Servicemembers are nearly twice as likely as the general population to file a complaint with the Consumer Financial Protection Bureau about debt collection issues, according to a CFPB report released Tuesday.
Almost half of debt collection complaints were due to continued attempts to collect debts that weren’t owed, including attempts to collect incorrect amounts.
First Command’s Financial Behaviors Index found in January that almost a third of middle-class military families reported getting out of debt as their top financial goal for 2016, the most popular resolution. The second most common resolution was improving credit scores.
CFPB’s “Servicemembers 2015: A Year in Review” report is based on over 19,000 complaints made by servicemembers, veterans and families. The CFPB received about 271,600 complaints in total.
The overall volume of complaints from the military population has risen steadily since July 2011, according to Holly Petraeus, assistant director of the CFPB’s Office of Servicemember Affairs. The number of complaints made in 2015 increased 13%, with nearly half of all complaints related to debt collection.
Medical debt is a common headache for servicemembers who file a complaint with the CFPB, comprising about 13% of debt complaints and largely limited to veterans.
Mortgage debt is another source of frustration, and about 14% of complaints were related to mortgages. There was an increase in complaints around the mortgage origination process. The VA Home Loan Program guarantees eligible borrowers a home loan and charges a funding fee between 1.25% and 3%, unless they have a service-connected disability. However, many veterans struggle to get these fees refunded.
Of the 11% of complaints related to credit reporting, three-quarters were about incorrect information on their reports. Negative hits on their credit reports can be particularly troublesome for servicemembers as they can affect their security clearance, Petreaus said in a statement last year.
Fraud and identity theft are especially troublesome, particularly while servicemembers are deployed when addressing those issues is more difficult. The report recommends servicemembers place an Active Duty Alert on their credit report before reporting for duty. The alert requires lenders to take reasonable steps to verify a requester’s identity and removes the servicemember’s name from prescreened credit offer lists for two years. Servicemembers can initiate the alert by contacting any one of the three credit reporting agencies.
Consumer loans, especially car loans, are another problem for servicemembers and accounted for 7% of complaints. “We have heard from servicemembers who, after receiving orders to move overseas, discovered their loan contract did not allow them to take their car out of the country. Consumers express frustration over having to pay to store their car at home or deal with selling their car while they are gone,” according to the report.
Bank account services and credit card debt accounted for almost 6% of complaints. Account management and billing disputes were the top issues.
The report cited introductory interest rate promotions as a common instigator of complaints, and an opportunity to educate military clients, as they’re not always aware of all the terms of the promotion; “specifically, the requirement that the entire balance be paid in full at the end of the introductory period, and the fact that, if it is not, interest will be retroactively charged on all purchases since the card was opened,” according to the report. “This is true regardless of any payments that may have been made during the introductory period, if the payments don’t result in the entire balance being paid before the end of the introductory period.”
The only area where the number of complaints decreased was in payday loans. Just 500 complaints, or 3%, made in 2015 involved payday loans.
Student loans accounted for 2% of servicemember complsints, almost two-thirds of which were due to difficulties dealing with the lender or servicer.
Complaints related to prepaid cards, money transfers and other kinds of financial services together account for less than 3% of complaints.
Companies’ Responses to Complaints
More than 60% of the complaints received by the CFPB were sent to the companies involved, according to the report. The Bureau received responses from 94% of those companies, with the vast majority reporting that the complaint had been resolved in that way, usually by providing an explanation to the servicemember who filed the complaint. Just 4% of complaints were resolved with some kind of monetary relief. The median amount provided was $134, but the report noted the amounts vary by product.
Of the public enforcement actions the CFPB participated in last year, four had a particular impact on servicemembers and resulted in more than $5 million in refunds and relief.
In October, Security National Automotive Acceptance Co. was ordered to refund or credit over $2 million to servicemembers and other consumers for engaging in unfair, deceptive and abusive acts or practices in violation of the Consumer Financial Protection Act of 2010. SNAAC was also charged a $1 million penalty, according to the report.
The Fort Knox National Company and Military Assistance Company, which processes military allotments, was ordered in April to pay about $3 million for failing to adequately disclose fees.
Also in April, RMK Financial Corp. was ordered to pay $250,000 in civil money penalties for deceptive mortgage advertising practices and failing to correctly disclose variable-rate mortgage products. CFPB also found that RMK misrepresented itself as being a U.S. government entity or associated with one, or that the mortgage products were endorsed by the government.
In February, NewDay Financial was required to pay a $2 million civil penalty for failing to disclose a financial relationship with a veterans’ organization and illegal referral payments.
“As servicemember complaint volume continues to grow, OSA is continuously reminded how important the mission of our office is – to work on consumer financial challenges affecting military personnel, veterans, and their families – and how important it is to inform our work by monitoring their complaints to the CFPB,” the report concluded.
— Read Modernized Military Pensions Could Be 18% Lower for New Recruits on ThinkAdvisor.