an issue a bit out of my
purview, but I know that it is of concern to the Department,
and with colleagues like this working on the issue, we are in
very, very good hands. Thank you.
Senator Hagan. Thank you, Mr. Chairman.
Chairman Johnson. Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
It is good to see you again, Mrs. Petraeus. As you know, we
have relied heavily on our Guard and Reserve forces during the
last decade, and they have been critical to our success. What
do you see as differences in the consumer protection needs for
members and families of the Guard and Reserve forces as
compared to active-duty personnel? Can you talk about any
challenges to providing financial education to members of the
Guard and Reserve?
Ms. Petraeus. Yes, I think there are definitely challenges
to doing financial education for those groups, largely because
they are scattered all over the place. If it is the National
Guard, they can be from one end of a State to another. If it is
the Reserve, they can actually be in a multi-State area. So you
are not going to be able to bring them together in a classroom
and provide financial education, at least not very often.
One thing we hope will be helpful in that is this new
education initiative that we are developing to be taught during
the Delayed Entry Program for servicemembers before they get to
boot camp because it is going to be done in a format that is
usable on a smartphone or a computer. So we really hope with
that virtual component to it that it might be something that
will be very helpful to the Guard and Reserve as well, to
provide a piece of education to their members, and also to
their spouses if they are interested to take it as well.
So we hope that can be helpful because it is really
challenging to reach a group that, again, is so widely
scattered. The one time we kind of get them in one place and
can talk finances is after deployment, during Yellow Ribbon
events, but there is a lot of information that they have to
absorb at those. So I would like to see if we can enhance this
with some online help as well.
Senator Akaka. Thank you very much.
Attorney General Biden, welcome. Do you have anything to
add to this as a member of the National Guard.
Mr. Biden. Yes, good to see you, Senator. Yes, Mrs.
Petraeus is exactly right. At the Yellow Ribbon ceremonies that
Guard members and reservists have on post-deployment, that is,
when they are returning from their deployment, we have a very
good program. There is an attempt on the front end, once a unit
is activated, to give them these services as well. The problem,
speaking just personally from that perspective, is that, you
know, you are getting a lot of briefings, a lot of fire hoses
being shot at you with a lot of different things from a lot of
different directions, and so sometimes--I think Mrs. Petraeus
alluded to it--it is hard to focus on your financial well-being
as you are getting ready to go off to your deployment.
But the Guard is making a real effort on this, has stepped
up their efforts over the last decade of the high tempo that
they have been seeing for the last decade.
Senator Akaka. Thank you very much.
Mrs. Petraeus, when servicemembers are deployed for
extended periods of time, many spouses assume the
responsibility of managing the family's budget. Can you please
discuss how the Office of Servicemember Affairs works with
spouses in addition to servicemembers?
Ms. Petraeus. Well, certainly I am a personal example of
the spouse managing the budget since my husband was deployed
for over 5 years total, actually close to six. If I had not
done it, I would not be sitting here today because we would be
in serious financial trouble.
Obviously, I think it is very important that spouses also
get the information they need, and as a first step, we are
going to be sure that the delayed entry initiative that we are
doing for servicemembers right at the beginning of a career is
also available to their spouses.
The one challenge with educating spouses is, unlike the
active-duty military member, you cannot order them to attend a
class. So you have to try to get the information out there and
make it interesting enough and pertinent enough and appealing
enough that they want to take it. We certainly want our Web
site, ConsumerFinance.gov, to become better and better as a
resource for them, and we also hope to be more active on social
media as well, because a lot of them do spend time there on
forums and various social media outlets.
So we will continue to see how we can serve them, and as I
know the Department of Defense is already doing as well.
Senator Akaka. Thank you very much.
Mr. Chairman, may I proceed with one more question?
Chairman Johnson. Yes.
Senator Akaka. And this is to the panel.
A poll conducted in conjunction with the Treasury
Department and the President's Advisory Council on Financial
Literacy found that, of current servicemembers and military
spouses polled, one in four reported having more than $10,000
in credit card debt, 10 percent were carrying more than $20,000
in debt. Families of enlisted personnel and junior
noncommissioned officers were more likely to make minimum
credit card payments and take out cash advances. In addition,
more than one-third of the military respondents said they had
trouble keeping up with the monthly expenses and bills.
I know that you are working hard on these issues. Can you
discuss some of the education programs for our military
families and veterans and how we can work to close this gap?
What more can be done to educate our servicemembers and their
families on financial matters?
Colonel Kantwill. I think, sir, from the Department's
perspective--and thank you very much for the question and for
the concern for our servicemembers. I think from our
perspective we need to be innovative and we need to be
inclusive. We know well--and you pointed out very adroitly--how
this affects spouses as well left behind for long periods of
time. So knowing the current environment in which we operate,
the downturn in the markets, et cetera, knowing that we have
got many servicemembers situated just like this, we need to be
more inclusive, and we need to get those servicemembers in in
larger numbers and more frequently. We need to involve their
spouses in that sort of training. And we need to be innovative.
We need to use vehicles that young people can relate to, that
they can absorb, and that are obviously impactful upon them.
And I do know that folks throughout various segments of the
Department are working on just this. I know that we are working
very closely with the CFPB and the OSA, and we are working with
other organizations as well to imbue these qualities and
provide the training to our servicemembers to the maximum
extent possible.
Senator Akaka. Attorney General.
Mr. Biden. I would just like to applaud the efforts of the
Department and the colonel. Speaking from personal experience,
you have young soldiers, young servicemembers, getting off the
plane coming home from their first deployment, and it is
sometimes the first time that they have ever had any real money
in their pocket because they have been paid a salary that is
greater than one they were paid when they were stateside. And
they have nowhere to spend it, so they get off the plane with
some money in many cases, which is good thing. The bad thing,
though, is that they sometimes then do not know how and where
to spend it and get in over their head. And I think that is one
of the things that the Department is focused on, and I applaud
the Department of Defense's efforts on that. But it is for sure
a concern, and thank you for highlighting it, Senator.
Senator Akaka. Thank you.
Any further comments?
Ms. Petraeus. I will just say that it is a challenging
problem. You do not want financial education to be like a visit
to the dentist where you get the lecture because you were not
flossing enough. So you get the lecture that you were not
saving enough, that you did not do things right. We are trying
to figure out ways to approach it where it is more, ``What do
you want? Let us see if we can help you get to that point.''
And it is very challenging. People do not always behave in the
way that you expect that they would do, and part of our Office
of Financial Education at the CFPB's job is to really take a
hard look at what works, because it might not always be what
you or I would think would be the most effective.
Senator Akaka. Thank you.
Mr. Biden. If I may add?
Senator Akaka. Yes, Attorney General?
