Thursday, November 03, 2011






Holly Petraeus: As a lifetime military family member, I've seen first hand the devastating impact financial scams and predatory lending can have on our military families. I also spent six years as the head of the Better Business Bureau's BBB Military Line program and that was an education for me about the consumer issues and scams that impact the military. Unfortunately, there are still too many young troops learning financial lessons through hard experience and years of paying off expensive debt. In January 2011, I was asked to join the CFPB and head up the Office of Servicemember Affairs. The OSA's job is to educate and empower service members to make better informed decisions regarding consumer financial products and services , to monitor their complaints about consumer financial products and services and the responses to those complains and to coordinate the efforts of Federal and state agencies to improve consumer protection measures for military families. In support of our mission, we've already signed a Joint Statement of Princiles with the Judge Advocate Generals of all the services about how we will coordinate the exchange of information between us concerning military complaints and the actions we take to protect service members. We've already set up a working agreement with the Department of Veterans Affairs. We are now referring any military personnel or veterans who call the CFPB's hotline claiming that they are in danger of foreclosure directly to the VA home loan program [1-800-827-1000]. As for our educational mission, I think it's important to get out and hear from military families about the issues that concern them the most. I've visited bases all over the United States since I started my job. I also met with the National Guard in Oklahoma, Ohio, Illinois and Indiana. So what are the issues that have come up? First, the housing meltdown has hit military families hard. When they received orders to move, . often they can't sell their homes for enough to pay off the mortage. They can't rent it out for enough to cover their mortgage payments. They're told they can't get a loan modification or short sell because they're not yet delinquent and they can't refinance for a better rate because it will no longer be considered their principal residence once they leave. We've heard of a number of cases where the service member has opted to go alone to the new duty station and that's pretty tough when you consider that he or she may have just had an overseas deployment and the family is now facing another separation -- this time for finanacial reasons. [. . .] Another big issue we've been hearing about concerns military education benefits and for-profit colleges. There have been cases of very agressive marketing by for-profit colleges to military personnel and their families -- of both educational programs and private student loans. Another issue is car loans. Service members are often sold clunkers at inflated prices with high financing charges and when the original clunker breaks down, they sometimes take an offer to roll the existing debt into another loan for yet another clunker which may also break down. There is also yo-you financing, where service members drive away thinking they have qualified for financing only to be told later that the financing fell through and they will have to pay more.
That's Holly Petraeus (yes, her husband is David Petraeus) testifying before the Senate Banking Committee this morning. The above is from her opening remarks and that's remarks delivered orally (the written remarks cover the same topics but in more depth). She was part of a panel along with Rushmore Consumer Credit Resource Center's CEO Bonnie Spain, Navy-Marine Corps Relief Society CEO Charles Abbot (retired US admiral), USAA's CAO and Executive Vice President Kevin Bergner (retired major general) and Pentagon Federal Credit Union's President and CEO Frank Pollack. Senator Tim Johnson is the Chair of the Committee and Richard Shelby is the Ranking Member.
We'll note this exchange.
Ranking Member Richard Shelby: Mrs. Petraeus, in your testimony, you discussed that you joined the [Better Business] Bureau in January of this year. to start an entirely new office, the Office of Servicemember Affairs. How many people have you hired to work in your office? How many total staff members do you hope to hire? What's your budget? And, lastly, are you getting the resources that you need here?
Holly Petraeus: Thank you for the question, Ranking Member Shelby. We now have -- I have six employees working for me. So we're a small but mighty office I hope. I don't expect to have it get much larger than that -- at least not for the moment. Of course, everybody has a wish list and there's nobody that if you ask "Can you use more employess?" that they would say "no." And I do have a wish list of a few more to extend our reach but you know there are other divisions with the CFPB that we are able to tap for their expertise as well. So we don't have to -- don't have to do everything ourselves. As for our budget, that's still being hammered out and, thankfully for me, my deputy's doing the numbers, so I'm a little bit removed from that, so I can't give you accurate information on that right now.
Ranking Member Richard Shelby: You think you're getting the resources overall that you need thus far? I know you're just getting started in a way.
