Majority Statement

• Senator John D. (Jay) Rockefeller IV

  Chairman

  U.S. Senate Committee on Commerce, Science, and Transportation
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  Majority Statement

  Senator John D. (Jay) Rockefeller IV

  This month we celebrate Veterans Day and the remarkable men and women who make extraordinary sacrifices protecting our country. As we honor the service and the bravery they have shown in conflicts across the world, we should remember their challenges on the homefront as well.

  Like the rest of us, our soldiers, airmen, sailors, and Marines are consumers who buy homes, cars, computers, and other products essential to maintaining a household. As we are going to learn today, their steady paychecks and relative job security make our servicemen and women appealing targets for unscrupulous businesses pitching predatory loan products. That’s not something any of us should be proud of.   

  One of the essential promises we make to those who put their lives on the line to protect our freedom is that we will, in turn, honor their service when they are at home.  To uphold this pledge, we must make sure that we understand the unique challenges they face when they act as consumers. And that their special role in our society may require some special protections.  

  Rigorous training requirements and the relative isolation of some bases can make it tough for our military servicemembers to comparison shop for goods and financing options. Frequent moves demanded by the job – which can include months on end in war zones – can make tracking bills and negotiating with debt collectors virtually impossible.

  Beyond that, our soldiers, airmen, sailors, and Marines may also be particularly vulnerable to aggressive debt collection techniques. For example, many members of the military need security clearances to perform their jobs. We have heard reports about unscrupulous debt collectors who – in violation of federal law – threaten to put military servicemembers’ security clearances at risk by disclosing their debts to their commanding officers.

  Today we are going to explore financial issues affecting the economic well-being of military households: practices involving small-dollar loan products that carry extremely high long-term costs – and aggressive debt collection tactics our servicemembers may face when bills come due. Many families across the country face emergency expenses and times when their monthly budgets don’t cover all of their expenses. There are a variety of lenders that offer products to help them bridge those financial gaps.

  It becomes a different story, however, when these products involve predatory components such as egregiously high interest rates – which in some cases top 300 percent – high fees or waivers of rights hidden in the fine print of contracts, or other unfair or deceptive tactics. And it is particularly troubling when lenders use geographical proximity to military bases, and targeted advertising techniques to encourage members of the military community to enter into these predatory loans.

  Some of the more common small-dollar, high-cost loan products advertised specifically to military members that I’ve heard about include: 

  • “payday loans,” which take repayment from the borrower’s next paycheck, and can carry annual percentage rates of 200-300 percent;

  • Installment loans for cash or retail items like electronics, whose interest and fees ultimately can total more than the original price of the goods; and 

  • Auto title lending, where the loan is secured by title to a consumer’s car, which gives lenders leverage to increase loan rates under the threat of repossession of the car.

  Other concerning practices include various deceptive schemes used to sell automobiles to our servicemen and women.  

  One example of a recent predatory scheme targeting military members was uncovered by one of our witnesses today, Tennessee Attorney General Robert Cooper. As General Cooper will discuss in more detail, his inquiry showed that electronics retailer SmartBuy – with stores on the outskirts of military bases – pushed installment sales of consumer products, such as computers, to military servicemembers at inflated rates through deceptive tactics such as undisclosed fees and high interest rates. 

  Despite protections in state and Federal law, consumer advocates report that military servicemembers are still being harmed by these predatory practices. One recent news account highlighted the case of a Marine staff sergeant who took out an auto title loan for $1,600 – not realizing that the fine print of the contract required him to pay back more than $17,000 over two and a half years. When he fell behind on payments his car was repossessed and sold at an auction.

  A federal law called the Military Lending Act (MLA) is supposed to protect servicemembers from this kind of abuse, but it did not appear to apply in this case because the MLA only covers loans with a term of six months or less. This is clearly a loophole that needs to be closed.

  Today, we are going to learn more about trends in unfair and predatory business practices from a group of individuals who are leading the charge to promote consumer protection for our military. They have been working hard to promote partnerships among consumer advocates at the base, state, and federal level. I hope that the testimony today will help inform us about the best ways we can build on these efforts.  Our military is always prepared to give full measure – we owe them the same when it comes to protecting them from unscrupulous practices at home.