Mr. Biden. One of the ways that is very important on this
is what I see--and this is a good thing. It is not
programmatic. It just is kind of organic to the military, and
that is mentors. It is simply the NCO taking the young E3 or E2
by the collar or by the arm or the officer doing the same with
their junior officer and mentoring from a financial literacy
perspective. And it is one of the great organic things that I
have seen in the military. How that has made more programmatic
is a challenge, but it definitely happens organically.
Colonel Kantwill. If I may, Senator, General Biden is
exactly right, and we have seen that this has been a great
point of emphasis amongst our senior enlisted leadership
particularly. The senior enlisted leaders have met with many
organizations, and they have talked about who their soldiers
are and how their soldiers think, their troops and families
think, and they are very much involved in the development
process for some of this training for us along with our
financial planners and counselors and managers, et cetera. But
I thank General Biden for making that point because it is a
very, very good one.
Senator Akaka. Thank you. Thank you so much for your
responses.
Thank you, Mr. Chairman, for the time.
Chairman Johnson. Thank you all for your testimony and for
being here today. I am grateful to those brave women and men
who have served our country and to those who continue to serve
and their families for sharing them with us.
This hearing is adjourned.
[Whereupon, at 11:24 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF HOLLISTER K. PETRAEUS
Assistant Director, Office of Servicemember Affairs, Consumer Financial
Protection Bureau
June 26, 2012
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 to update you on what we've been doing
since I first testified in front of this Committee on November 3rd,
2011.
In the subsequent 7 months I've had the opportunity to visit with
two of you in your States, as well as to travel to 27 military
installations across the country. Just last month Chairman Johnson was
kind enough to invite me to South Dakota to visit Ellsworth Air Force
Base and to meet with members of the South Dakota National Guard.
Senator Tester also gave me the chance to experience Montana in
January, as he and I visited the Montana National Guard and also
Malmstrom Air Force Base. I have to confess that I got off easy by
visiting Montana during one of the mildest winters ever; I'm certainly
not complaining!
During my travels to military installations across the United
States I have talked with servicemembers and their families from coast
to coast, and some of the issues I mentioned in my last testimony here
continue to be hot-button items. First and foremost are the financial
concerns of military homeowners. As I'm sure you know, some of the
States that have the largest concentration of military bases are also
the ones that were very hard hit during the housing downturn. In almost
every town hall or roundtable I conduct, housing concerns are a major
topic of conversation. In particular, active-duty servicemembers who
own homes and have seen them drop in value and go ``underwater'' are
faced with a true dilemma when they receive Permanent Change of Station
(PCS) orders and have to move. What do they do with a house they can't
sell for enough to pay it off? PCS orders come with a short timeline,
and military homeowners have not been getting the assistance they need,
either in programs tailored to their unique circumstances or in timely
information about foreclosure alternatives.
Both at town halls and through the CFPB's complaint system we've
heard from military homeowners that they have been:
Told there was no help available;
Told they had to be delinquent on their mortgage before
they could qualify for help, and even advised to skip payments;
Asked to waive their rights under the Servicemembers Civil
Relief Act (SCRA) in order to be evaluated for assistance;
Stalled with repeated demands for loan documents that have
already been sent;
Routed to a different loan-servicing official with each
call;
Denied the interest-rate reduction or foreclosure
protection required by the SCRA;
Listed as ``failing to respond'' while deployed despite the
fact that their spouse had a power of attorney and was
providing the requested information to the servicer;
And given information about foreclosure alternatives too
late to do any good.
I've been talking about these issues with a number of parties and
I'm pleased to report that progress has been made for military
homeowners. First of all, a recent settlement between the Federal
Government, 49 States and the District of Columbia and the five largest
mortgage servicers (Citigroup, JPMorgan Chase, Wells Fargo, Bank of
America, and Ally Financial) addressed some of the SCRA issues--
mandating look-backs and compensation by the servicers where they had
denied SCRA benefits--and provided some short-sale opportunities and
deficiency waivers for servicemembers with PCS orders. Also, the
Government-sponsored enterprises, Fannie Mae and Freddie Mac, have both
published guidance to servicers that says that a military PCS move is a
qualifying hardship for loan modification or other assistance.
And last week the Federal Housing Finance Authority, which
regulates Fannie Mae and Freddie Mac, not only announced that PCS
orders are a qualifying hardship for a short sale, but also released
guidance that a servicemember with a Fannie or Freddie loan will not be
asked to make a financial contribution to receive the short sale, or be
liable for the difference between the short sale amount and the
original mortgage amount.
Further, I was able to work with the Department of the Treasury--
specifically, the Assistant Secretary for Financial Stability, Tim
Massad--to encourage changes to the Home Affordable Modification
Program (HAMP) guidelines that will provide more opportunities for
mortgage assistance to military homeowners. As of June 1st military
homeowners who have to move because of PCS orders, but intend to come
back to their house and do not buy another house elsewhere, can still
qualify as ``owner-occupants,'' making them eligible for a HAMP Tier 1
mortgage loan modification. I was really pleased to see this change in
the guidance because military personnel have been effectively cut off
from so much foreclosure-prevention assistance due to requirements that
the home be ``owner-occupied.'' That's just not possible for a
servicemember on orders. My husband and I are a case in point, as we
moved 24 times in 37 years and I have never lived in a house more than
4 years straight, and that only once. In recent years a number of
servicemembers have seen no viable alternative but to leave their
family in their ``underwater'' house and go alone to their new duty
station, which may mean a separation of 3 years or more. I am hopeful
this new guidance will help change that.
The CFPB is continuing to take action to protect military
homeowners. Last week, the CFPB, along with the prudential regulators--
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the National Credit Union Administration
and the Office of the Comptroller of the Currency--issued supervisory
guidance for mortgage servicers specifically addressing the issues of
military homeowners with PCS orders. The guidance not only reminds
servicers of the need to provide important information in a timely
manner, but also makes it clear that military homeowners with PCS
orders should get accurate and clear information from their mortgage
servicers early enough to make informed decisions that will minimize
damage to their financial readiness.
Now, to go on to another issue that has been a frequent topic of
conversation since I last spoke before you: you may recall that I
testified last November about aggressive marketing to military
personnel and their families by certain institutions of higher
education--pushing not only their educational programs, but also, in
many cases, expensive private student loans to pay for the amount of
tuition and fees not covered by military GI Bill or Tuition Assistance
benefits. There is an extra incentive for for-profit colleges, in
particular, to chase after military students because of the 90-10
proprietary college Federal funding cap--a requirement that for-profit
colleges get at least 10 percent of their revenue from sources other
than Title IV Federal education funds administered by the Department of
Education. Military GI Bill and Tuition Assistance benefits are not
considered Title IV funds, so they fall into the 10 percent category
that these colleges need to fill. Some of your colleagues have recently
submitted proposed legislation on this topic, and, in addition, a
bipartisan group of more than 20 State Attorneys General recently wrote
to Congress urging the moving of military education benefits to the 90
percent side of the 90-10 rule.
