January 20, 2012
By Contributing Editor Tom Philpott
Holly Petraeus is assistant director for
the Office of Servicemember Affairs in the new Consumer Financial Protection
Bureau (CFPB). She formerly directed a consumer education and advocacy program for
servicemembers and their families sponsored by the Council of Better Business
Bureaus Inc.
She is a summa cum laude graduate of
Dickinson College in Carlisle, Pa. The daughter of a four-star Army officer,
Holly has spent most of her life in the military community. Her husband, retired
Army Gen. David Petraeus, is former commander of allied forces in Iraq and
Afghanistan and currently serves as director of the CIA.
In this edited interview with Observation
Post columnist Tom Philpott, Holly discusses the goals of her new office and
her commitment to protecting military consumers.
Your office was established to protect military consumers from
illegal financial practices. Is that a target-rich environment?
I should start by saying what my office
is supposed to be doing, according to the 2010 Dodd-Frank Law.
First, we are to educate and empower military
personnel and their families to make better-informed decisions regarding
financial products and services. Second, we monitor their complaints, and
responses to those complaints, by the CFPB or other appropriate federal or
state agencies. Finally, we coordinate efforts among federal and state agencies
regarding consumer-protection measures for servicemembers and their families.
The CFPB has both a supervision and [an]
enforcement mission over financial institutions. That’s part of the reason I
came to do this job. I was very happy to be in a place where we could both
educate consumers and enforce against people who broke the law to harm
servicemembers. Also, we can write new rules if new practices crop up.
What are the most common complaints from military consumers
related to illegal practices?
We don’t have a whole lot of data yet
because the CFPB just began taking complaints July [2011], starting with those
related to credit cards. In December, we added complaints about mortgage
issues. Because it’s been a graduated rollout, I don’t have a rich data source
yet to draw conclusions.
The Department of Veterans Affairs has a
very good home loan program and has asked us to refer [servicemembers] or
veterans in danger of foreclosure to them (which we are doing). Even if it’s
not a VA loan, VA officials feel they know about available benefits and have a
good track record of preventing foreclosures.
What are the biggest mistakes military consumers make?
It depends on where they are in their
careers. You hear about that first car that servicemembers bought and paid far
too much for or that had a contract with a high interest rate that cost them a
great deal of money. Some of them are getting into installment contracts with
not very good terms. Then once you sign the contract, you are committed to
paying it off.
The military community already is doing a
variety of financial education, all the way up to financial counseling on installations.
Our job is not to replace that. We just work with them to make sure that what’s
being delivered is effective and useful.
Are there practices Reserve and Guard personnel, in particular, should
be wary of to protect themselves financially?
Guard and Reserve [personnel] certainly have
different challenges. It’s important they be aware of protections available when
they go onto active duty. The Servicemembers’ Civil Relief Act (SCRA) does a
great deal, and they should take advantage of its protections. For example, they
can reduce their interest rate to 6 percent on preservice financial obligations,
to include student loans, auto contracts, and mortgages.
Apart from SCRA, what legal protections should servicemembers be
made aware of when dealing with the financial industry?
A military-specific [protection] is the
Military Lending Act. It caps at 36 percent payday loans, auto title loans, and
tax refund anticipation loans for active duty [service]members and their
dependents. And like every American consumer, they have protections under the
18 federal consumer financial laws that the CFPB enforces. That would be laws
like the Fair Credit Reporting Act, the Truth in Lending Act, and Fair Debt
Collection Practices Act.
We are still digging out of the housing crisis that affected the
entire nation. Are many military families still underwater on their mortgages?
I have been to about 15 military
installations over the past year and [have] done a number of roundtables and
town halls. That issue is one of the biggest. A lot of [servicemembers] are in
states [among the] hardest hit in the housing downturn — California, Florida,
Nevada. I was in Florida recently and had about 300 people at the town halls I
did. I asked informally how many were homeowners, and about half of them raised
their hands. I asked, “How many of you now owe more than the home is worth?” And
two-thirds of the hands stayed in the air.