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Minority Statement

• Senator John R Thune

  Ranking Member

  U.S. Senate Committee on Commerce, Science, and Transportation
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  Minority Statement

  Senator John R Thune

  Thank you, Mr. Chairman, for holding this hearing to examine unfair financial practices that may be harming our military community, something I am sure all of the members of this committee care about. Thank you also to the witnesses for coming here to testify.

  South Dakota is home to Ellsworth Air Force Base, where more than 9,000 military personnel, family members, and civilian employees are stationed. In addition, 4,250 Air Guard and Army Guard members serve in my home state. 

  I am proud of their courage and grateful for their sacrifice and service to our country. I certainly do not want to see them or their families subjected to unfair financial practices.

  This hearing will highlight the types of unfair practices and financial fraud that may be targeting our military men and women, the education and assistance programs available, and the law enforcement efforts undertaken to eliminate the worst practices and scams.  

  Servicemembers, like all consumers, are not immune to the problems encountered by taking on too much debt. However, the unique demands of military service may exacerbate the negative consequences from too much debt. 

  For servicemembers, unlike ordinary consumers, failing to pay any kind of debt is considered an offense under the Uniform Code of Military Justice, which could lead to a loss of a security clearance, or even result in an administrative discharge.

  Admiral Mike Mullen, then Chief of Naval Operations, was quoted voicing strong concerns about these issues in a June 2006 article of Sea Power, stating that “A sailor’s financial readiness directly impacts unit readiness and the navy’s ability to accomplish its mission.” As mentioned in the article, financial difficulties were the number-one reason sailors were losing their security clearance and this was affecting the availability of servicemembers for overseas deployments. 

  Due to the efforts of Senators Jim Talent and Bill Nelson, Congress took notice of those challenges and enacted the Military Lending Act in 2006, which was an important step in protecting against predatory lenders. While that law has largely been a success, the Department of Defense is currently considering whether its rule implementing the Military Lending Act needs to be updated.

  The Department of Defense takes the issue of financial readiness seriously. I appreciate that the Department has made great strides to enhance its education, training and counseling, by beginning financial training right from the start– during Basic Training – and continuing throughout the servicemember’s career. 

  As the issue of whether further solutions are warranted is examined, it is important to ensure there is a proper balance with access to appropriate credit, while also protecting servicemembers from unfair practices and outright fraud. 

  I hope we can use this hearing today to highlight the financial assistance and education efforts that are available to servicemembers to make informed decisions and to protect against fraud. For instance, the military has legal assistance offices that offer financial education and counseling. I look forward to hearing from Captain Alexander, who serves in the Navy’s Mid-Atlantic Regional Legal Services Office, about his role in supporting and advising servicemembers when they fall victim to financial fraud.

  I also look forward to learning more about the consumer protection initiatives from the Federal Trade Commission and the Consumer Financial Protection Bureau. We are privileged to have Mrs. Holly Petraeus here today to tell us of her efforts with the Office of Servicemember Affairs at the CFPB. I know that she has visited personally with the servicemembers stationed at Ellsworth, as well as dozens of other military installations. 

  I would also like to call attention to Military Consumer Protection Day, which was held for the first time this past July. Its website, www.military.ncpw.gov, provides education and resources to servicemembers and their families to protect them against fraud.

  In closing, we can all agree that financial readiness is an important issue for our military and our national security and that these brave men and women that protect us all over the world should not be victims of unfair practices at home.

  Thank you again Mr. Chairman for holding this hearing and I look forward to hearing the witnesses’ testimony and what certain states are doing to rein-in unscrupulous practices.

Testimony

• The Honorable Robert E. Cooper

  Attorney General

  State of Tennessee
  Download Testimony (84.25 KB)

• Ms. Hollister (Holly) K. Petraeus

  Assistant Director, Office of Servicemember Affairs

  Consumer Financial Protection Bureau
  Download Testimony (164.10 KB)

• Mr. Charles Harwood

  Deputy Director, Bureau of Consumer Protection

  Federal Trade Commission
  Download Testimony (263.75 KB)

• Ms. Deanna Nelson

  Assistant Attorney General in Charge, Watertown Regional Office

  New York Office of the Attorney General
  Download Testimony (102.28 KB)

• Mr. Dwain Alexander

  Legal Assistance Attorney

  Naval Station Norfolk, Virginia
  Download Testimony (292.20 KB)