For our part, CFPB's Office of Students, through its ``Know Before
You Owe'' project, has done a lot of work to ensure that prospective
students can determine the cost of their college degree in advance and
can compare financial-aid offers from various institutions. They
developed a ``financial aid shopping sheet'' and posted a beta version
on our Web site, ConsumerFinance.gov, encouraging visitors to give us
suggestions on how to improve it. And students can also find on our Web
site a Student Debt Repayment Assistant that can help them learn about
their options when repaying their education loans.
On the same topic, on April 27th I was honored to accompany the
President and the First Lady to Fort Stewart, Georgia, to watch the
President sign an Executive Order establishing principles of excellence
for educational institutions serving military personnel, veterans, and
their families. The Order directed the Departments of Defense, Veterans
Affairs, and Education, in consultation with the CFPB and the Attorney
General, to take steps to ensure that servicemembers, veterans and
their families can get the information they need about the schools
where they spend their education benefits. The Order also strengthens
oversight and accountability within the Federal military and veterans'
educational benefits programs. And the CFPB is currently working with
groups from the above agencies to see that the Order is implemented in
a way that best serves our military and veterans.
Another part of my job, as described in the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank), is to ``educate and
empower service members and their families to make better informed
decisions regarding consumer financial products and services.'' When I
last appeared before you, I was in the process of taking a look at the
financial education given to servicemembers at the front end of their
career: at Basic Training and the Advanced School that follows it. A
couple of things struck me as significant. First, that Basic Training
is not a good place to absorb financial content, because recruits are
tired, stressed and worried about their next meal and their next
formation. And second, that recruits may already be in debt before they
show up at Basic Training. I heard from staff at Lackland Air Force
Base, which does Air Force Basic Training, that recruits arriving there
in 2008 had an average of $10,000 in debt upon arrival.
Those two observations, among others, led us to a plan to provide a
short financial-education curriculum that can be delivered via
smartphone or computer during what the military calls the Delayed Entry
Program (DEP). DEP comprises the period when an individual has
committed to join the military, but has not yet arrived at boot camp,
and DEP can range from two weeks to up to a year in length. It's a
timeframe when a new recruit would have more time and less stress than
at Basic Training so could focus on some ``just-enough and just-in-
time'' financial lessons that could be very helpful before they get
that first military paycheck and start thinking of ways to spend it. We
feel that this curriculum will fill a niche where there is no financial
education at present, and the Pentagon, including the Senior Enlisted
members of all the services, is enthusiastic about the idea and has
signaled its intent to help us field it.
Finally, I'd like to highlight a few of the consumer-protection
issues that I've heard about repeatedly in recent months from military
and veteran families and those who provide support services to them.
Let me mention that I am also charged under Dodd-Frank with
coordinating efforts among Federal and State agencies on consumer
protection measures relating to consumer financial products and
services offered to or used by servicemembers and their families.
The first issue is aggressive and deceptive tactics by debt
collectors specifically targeting members of the military. These
tactics have included:
Contacting the servicemember's military chain of command as
a way to coerce payment;
Putting a clause in the loan contract that the
servicemember must grant the debt collector the right to
contact the chain of command;
Threatening punishment under the Uniform Code of Military
Justice, threatening to have the servicemember reduced in rank,
or threatening to have the servicemember's security clearance
revoked; and
Contacting a spouse after deployment of the servicemember
and pressuring the spouse to repay right away without the
benefit of communicating with the servicemember, or, in one
particularly appalling instance, demanding that the widow of a
servicemember killed in combat pay them immediately from the
combat death gratuity.
The second issue, and one that has been the subject of a hearing
this month by the Senate Special Committee on Aging, concerns abuses
connected with the veterans' benefit known as Aid and Attendance. This
benefit is designed to provide assistance with basic daily activities
such as cooking and bathing to severely disabled veterans who have very
limited means, and the benefit can amount to two thousand dollars or
more per month. I have heard from a number of State Veterans Affairs
directors, starting with my trip to Montana in January, that they are
concerned about the increasing number of individuals and companies that
use Aid and Attendance as a hook to sell their services to elderly
veterans.
Aid and Attendance offers can take a variety of forms:
It may be an offer from a lawyer or ``veterans' advisor''
to get the Aid and Attendance benefit for you--for a fee. In
reality there is free VA claims-processing assistance available
in every State, accessible by contacting the State Department
of Veterans Affairs.
It may be a claim from a paid advisor that they can get the
benefit for you more quickly than anyone else. But all VA
benefits claims have to go through the standard VA evaluation
process, and no one can bypass the system to get your claim
approved faster than usual.
It may involve helping you qualify for Aid and Attendance,
if you have too much money, by taking control of your assets
and moving them into a trust where you can't access them. This,
in turn, may disqualify you for other assistance such as
Medicaid, and it also means that you can't get at your money--
whereas the scammer can.
Also, some retirement homes are now using the lure of Aid
and Attendance to get veterans to move in on the premise that
they will get Aid and Attendance and it will pay for
everything. In cases where the claim is denied after the
veteran has already spent money to move in, this leaves the
veteran in the untenable position of being unable to afford to
remain in the facility.
The CFPB has an Office of Financial Protection for Older Americans
and my office is working with them on this issue. They have a statutory
requirement to give recommendations to Congress on the vetting of
financial advisors for seniors and have included some questions about
fraudulent or deceptive practices that target older veterans and/or
military retirees in a recent Request for Information published in the
Federal Register. We look forward to reading the responses and
exploring ways in which we can be helpful on this issue.
One more consumer-protection area of concern continues to be
installment loans marketed to the military. I hear from financial
counselors on the installations about the prevalence of payday-like
products that are specifically marketed to military families--often
with patriotic-sounding names and the American flags on the Web site to
match, but with a sky-high interest rate for the servicemember who
takes out the loan. And the Internet is full of ``military loans,''
some outright scams and others with very high interest rates.
Although the Military Lending Act put a 36 percent cap on the
annual percentage rate of certain types of loans to the active-duty
military, some lenders have found ways to get outside of the
definitions in the Department of Defense (DoD) rule implementing the
Military Lending Act. We know from our discussions with representatives
from the DoD that they intend to revisit the Military Lending Act rule
later this year, either in response to changes in the law or to see if
the definitions in the rule need to be updated to reflect changes in
lending practices since the initial release of the regulation.
Also, in May the Deputy Assistant Secretary of Defense for Military
Community and Family Policy, Robert L. Gordon III and I signed a Joint
Statement of Principles on Small-Dollar Lending, and we at the CFPB
look forward to working with the DoD on creating strong consumer
protections for servicemembers in the small-dollar lending marketplace.
In conclusion, the Office of Servicemember Affairs is working hard
to fulfill its mission to work on consumer financial education and
consumer-protection measures for military personnel and their families.