The
biggest fear for them is to get permanent change-of-station orders. What then? There
are no easy answers. They can’t sell their house for enough to pay off their
mortgage. They have had trouble getting access to some of the assistance
programs. They have been told, “You’re not delinquent on your mortgage,” so
they can’t do a short sale or a loan modification.
But we have seen some movement on that. Fannie
Mae and Freddie Mac have changed guidance to servicers to say that a military
move is a qualifying hardship that should allow access to some assistance
programs. Treasury changed its criteria under the Home Affordable Foreclosure
Alternatives program so that servicemembers no longer need to show a drop in
income to qualify.
[Servicemembers] are very worried that
if they do get foreclosed on and have to go delinquent, then it’s going to
affect their security clearance and they won’t be able to do their job. A
number of them, we’ve heard anecdotally, have made the tough decision to just leave
their family in the house and go alone to the new duty station. That is pretty
tough when you think that a permanent change-of-station move is usually three
years, and there is no guarantee that they’ll get orders back to where their
family is living in the house when that’s over. We’re going to continue to try
to raise awareness about that as a major consumer issue for military families.
There was a loan-relief program that allowed DoD to offer some help
to these families.
Yes. It was called the Homeowners
Assistance Program (HAP). It was started for the base realignment and closure (BRAC)
process to help people who have a house outside an installation that is shut
down because of BRAC. But in 2008 as part of the Economic Recovery Act, they
added others to the list. They said people who were severely disabled by combat
or surviving spouses of someone who had been killed who had to move because of
their circumstances also could access the program. A third category, and also
third in priority, were people with permanent change-of-station orders. There
was a lot of extra money put in, another $550 million. But that has largely
been committed, and there is not funding to do much for people who are caught [with
underwater mortgages] now.
Can you advocate for money to be added to HAP, or is that for
policymakers to do?
Yeah, it’s not my decision to make. But
I can certainly raise awareness about the issue and what I hear from military
families about the impact of the situation on them.
What is your most effective means of educating and empowering military
people on consumer-protection advice?
We’re still a start-up agency, and so
we’re still exploring the best ways to reach that community. The military is by
and large a young population, so I think we’re going to have to use social
media well to get our message out.
The education piece might be delivered
by a smartphone or via computer to new recruits during the delayed entry
process to try to give them some small piece of financial education before they
even get to basic training. We want to try to reach them in a way that’s
engaging. Along with the Department of Defense and the services, we all have an
interest in military members’ dollars going as far as possible and being well-spent.
Besides concern about underwater mortgages, what other concerns
have military families raised with you?
One thing we have certainly been hearing
a lot about recently is aggressive marketing by for-profit colleges. They tend
to be more expensive than nonprofit institutions. In some cases, if tuition
assistance or the GI bill doesn’t cover the whole amount, then students may be
encouraged to take out private loans to cover the difference. So that’s a
concern.
Again, the marketing is very heavy. I
remember at Fort Campbell, Ky., a spouse asking a question, saying she was
attending a military-affiliated college. When I asked her for the name, it
certainly was not a military-affiliated college. It was a for-profit. Obviously
they had marketed themselves in such a way as to imply they had some official
military sponsorship, which they did not.
Do you ever get pressure from lobbyists for those companies,
saying it’s not the job of your office to protect military people from what are
legal practices?
I’m not going to go too far down that
road. I will say that a number of organizations have asked to present
information to us. And we are certainly open to hearing what everyone has to
say on the issues.
Has there been progress making military people aware of predatory,
or payday, lending and how they can slide quickly into debt?
There is awareness. The Military Lending
Act helped to remove some of the ones clustered around the gates of military
installations. But I have seen examples of lenders morphing their products to
get outside the definition of the act, by offering open-ended credit instead of
closed-end credit, or offering loans for more than 90 days or for more than a
specified amount. I have even seen a website that proudly proclaims they are
not subject to the Military Lending Act because they offer open-ended credit.