Holly Petraeus: Yes. Although the resources are there but I think it's a frustration, again, to not be able to do everything that people expected us to do. When I first began, I got letters saying that 'We're so excited that there's an agency right now that you, Mrs. Petraeus, will be able to do something about these people that pray on the military.' So I'm very excited about the day that our non-bank supervision team can -- if I can use an analogy -- stop circling the earth field and get permission to land and start their work.
Ranking Member Richard Shelby: Mrs. Petraeus, as you well know, in 2006, Congress passed the Military Lending and this gave the Department of Defense the ability to promulgate regulations that addressed these unscrupulous lending practices that targeted the military. And after Dodd-Frank legislation was passed, the Department of Defense still continues to have the sole authority to write regulations implementing that particular act. What's your view of the effectiveness of the act in stopping unscrupulous lending?
Holly Petraeus: Well I think we heard from Adm Abbot --
Ranking Member Richard Shelby: Absolutely.
Holly Petraeus: -- that there has been success on the classic definition of a pay day loan. I think the problem is there are a lot of predatory products out there right now that have managed to write themselves a definition that puts themselves outside of the implementation. I went online yesterday and I searched the search term "military loans" and I got 9,980,000 hits and the top two search terms that came up were "military loans bad credit" -- which was almost two million -- and "military loans no credit" which came back also two million. So there's obviously a ton of people out there who are managing to exist outside of the protections of the Military Lending Act and it's a problem.
Ranking Member Richard Shelby: Uhm, Mrs. Spain, should the VA require first time home buyers to receive financial education of some sort before they can obtain a VA secured loan? In other words, counseling -- serious counseling as to the implications and obligations of a loan like this.
Bonnie Spain: My opinion would be yes. And the reason that I say that is that buying a home is a complicated process and unless you are a realtor or a morgage lender you can't possibly know everything that you need to know.
Ranking Member Richard Shelby: And it's a big buy for most people, isn't it?
Bonnie Spain: It is a big buy. It's probably the most important, largest purchase they will ever make.
Ranking Member Richard Shelby: Adm Abbot, have you, uh -- In your testimony, among other things, you stated that the Military Lending Act -- and I'll quote your words -- "has dramatically curtailed payday loans to active duty service members." We're glad to hear that. You also point out, however, that some financial institutions have found loopholes in the regulations that the Department of Defense promulgated in 2007. They always do this and you have to come back. Have you contacted the Department of Defense regarding these issues and, if so, what's been that response to close some of those loopholes?
Charles Abbot: Yes, senator, we did in fact, in the year immediately after the act was passed and implemented, have a period where we examined its effect and we reported the results that we had seen to the Department of Defense and it had already begun to be clear that it was having a positive effect and also the same phenomenon you described of the work arounds were coming. The narrowness with which we saw the act implemented gave us concerns at the beginning and now in the light of four years of experience it continues to cause us concern and that is the direction that the financial industry has gone in using the particular limited application of closed-end loans in certain circumstances to, in effect, offer new products that were essentially new pay day loans.
Ranking Member Richard Shelby: Regarding online lending and the growth there, are there additional steps DoD can take to ensure that they adequately cover online lending because people will be resourceful to get around anything.
Charles Abbot: You know, Senator, I believe that education may be the single most important weapon in that particular fight.
Ranking Member Richard Shelby: So you agree with Ms. Spain?
Charles Abbot: Yes.
And we'll note Bonnie Spain from her opening remarks explaining the steps she felt needed to be taken to best prepare service members and veterans as they seek loans throughout their lifetimes.
Bonnie Spain: In wrapping up I'd like to recommend the following actions: Let's close the loopholes that pay day lenders are using to charge military members over 36% interest, require online businesses to post their locations and their range of interest rates, strengthen regulation for the debt settlement companies that target individuals and are abusive, apply the same standards for for-profit credit counseling agencies that non-profits have to adhere to. continue to support financial education for our military and allow the bases to use the funds to purchase materials that they know are good for their agencies and their military, require home buyer education for first time home buyers It's vital we help people seek homes to revitalize our troubled economy, and support and fund housing counseling.