I think we've seen some promising developments since I last appeared
before you, and we will press on to work on existing problems and also
address new issues as they arise. Our military and their families have
done extraordinary service for our country, and, in return, it's an
honor for me and my staff to serve them through our work at the Office
of Servicemember Affairs.
Thank you for the opportunity to testify before the Committee.
______
PREPARED STATEMENT OF COLONEL PAUL KANTWILL
Director, Office of Legal Policy, Office of the Under Secretary of
Defense (Personnel & Readiness), Department of Defense
June 26, 2012
Good Morning, Chairman Johnson, Ranking Member Shelby, and Members
of the Committee. It is a great day to be a Soldier and it is an honor
to appear before you and represent the Department of Defense and all of
our great men and women in uniform. On behalf of the Department, I
thank you for your assistance and support in protecting our
Servicemembers and their families in the consumer financial
marketplace, and for the opportunity to address you today.
It is a pleasure to testify before you regarding the consumer
financial issues we see affecting Servicemembers and their families and
the Department's response. I currently serve as the Director of Legal
Policy in the Office of the Under Secretary of Defense for Personnel &
Readiness, but my perspective on these issues will be more that of a
practitioner and Servicemembers' Advocate. I am a career Active Duty
Army Judge Advocate with 22-plus years experience, with many tours of
duty across the globe in active theaters of operation, providing legal
support to our troops and their families. I have seen first-hand, and
remind myself daily, that a Servicemember burdened with concerns
outside of the parameters of his or her mission cannot reach full
combat effectiveness. I believe my experience in having assisted
Servicemembers in the field and leading legal organizations devoted to
providing support to our Servicemembers and their families, adds
credibility to my Office's present efforts on behalf Servicemembers.
We have the privilege of working daily with the Services, most
notably through the Service Chiefs of Legal Assistance and Client
Services, who are subject matter experts devoted to ensuring our
Servicemembers and their families receive the very best in Legal
Support and Assistance. This support allows our troops to concentrate
on the mission and care for their families in a manner that befits
their tremendous sacrifices. We are fortunate to work with the
dedicated financial professionals across the Department, notably in the
Office of the Deputy Assistant Secretary of Defense (Military Community
& Family Policy), who offer their immense talents and assistance in
caring for the financial needs and well-being of the force.
We also work closely on financial issues with other Government
agencies, and our close relationships with the Federal Trade Commission
(FTC), the Department of Justice, the Consumer Financial Protection
Bureau (CFPB), and the CFPB's Office of Servicemember Affairs (OSA), to
name a few, have allowed us to make important gains on behalf of our
Servicemembers. Similarly, we remain engaged with the industry: our
cooperative relationships with banking associations, credit unions, the
Financial Services Roundtable and the Housing Policy Council, to name a
few such institutions, have benefited military families.
I would first like to discuss the financial challenges facing our
men and women in uniform and their families, and describe in general
terms efforts of the Department to assist them, especially as it
relates to consumer law issues. This includes the Department's
aggressive and proactive financial education and training program,
legal engagement and support, the Inter-Agency Process, and our
engagement with industry. I would then like to highlight the
Department's history with the Military Lending Act, focusing on the
current climate of consumer law and Military Lending Act issues
confronting the force, including the very recent observations of the
Consumer Federation of America. Finally, I will discuss where the
Department sees the consumer credit industry going and collective
actions it plans to take in response.
Background of Department of Defense Involvement in Consumer Law Issues
and Financial Readiness and Current Consumer Law Issues From
the Field
Financial readiness of Servicemembers and their families is
essential to their well-being and their ability to contribute to the
mission. As I noted at the outset, having assisted Servicemembers in
deployed and garrison environments, a Servicemember distracted from the
tactical mission by financial issues cannot be completely mission
focused. Thus, the Department has predicated financial readiness on
Servicemembers and their families having reasonable protections, basic
understanding of finances, and access to helpful financial products and
services.
Financial readiness was coined as a term in 2003, when the
Department established a campaign designed to increase Servicemember
awareness of saving and financial stability and enhance understanding
of financial products and services. The campaign has been effective and
is ongoing. This campaign is also assisted by nonprofit organizations
that produce programs and campaigns such as ``SaveandInvest.org'' and
``Military Saves''.
Six years ago, the Department recognized there were specific
lending practices causing problems for Servicemembers and their
families which could not be adequately addressed through education
programs and awareness campaigns. Commanders were advocating for action
on behalf of the Servicemembers and their families who were having
significant debt problems. At the request of Congress, the Department
reported on potentially harmful lending practices in our Report on
Predatory Lending Practices Directed at members of the Armed Forces and
Their Dependents, dated August 9, 2006, and subsequently Congress
approved the Talent Amendment, commonly referred to as the Military
Lending Act (MLA) (Sec 670 of the John Warner National Defense
Authorization Act for FY2007), which provided the Department authority
to write a regulation to define ``credit'' subject to the limitations
posed by the MLA.
Reactions to these restrictions were mixed. Consumer advocates
heralded this as an opportunity to cap all high-cost lending products,
while the financial industry viewed this law and rulemaking authority
as potential impediment to their ability to provide credit to
Servicemembers and their families. With the assistance of the seven
Federal financial regulatory agencies, DoD was able to draft and
release a regulation within the prescribed time limitation seen as
acceptable and workable by both the consumer advocates and the
mainstream financial industry providers. The resulting rule (32 CFR
Part 232) covered closed-end payday loans, vehicle title loans, and tax
refund anticipation loans, with payday and vehicle title loans being
tightly defined. The initial reaction of the creditors providing these
loans was to eliminate Servicemembers and their families as part of
their market. The Department did not perceive this response as having a
detrimental impact on Servicemembers and their families, since there
were a sufficient number of better alternatives available for immediate
cash needs through the Military Relief Societies and the military banks
and credit unions. The Department has always understood enforcement
would be a critical component of success in this area and enforcement
of the Rule required assistance of the Federal and State regulators who
oversee the loans covered.
The Department reached out to these regulators in 2007, and has had
their support ever since. In 2008, the Federal Financial Institutions
Examination Council (FFIEC) produced a tool for Federal and State
regulators to use as part of their examinations. This tool, the FFIEC
Interagency Examination Procedures for 32 CFR Part 232, Limitations on
Terms of Consumer Credit Extended to Service Members and Dependents
provides procedures examiners should use to determine if creditors have
systems in place to comply with 32 CFR Part 232.