General indebtedness is a problem for
the military. There will always be people looking for loans. One big concern is
now they may look for them on the Internet where it’s very hard to know who
you’re dealing with. A lot of the sites are just “lead generators” for the
person you end up getting the money from. In one case I heard about, a service
couple was having issues with a loan they thought they had paid off. Eventually,
they figured out the lender was in Croatia. On the Internet, you never know whom
you are dealing with.
Is it a generational thing? I mean you’re trying to advise people
who grew up with the Internet and buy products that way.
That’s their hometown, in a way. The
younger generation is very comfortable on the Internet, which may lead to a
sense of overconfidence. Just because you’re comfortable navigating it doesn’t
mean you’ll recognize a scam. And there are plenty of them out there.
Job search sites are full of scammers. You
put out personal information. If somebody offers you work, you will give them even
more personal information.
There are a lot of scams, too, with
vehicle sales online, where a picture of a vehicle is copied from a legitimate
ad and sold and resold on a scam website where buyers are asked to pay in advance.
Are servicemembers vulnerable to identity fraud, too?
Yes, especially if they are deployed. It
is hard sometimes to monitor your affairs if you’re overseas. We don’t do
identity theft here at the CFPB, however. The Federal Trade Commission works on
those issues.
How do deployments affect military people trying to protect themselves
from consumer injury?
It can be challenging if you are overseas.
Calling a lender in a time zone seven hours away is going to be hard during
normal business hours.
But I will say there are also a number
of good financial things while you are deployed. You have the Savings Deposit
Program where you can put up to $10,000 in an account that pays 10 percent while
you are deployed. The protections of the Servicemembers Civil Relief Act can
help as well. And you can put a lot of extra money into the government
retirement program, the Thrift Savings Plan.
But one of the biggest challenges is, if
you’re single, trying to keep an eye on your financial affairs. And if you are
married, you really need to plan with your spouse so you’re not both spending
the same dollar, you on deployment and your spouse at home.
Has the issue of the Redux retirement bonus ever been raised to
you as a consumer issue?
No, it hasn’t.
What do you think of that offer, at the 15-year mark, of a $30,000
bonus in return for a reduced retirement? Is it worthwhile?
I’m not going to get into specific financial
advice like that.
What is the attitude now of banks and mortgage companies toward
the military? Have they become more sensitive to protecting these families?
Generally in the U.S., there is a very
positive attitude toward the military and a desire to do the right thing by
them. The Financial Fitness Forum we had in December [2011] was designed to
spotlight some of those efforts by financial institutions.
Are military families generally more aware, more educated today,
on financial challenges than they have been in the past?
If they aren’t, it’s not for lack of
trying. There is a great deal of support out there that wasn’t there 30 years
ago. The help and good information are available. But a constant effort must be
made to educate people so they find the programs out there for them.
I would encourage people to go to www.consumerfinance.gov, the CFPB website, and find our military
pages. They can also find regular CFPB advice like how to file a complaint on credit
cards or mortgages. Obviously, we are still a work in progress.
What do you hope your office is able to do for military folks as you
gather more data on consumer problems they face?
We do intend to be a robust collector of
data and tailor what we do to that data. I would like to direct our educational
efforts to the biggest problems we see out there. We also will work on consumer-protection
measures with other federal and state agencies. We want to make sure military
issues are not overlooked, that we raise awareness and look for solutions to
make things better.
I am happy to have the opportunity and
the ability to work on behalf of military families. It’s a community I know
very well.
I’ve spent my whole life in it. They are great Americans, and I am honored
to work on their behalf.
About the author: Tom Philpott is a freelance writer and syndicated news columnist. His column "Military Update" appears in 48 daily newspapers throughout the U.S. and overseas.
Copyright Tom Philpott and Military Officers Association of America. All rights reserved.