[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

                               __________

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


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



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20402-0001



            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

                              ----------                              

                         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.
                                ------                                


        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.
                                ------                                


        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).
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