Annually, the Department has sent a representative to the national
conference of State regulators to ensure there are no difficulties in
obtaining compliance from the covered creditors. Each year the
regulators have reported that their examinations have found compliance
with the Rule and no need for enforcement action. With that said, the
Department has approached States authorizing these loans that do not
provide their regulators enforcement authority to make a technical
change to their statute allowing for administrative enforcement, if
needed. To date, 35 States either do not authorize these loans or
provide their regulators with adequate administrative enforcement
authority. Finally, we have been working with the FTC and the CFPB to
assist in recording violations of the Servicemembers Civil Relief Act
(SCRA) and the MLA in the FTC's law enforcement database--Military
Sentinel. DoD legal assistance attorneys and financial counselors
assist military clients with recording instances of fraud, deception,
abusive practices, and identity theft into the database so U.S.
Attorneys, State Attorneys General, Federal and State regulators, and
other law enforcement agencies have access to allegations.
In addition to coordinating with State regulators, the Department
has periodically polled DoD financial counselors and legal assistance
attorneys to determine if the Rule is having the desired effect. They
inform us that the legislation has been extremely effective in stamping
out abuses involving these types of credit. Also, Relief Societies,
military banks, and credit unions have stepped up to the plate to
assist Servicemembers and families in need. However, financial
counselors and legal assistance attorneys still occasionally see
clients who have payday or vehicle title loans. They also report
Internet and overseas opportunities exist, and some unscrupulous
lenders--and even some borrowers--still attempt to skirt or evade the
law. As I will discuss further, changes in the definition of the
military dependents in the law will allow the use of database systems
to verify who is a covered borrower and further limit opportunities for
evasion.
This May, the Department had the benefit of receiving a report from
the Consumer Federation of America (CFA), which combined responses from
regulators, counselors, attorneys and investigative researchers. The
report concludes that the MLA and its implementing regulations have had
the desired effect of curtailing the use of payday, vehicle title, and
refund anticipation loans by Servicemembers and their families. The
overriding theme of the report is--we have achieved much, but there is
still much to be done.
The CFA's findings and recommendations echo what we have been
hearing from our practitioners in the field. Our Legal Assistance
Offices continue to see the full range of consumer credit issues,
including questionable lending practices. While they concur that the
MLA has largely stamped out the majority of abuses, especially in the
area of refund anticipation loans, they still report seeing pay day
loans and auto title loans charging interest greater than 36 percent
with terms that have been modified to avoid falling under the MLA.
Creditors and lenders both still attempt to avoid the MLA by utilizing
procedures or modifying products to fall outside of the regulation.
This, of course, leads inexorably to problems with debt collectors and
negative consequences continue.
The use of allotments in consumer credit transactions remains a
subject of continued discussion and there is an increase in the use of
lending over the Internet: many of the worst sites are off-shore and
outside the applicability of the MLA. Yet another concern coming from
the field is that automobile dealers, especially used car dealers and
``buy here, pay here'' establishments, are employing high interest
loans. There is little that may be done, as these loans are
specifically excluded from the terms of the MLA.
The Department's Efforts
In response to these challenges and in support of our
servicemembers and their families, the Department has remained vigilant
and proactive, leveraging resources, implementing an aggressive and
multifaceted financial education and training program, working with
other Agencies, and providing first-class legal support to our members.
In the area of financial readiness, the Department has long
believed financial readiness has a direct impact on mission readiness.
In order to provide Servicemembers and their families with the tools
and information they need to develop individual strategies to achieve
financial goals and address financial challenges, the Under Secretary
of Defense (Personnel & Readiness) initiated the DoD Financial
Readiness Campaign in 2003. This campaign is a concerted effort to
enhance the financial readiness of all Servicemembers and families
through education, resources, programs, and protections. The campaign's
goal is to alleviate financial stressors on the military to enhance
family, financial, and overall mission readiness.
The Financial Readiness Campaign rests on eight pillars of
financial readiness including:
1. Maintaining good credit
2. Achieving financial stability
3. Establishing routine savings
4. Participation in the Thrift Savings Plan and Savings Deposit
Program
5. Retention of the servicemember's Group Life Insurance and other
insurance
6. Utilization of low-cost loan products as an alternative to payday
lending and predatory loans
7. Use of low-cost Morale, Welfare and Recreation programs such as
the Commissary and PX
8. Preservation of Security Clearances
An essential element of our Personal Financial Readiness Program is
proactive life cycle financial management services. The program
addresses the effects of financial decisions on personal and
professional lives, provides resources needed to make prudent consumer
decisions, and related services and support.
A variety of resources are available to help Servicemembers and
their families avoid common traps and pitfalls due to poor financial
decisions and to put them on the path to financial freedom. Education,
counseling, and training are available both online and in-person and
are available to military members and families of all components. The
Department has Personal Finance Managers (PFMs) at every military
installation family center who provide financial counseling, education,
training, and services. PFMs must hold a nationally recognized
financial counselor certification.
As part of the DoD Military Family Life Consultants (MFLC) program,
the Department has Personal Financial Counselors (PFCs) who: are
available for rotational or surge support assignments for installations
and other units; can be requested to support Yellow Ribbon
Reintegration Program events and other Reserve Component family events
via the on-demand Joint Family Resource Center; and are part of most
State Joint Family Support and Assistance Program (JFSAP) staffs.
In addition, Military OneSource (MOS) provides financial support
services 24/7 for all servicemembers and their families. MOS offers up
to 12 free and confidential financial consultations via phone or face-
to-face, and access to specialized financial and tax planning
consultations via phone. The money section of MilitaryOneSource.com
provides financial information and resources that include calculators,
tips, books and CDs, and personal finance newsletters.
The Department has also partnered with several financially related
nonprofit organizations to promote financial literacy, such as CFA,
Better Business Bureau Military Line, and the Financial Industry
Regulatory Authority (FINRA) Education Foundation. DoD and CFA partner
annually to conduct the Military Saves campaign, and DoD partners with
the Department of the Treasury and FTC (two of twenty Federal agencies
that are also members of Treasury's Financial Literacy and Education
Commission) to address consumer awareness, identity theft, and
insurance scams to Servicemembers and families.
The Services Legal Assistance Programs have risen to the occasion,
offering first-class legal support in consumer law as well as all other
legal disciplines. The primary effort is the provision of legal
assistance where it is needed most: to individual clients at the
installation level. In this area all the Services excel, continuing to
assist a large number of Consumer Law related matters. These include
services in all the areas noted above, to include the burgeoning areas
of suspect auto loans/purchase practices, deployment-related SCRA
violations, and aggressive debt collection practices.
The Services designate Consumer Law Matters as a top priority,
offering specialized training at the Service JAG Schools. For example,
Consumer Law Matters have been recognized as a ``Tier 1'' service in
terms of field delivery & specialized training for providers at the
Naval Justice School (NJS). This includes individual Judge Advocate
completion of a ``Consumer Law'' section of the revised Legal
Assistance Course to ensure field providers are fully trained to
support. The Department's partnership with the Legal Assistance for
Military Practitioners (LAMP) Committee of the American Bar Association
(ABA) and its Pro Bono Project (PBP), enables the Services' Legal
Assistance organizations to offer unprecedented assistance, in the form
of both in- and out- of court-representation, from volunteer attorneys
who are subject matter experts in many areas, including Consumer Law, a
prominent area of focus for the PBP.
