Financial advisors who advise families with military members or whose own children are in the service should be part of an expanded effort to inform them about their legal financial protections, Senate Veterans Affairs Committee Chairman Bernie Sanders (I-Vt.) said Wednesday.
He said the biggest problem with the Servicemembers Civil Relief Act is that its financial protections are unknown to most people in the military. Sanders noted some surveys have shown 80 percent of Army staffers and their families are not aware of their financial rights under the laws.
The act protects service members from evictions, default judgments and foreclosures. It also places an interest-rate cap of 6 percent on mortgages signed by a military worker before entering the service until 12 months after leaving active duty. Foreclosures cannot occur during that time, as well, without a court order.
Sanders said financial regulators should be tougher in enforcing the law, claiming violators are only being charged pennies while reaping millions for their abuses.
The Vermont senator noted the General Accountability Office reported 14,000 cases where financial institutions failed to properly reduce service members mortgage interest rates and over 300 improper foreclosures last year.
“These violations are completely unacceptable,” he said.
Consumer Financial Protection Bureau military families advocate Holly Petraeus said her agency has seen violations of the act that include:
• Service members being told (incorrectly) that they must provide a letter from their commanding officer or "certified" orders in order to receive the interest-rate reduction to 6 percent.
• Officers being told to provide orders with an end date in order to receive the interest-rate reduction (officers’ orders usually don’t have end dates – they are indefinite).
• The lender terminating the interest-rate reduction at the end of one year because the service member does not provide proof of continuing active-duty service (proof that is not required under the act).
• The lender placing the service member in forbearance automatically when the act’s rights are invoked, rather than simply providing the requested interest-rate reduction.
• The lender failing to comply with a service member’s request that the lender refund all the interest charged above 6 percent from the point of entry into active-duty military service. As long as the service member requests this protection within 180 days of leaving active duty, the lender must comply and issue a refund, no matter how long has passed since the person entered active duty, even if it’s been months or years.
She added the Consumer Financial Protection Bureau is also concerned about lump-sum pension advances to military retirees in return for their monthly retirement checks.
“These offers usually amount to pennies on the dollar, and may be in violation of the law regarding assignment of pension benefits, even though they are disguised as loans,” Petraeus said.
The Department of Defense considers small dollar payday and vehicle title loans the biggest financial challenge for military workers, DOD personnel and readiness legal policy director Colonel Paul Kantwell told the Senate panel.
Kantwell said some unscrupulous lenders charge annual interest rates of more than 36 percent and contain terms to try to avoid being regulated by the Military Lending Act.