On this day, Veterans Day, America pauses to honor those whom
we should be honoring every day -- the military personnel who put
their lives on the line for our country. One way the government
is honoring them is by including in the new Consumer Financial
Protection Bureau -- which has as its mission making financial
services and products work better for Americans -- an Office of
Servicemember Affairs. The OSA's focus is on military personnel,
and its assistant director is Holly Petraeus. Here are five
questions I recently posed to her along with her answers.
What are the main financial challenges facing military
Petraeus noted that housing is a big one. The military have not
been immune to our troubled economy and ailing housing market.
Making matters worse, they often don't have the luxury of
sticking it out in their home until the market recovers. They
move frequently and have been facing having to sell their homes
after their values dropped, often ending up owing more on their
mortgage than their home is worth.
As Petraeus recently explained before a Senate committee,
"Often they can't sell their home for enough to pay off the
mortgage; 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 sale because they're not yet delinquent;
and they can't refinance for a good rate because it will no
longer be considered their principal residence once they
As it is for so many civilian Americans, debt is another huge
problem for many in the military. It's been estimated that at the
Lackland Air Force Base in Texas, for example, the average
recruit arrives for basic training with more than $10,000 in
debt. That can be hard to pay down on their military incomes. As
Petraeus explained, many end up "with more month than money and
look for help in the wrong places."
Thus, predatory lending is another big issue, as military
folks with their regular paychecks are especially attractive
targets for those looking to take advantage. Petraeus has heard
many sad stories of service personnel being sold overpriced
products with outrageous financing costs. And then there are car
loans, with military folks frequently sold overpriced lemons with
steep financing terms. Petraeus noted that while the CFPB will
only be able to oversee dealers who write their own loans, it is
working with the Federal Trade Commission and Federal Reserve to
address problems with car loans.
Finally, education poses another danger, via for-profit
schools that largely operate online, such as the University of
(Nasdaq: APOL) ,
(Nasdaq: COCO) , and the
) Kaplan division. These schools must take no more than 90% of
their revenue from federal Title IV grants and loans, and GI Bill
funds and military tuition assistance don't count for that. So as
Petraeus explained in an interview on National Public Radio
recently, "[F]or every service member that a for-profit college
can sign up, that then gives them the ability to sign up nine
other people who are using Title IV funds."
Thus, as the Chronicle of Higher Education has reported, eight
of the largest for-profit colleges took in more than $1 billion
in veterans' education benefits in 2010, up a whopping 159% over
2009 levels. That might not be so bad, but military personnel
also often take on expensive private student loans -- and as
Stars and Stripes
has noted, "Of the eight for-profits receiving the most GI Bill
money, five saw more than half of their students fail to
graduate. Kaplan University and its related schools saw more than
68% of its bachelor's degree students wash out last year."
Are there any financial benefits of being a military
person that many aren't aware of?
Petraeus mentioned the Department of Defense's Savings Deposit
Program, through which service members serving in eligible combat
zones and receiving Hostile Fire Pay can deposit up to $10,000 in
a savings account that will earn 10% interest annually. Up to
$10,000 can be deposited per qualifying deployment. During a time
when most banks are paying far less than 1% interest in savings
accounts, this can be a big deal.
She also added that many states have special benefits for
veterans, and suggested that they call their state's Department
of Veterans Affairs to inquire about these.
What kinds of things should military personnel do (or
stop doing) to put themselves in the best financial position?
Petraeus urged military folks to "have a plan for how you spend
your money. Be a smart shopper and read the fine print, as
painful as that is. Focus on what your total cost for something
will be, not just what its monthly cost is."
She explained that once service members (and all of us,
really) sign an agreement, we're generally bound by its terms --
even if they stink. That's why it's important to be vigilant.
Military personnel are especially attractive targets for those
who want to take advantage, so it can pay to be skeptical and
Affinity marketing is another danger to be wary of. It
involves being approached by those associating themselves with
the military in order to sell products or services. Some may be
terrific -- but others, not so much. Some organizations hire
retired military people to represent them for this reason, as
they offer a sense of security and familiarity.
Finally, she urged service members and veterans to be
especially cautious with those who present themselves as wanting
to help them secure military benefits. They'll often charge a
sizable fee and collect personal information, such as Social
Security numbers, putting them in a position to be able to steal
an identity or money from an account. If you're looking to get
all the benefits you're entitled to, she suggests simply
contacting the Department of Veterans Affairs.
What has your office been doing so far to improve the
financial lot of service members?
To be fair, the CFPB and the Office of Servicemember Affairs just
opened their doors officially in July, so they've been spending
much of their time building capacity and hiring staff. Still,
Petraeus and her office have been busy advocating, too.
With many ordinary Americans and service members being
foreclosed on illegally or being denied interest rate reductions,
Petraeus proactively wrote to the CEOs of 25 of the biggest banks
in America -- including
Bank of America
) , and
) -- to urge them not to engage in such practices. "I offered a
gentle reminder that I hope they'll look at what their folks are
doing. You're only as good as the person on the phone dealing
with the customer, after all," she said.
She has been coordinating with other federal and state
agencies and attorneys general, advocating for military issues.
The CFPB has an agreement in place to share consumer complaints
received with the Judge Advocate Generals of all the
Positive developments are afoot. As she mentioned in her
testimony to the Senate, "The Department of the Treasury has
issued new guidance for its Home Affordable Foreclosure
Alternatives (HAFA) program making it more accessible for
those with PCS [Permanent Change of Station] orders, and
government-sponsored enterprises like Fannie Mae and Freddie Mac
are tweaking their own guidance."
What can military folks and the rest of us expect from
the CFPB and the OSA?
They will advocate energetically for service members, raising
awareness of financial issues that affect military personnel.
Part of the OSA's mission is to seeing that their unique needs
are being addressed and that solutions to problems are being
Petraeus concluded the interview by noting that, "They took an
oath to protect their country and the least we can do is be their
- The Office of Servicemember Affairs
- The Consumer Financial Protection Bureau
- Petraeus's Testimony to the Senate Committee on Banking,
Housing, and Urban Affairs
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