The Department and the Services have leveraged all available
resources, working with the CFPB, and the CFBP's OSA, and other
organizations such as the HOPE NOW Alliance to execute outreach
programs for Servicemembers, especially those assigned to installations
in the areas hardest hit by the mortgage foreclosure crisis. The
Services' Legal Assistance staffs have participated extensively in
outreach programs at places such as such as Nellis AFB, Naval Station
San Diego, Marine Corps Base Camp Pendleton, Fort Bragg, and numerous
other locations.
The Services have provided a plethora of consumer focused webcasts
on consumer law focused areas such as the SCRA; Fair Debt Collection
Procedures; Credit Reporting & the Fair Credit Act; the Mortgage Crisis
and related consumer law issues; and Bankruptcy. The Service Chiefs of
Legal Assistance send out weekly Legal Assistance notes or ``Legal
Assistance Practice Advisories,'' to the installation level Legal
Assistance offices, which include the latest information on any
breaking news/new developments. Recent advisories have included
consumer law-specific information such as the Military Lending Act,
information on DOJ's various efforts and settlements with mortgage and
lending institutions and settlement of a suit against a property
manager not permitting Servicemembers from terminating their leases
under provisions of the SCRA. They also forward to the CFPB consumer
warnings and information on online consumer tools.
The Inter-Agency process is alive and well and the Department is
fortunate to enjoy a cooperative working relationship with other
Federal agencies relating to consumer law issues--such as the
Department of Justice, the CFPB, and the CFPB's OSA. The Department
also works closely with a myriad of State and local agencies whose
assistance, especially in the enforcement milieu, is absolutely
invaluable. The Department is also grateful for the cooperative working
relationships with consumer advocates and other organizations such as
the Consumer Federation of America and the HOPE NOW Alliance, dedicated
to assisting all persons with their financial needs--but are also
dedicated to our military families.
Lastly, we remain engaged with the consumer financial industry. The
Department has sustained engagement with banks and credit unions. It is
essential, if we will represent our Servicemembers and their families
well and advocate effectively on their behalf, the lines of
communication must remain open. We have maintained open lines of
communication with organizations such as the American Bankers
Association, the Association of Military Bankers of America, and the
Credit Union National Association, in efforts to keep them apprised on
the SCRA and the MLA and advise them of issues affecting our force. Our
close working relationship with the Financial Services Roundtable (FSR)
and the Housing Policy Council (HPC) has already borne much fruit. The
industry has been highly complementary of the Department's enhancements
of the Defense Manpower Data Center's database capabilities, providing
the industry with real-time, public-access, large batch data search
capabilities allowing the industry to identify their military customers
and provide them the SCRA and other benefits to which they are
entitled. The Department worked closely with FSR and HPC to develop the
``Military Orders Short Form,'' a vehicle allowing Servicemembers to
invoke their SCRA protections more easily. Our work with the industry
and with the other agencies has already produced great developments
regarding protections and benefits for military families disadvantaged
by Permanent Change of Station (PCS) moves.
The Way Ahead
The current efforts of the Department, other Government agencies,
and nonprofit organizations are important. But more important are
future efforts to protect and advocate for our Servicemembers, the way
ahead on consumer law issues affecting the force, and how we work to
meet those challenges. As noted above, CFA's recent report highlights
there is much to be done. The report provides several findings and
recommendations, and it is useful to highlight them here:
DoD should cover forms of payday and vehicle title loans
not covered by the regulation;
DoD should cover problematic high cost products not covered
by the regulation;
There are additional concerns about the use of overdraft
protection programs that need to be addressed;
Servicemembers and families should be considered as
equivalent to citizens of the State for purposes of the
application of State consumer protection laws;
Enforcement should be enhanced to authorize enforcement of
the MLA and rule by Federal agencies inadvertently excluded
from having authority;
DoD should limit mandatory use of the military allotment
system to secure a loan; and
DoD should undertake further survey of servicemembers,
legal assistance attorneys, and financial counselors to
validate the need to make additional changes to the
implementing regulation.
The Department values the efforts of the CFA, a nonpartisan,
nonprofit entity which has historically advocated on behalf of
Servicemembers and their families in the consumer law and financial
arenas. The Department is currently reviewing the CFA recommendations
and, after completion of an internal survey, which will measure the
prevalence and impacts of concerns with financial products, will review
options for appropriate action. Furthermore, DoD may wish to publish an
advance notice of proposed rulemaking in order to obtain a broad basis
of feedback from consumer advocates, financial industries, Federal and
State regulators, and engaged citizens in order to determine the
potential benefits, pitfalls, and unintended consequences of extending
the definitions in the regulation to cover additional forms of payday,
vehicle title, and refund anticipation loans, as well as other forms of
financial products not covered by the regulation. The Departments may
also consider an advanced notice of proposed rulemaking in the Federal
Register once DoD knows what changes to the MLA may be included in the
National Defense Authorization Act for Fiscal Year 2013.
In response to these many concerns and developments, the Department
has already undertaken efforts to acquire the best available current
data from the field. Well under way is the formulation of a survey of
the experts in the field--those who work with military families daily
on consumer law issues. This survey will query the ``boots on the
ground'': financial counselors; legal assistance attorneys; paralegals,
etc., with a view toward acquiring better empirical and anecdotal data
on the issues affecting our military families most directly.
The Department also supports Congressional activity in this area,
offering our support of recent Senate Amendments proposing members of
the Armed Forces and their dependents be treated equally concerning
State consumer protection laws; and proposing relief in civil actions
for violations of protections on consumer credit extended to members of
the Armed Forces and their dependents.
The Department recognizes there are limits to the protections that
can be provided through regulation, education and counseling, or direct
assistance available to servicemembers and the families in financial
trouble. Prudent protection through regulation is essential to prevent
young servicemembers with a steady paycheck and little financial
experience from being taken advantage of in the marketplace. A system
of protection that does not adequately provide for each of these three
elements is likely to leave Servicemembers and their families
vulnerable. The Department is committed to balancing regulation with
education and assistance to maintain their financial readiness. The MLA
and implementing regulation have done what was intended over the past 5
years, and the Department plans to maintain a steady approach to the
implementing regulation to balance the protections offered through the
regulation while sustaining unimpeded access to helpful financial
products.
On behalf of the Department, I thank you for your assistance and
support. It is my privilege to appear before you and I look forward to
your questions.
______
PREPARED STATEMENT OF JOSEPH R. ``BEAU'' BIDEN III
Attorney General, State of Delaware
June 26, 2012
Chairman Johnson, Ranking Member Shelby, and Members of the
Committee: Thank you for the opportunity to share my perspective as
Delaware's Attorney General, and as a veteran, on the work being done
to help servicemembers, veterans, and their families meet their unique
consumer financial challenges. Thank you for focusing on this issue and
other needs of military families with the hearings you have held, as
well as the important initiatives of so many of this Committee's
distinguished Members.
I was honored to be here in Washington last month with Senators
Reed, Durbin, Whitehouse, and Begich as they announced legislation,
sponsored with Senator Brown, that expands housing protection and
assistance for servicemembers. It was a true privilege to stand
alongside these legislators whose dedication to serving those who serve
our Nation sets the standard. Their work, along with the critically
important advocacy and action of many others in Congress, is vital to
ensuring that the concerns of servicemembers, veterans, and their
families remain a national priority. I would also like to thank Senator
Hagan for her work with Senator Harkin on servicemember protections
related to for-profit schools.
The support of many of the Senators in this room was instrumental
to the establishment of the Consumer Financial Protection Bureau (CFPB)
and within it the Office of Servicemember Affairs (OSA), which have
proven to be the strong Federal partners needed by States like mine to
reach consumers with the most valuable solutions. Many of the financial
obstacles faced by military families extend past State lines, and so
must we if we are to be effective. With Director Cordray at the helm,
the CFPB has become an even more important collaborator as we work for
change on an individual as well as an institutional level.
I'm glad to once again be with Mrs. Petraeus, whose leadership at
the OSA is driven by a personal commitment to these issues and to the
military families they affect. It is a commitment those families can
feel at each military base or community she visits, where she goes not
only to better understand the impact of the difficulties with which
servicemembers must contend, but also to personally communicate that we
are working together to achieve meaningful progress. Mrs. Petraeus also
works diligently to connect my office and other State attorneys general
with the CFPB and other agencies and stakeholders--a connection that is
key to achieving real change.
Standing with these Congressional leaders, Director Cordray and
Mrs. Petraeus in the fight to protect the financial rights of military
families, 48 of my fellow attorneys general and I, along with the U.S.
Department of Justice and the Department of Housing and Urban Affairs,
worked collaboratively to reach a landmark $25 billion settlement with
the Nation's five largest mortgage servicing banks. The settlement
included several provisions related to the Servicemembers Civil Relief
Act, or SCRA, that address some of the most significant mortgage-
related issues military families face. I would not have joined this
settlement without these measures.
The U.S. housing crisis has hit every community in this Nation, and
it has hit military families especially hard. These families are often
backed into financial corners by the realities of military life and a
decade of constant deployment. While the SCRA and the older statutes
from which it developed have provided important protection to
servicemembers and their families in some form since the Civil War,
those various incarnations of the law reflect its need to evolve. Our
enforcement must evolve along with it.
I know that the need to expand the SCRA as well as strongly enforce
its current provisions is well understood by the Members of this
Committee. You have heard the stories about countless servicemembers
who have had to contend with the frustration and uncertainty of
mishandled mortgages and other SCRA infractions while also carrying out
the duties of service. Servicemembers should not have to worry about
these issues while deployed. They must be able to focus on the mission
without distraction.
We tried to address some of the most prevalent and pressing issues
they face in the national mortgage servicing settlement, including
complications associated with Permanent Change of Station (PCS) orders,
mortgages taken out after beginning military service, and ways to
mitigate losses often incurred as a result of the demands of military
life. Specifically, the settlement:
Establishes that PCS orders must now be considered when
banks and servicers are making hardship determinations about
short sales, deeds in lieu, and loan modifications. Additional
protections guard against inaccurate reporting of
servicemembers to credit reporting agencies for using loss
mitigation options in these circumstances.
Increases servicemember access to loss mitigation options,
including mandating that information and contact with SCRA-
trained employees is readily available, and that servicers go
beyond the requirements of the SCRA to ensure that more
borrowers who are entitled to assistance before foreclosure
receive it.
States that homes of active duty servicemembers deployed in
combat areas cannot be foreclosed on in most instances, even if
the debt was incurred after they entered military service. This
was a significant expansion beyond the terms of the SCRA, which
only provides this protection for debt incurred before entering
the armed forces.
In addition, Assistant Attorney General Tom Perez and his staff at
the USDOJ Civil Rights Division negotiated provisions that direct
payments to servicemembers who experienced wrongful foreclosures and
interest charged in excess of the 6 percent allowed by the SCRA. These
payments will come from funds secured on top of the $25 billion
settlement amount.
We were able to achieve a great deal with this bipartisan
settlement, but as is evident from the servicing guidelines issued by
the CFPB last week, we must work to make such changes permanent. My
fellow attorneys general and I stand together across State and party
lines in our commitment to vigilant enforcement. This settlement was an
important step in the right direction, but a great deal of work remains
to be done.
While I believe that every State attorney general in this Nation
agrees that military families deserve protections that help them meet
their unique challenges, there are several leading the charge. Like Tom
Miller in Iowa, without whom the multistate settlement would not have
happened; Lisa Madigan in Illinois, whose consistent advocacy on behalf
of servicemembers has been integrated into her consumer protection
mandate; Eric Schneiderman in New York, who continues to press the
banks on their SCRA compliance; Martha Coakley in Massachusetts who is
committed to ensuring that servicemembers will have access to the
relief provided by the multistate servicer settlement; and Jack Conway
in Kentucky, who has focused on the GI Bill and for-profit school
matters.
These leaders and I recently were joined by 16 of our colleagues to
voice our united support for requiring that GI Bill and Veteran's
Assistance educational benefits be subject to the 90/10 rule. We
believe that funds intended to help veterans provide for their families
and strengthen our Nation's workforce must not be exploited by
unscrupulous educational institutions.
That conviction is shared by the Administration, which earlier this
year issued an Executive Order calling for the establishment of
``principles of excellence'' for schools serving veterans and members
of the military--two groups of Americans who surely deserve no less. I
look forward to the changes that will come as a result of this Order
and hope that the State attorneys general will be part of the process.
I would like to thank you again, Mr. Chairman and Members of the
Committee, for the opportunity to appear before you today. It has been
an honor and a privilege. I welcome any questions you may have.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BENNET
FROM HOLLISTER K. PETRAEUS
Q.1. In your written testimony, you mentioned Executive Order
13607, which creates certain requirements for schools to
support the unique needs of servicemembers and veterans. It's
my understanding that the Order also created a complaint system
for servicemembers.
A young enlisted soldier from Ft. Carson recently contacted
my office to discuss some of his challenges that arose while he
was enrolled in an online class at a for-profit college. While
he was in Afghanistan, the soldier asked the school to
reschedule one of his requirements because he was sent on a 2-
week mission in a remote part of the country. The school,
however, declined his request, failed him for not handing in
work on time, and billed him for $1,000. His mission was to
support the Navy SEALs who conducted a raid on the Bin Laden
compound. The school also failed several soldiers for not
handing in their work on time.
Would the Executive Order have addressed this issue? If
not, what steps can we take to address such conduct? What
remedies would a servicemember typically have under such
circumstances?
A.1. On April 27, 2012, the President signed Executive Order
13607, ``Establishing Principles of Excellence for Educational
Institutions Serving Service Members, Veterans, Spouses, and
Other Family Members'' (Executive Order). These principles were
developed to strengthen consumer protections for our
servicemembers, veterans, and their families.
Institutions approved to receive funding from the Post-9/11
GI Bill programs have been strongly encouraged to commit to the
Principles of Excellence outlined in the Executive Order. It is
our understanding that the Department of Defense is working
with institutions approved to receive funding from the military
Tuition Assistance and MyCAA programs to enter into new
agreements where the institutions agree to the principles.
Section 2(e) of the Executive Order generally provides
that, to the extent permitted by law, educational institutions
receiving funding pursuant to Federal military and veterans
educational benefits should:
(e) allow servicemembers and reservists to be
readmitted to a program if they are temporarily unable
to attend class or have to suspend their studies due to
service requirements, and take additional steps to
accommodate short absences due to service obligations,
provided that satisfactory academic progress is being
made by the servicemembers and reservists prior to
suspending their studies;
Accordingly, institutions that agree to comply with the
Principles of Excellence are expected to ``take additional
steps to accommodate short absences due to service
obligations.'' Generally speaking, I would find it hard to
understand how a school that denies a forward deployed
servicemember a simple accommodation, like rescheduling an
assignment, would be in compliance with this principle.
In addition, on July 13, 2012, the Department of Education
issued additional guidance (GEN-12-10) to post-secondary
institutions on implementation of the Executive Order. The
guidance was provided to assist institutions with understanding
how to best comply with the Executive Order. The guidance
outlines in detail for post-secondary institutions that agree
to comply with the principles in the Executive Order
readmission and refund policy expectations with respect to
servicemembers, reservists and/or their family members who are
generally unable to attend classes or must otherwise suspend
their studies due to service obligations.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGAN
FROM HOLLISTER K. PETRAEUS
Q.1. Ms. Petraeus, Can you discuss the status of the CFPB's
Consumer Advisory Board (the ``Board'')? How will the Board
enhance and improve focus on the military community and its
financing needs?
A.1. On September 12, 2012, the Bureau announced the
appointment of 25 consumer experts from outside the Federal
Government to its newly formed Consumer Advisory Board which
will provide advice to CFPB leadership on a broad range of
consumer financial issues and emerging market trends.
As outlined in Section 1014(a) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, the CFPB's Consumer
Advisory Board (the ``Board'') will ``advise and consult with
the Bureau in the exercise of its functions under the Federal
consumer financial laws'' and ``provide information on emerging
practices in the consumer financial products or services
industry, including regional trends, concerns, and other
relevant information.''
On February 23, 2012, the CFPB published in the Federal
Register a notice outlining the functions of the Board and
soliciting nominations for members to serve on the Board.
The newly appointed Board members include experts in
consumer protection, financial services, community development,
fair lending, civil rights, and consumer financial products or
services. They also represent depository institutions that
primarily serve underserved communities, and they represent
communities that have been significantly impacted by higher-
priced mortgage loans.
The first meeting of the Consumer Advisory Board will take
place Sept. 27, 2012, and Sept. 28, 2012, in St. Louis, MO. By
statute, the Board will meet no less than twice per year.
Members will have staggered 3-year terms.
In meeting this statutory objective, the Board will also
enhance and improve focus on the military community and its
financing needs by engaging members who represent a diversity
of expertise and viewpoints in discussions of the consumer
financial products or services industry, including the unique
needs of military servicemembers. Further, the Board will
identify and assess the impact of new, emerging and changing
products, practices, or services on servicemembers, amongst
other consumers, during its discussions. The Bureau looks
forward to receiving information, analysis, and recommendations
from the Board that will speak to the unique perspectives and
experiences of the military community.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
FROM COLONEL PAUL KANTWILL
Q.1. In your testimony you state the Department is well under
way in the formulation of a survey with a view toward acquiring
better empirical and anecdotal data on the issues affecting our
military families most directly. Who will you interview and
what specific topics will be included?
A.1. The Survey will be directed to personnel in or assisting
the Army, Navy, Marine Corps, Air Force, Coast Guard, Army
National Guard, Air National Guard, and others in DoD (OSD,
Military OneSource, and DoD contract counselors).
It will be directed to personnel who perform the following
duties:
Financial counselors who see clients; administrators who
oversee financial counseling programs; legal assistance
attorneys; legal assistance paralegal or legal specialists;
administrators who oversee legal assistance programs, and other
personnel who engage in providing financial assistance or
financial education and/or training to servicemembers and/or
their families.
The survey will focus on the relative impact of financial
services on servicemembers and their families by requesting
counselors provide a general assessment of their clients
through the following questions:
1. What portion of your clients would you characterize in
each of the following categories: not having sufficient
cash to pay bills that were overdue/immediately due;
having sufficient cash to pay immediate bills, but
living paycheck to paycheck; having sufficient cash to
pay bills and cover emergencies, but no savings; having
sufficient cash to pay bills, cover emergencies and
have savings.
2. What portion of your clients requested (or was directed
to) counseling because of problems with one or more
creditors?
3. In terms of what you have seen concerning the impact of
financial products on a client's financial condition,
rank the following products in order of most damaging
(1) to least damaging (12): Retail sales loans (in-
store credit at retail stores); finance company
subprime installment loans; bank deposit advances;
student loans; checking account overdraft protection
(fee-based); mortgages; vehicle title loans; buy-here,
pay-here car loans; credit cards; rent-to-own
contracts; bank and credit union installment loans
(personal and car loans); payday loans.
4. Rank order the following characteristics of problematic
credit from most (1) to least (8) concern: Unclear or
deceptive information provided to the borrower prior to
signing; high interest rates and/or large additional
fees; mandatory use of allotments to secure the loan;
mandatory arbitration; unnecessary additional services
and other charges included with the loan; loans secured
on considerations other than the borrower's ability to
repay the loan; rolling-over, flipping or refinancing
of loans without significant reduction in the
principle; too little time provided to repay the loan.
5. Which of the following financial products (if any) should
be regulated by DoD (e.g., as part of the Military
Lending Act (MLA) (10 USC Section 987))? In making your
choice rank order the option from most important (1) to
least important (8) or designate the product(s) as N/A:
Checking account overdraft protection (fee-based);
payday loans (currently regulated under the MLA);
retail sales loans (in-store credit at retail stores);
finance company subprime installment loans; credit
cards; bank deposit advances; bank and credit union
installment loans (personal and car loans); vehicle
title loans (currently regulated under the MLA).