Servicemembers continue to face major financial challenges
Financial readiness is critical to military readiness. That is why the CFPB is working hard to ensure that servicemembers get the protections they are entitled to under the law. Despite our progress, there is still work to be done. Below, we discuss three major protections that the CFPB is working to secure for all servicemembers.
As interest rates remain high, too many companies still fail to provide servicemembers reduced rates
Under the Servicemembers Civil Relief Act (SCRA), active duty servicemembers are entitled to a reduced interest rate on loans they took out before military service. In December 2022, the CFPB did a first-of-its-kind analysis that quantified whether servicemembers were receiving their interest rate reductions on certain loans and made recommendations for financial institutions to increase the use of SCRA reductions. However, recent research on the credit card market suggests that many credit card companies have not adopted the straightforward fixes that could help ensure that servicemembers get interest rate relief.
The CFPB’s 2022 analysis estimated that fewer than 10% of eligible auto loans and 6% of personal loans to activated members of the National Guard and Reserves were receiving interest rate reductions, resulting in nearly $10 million a year in estimated lost savings. This report covered only auto and installment loans, but there is ample evidence to suggest that servicemembers face hurdles in other areas, like credit cards and mortgages . The report recommended that companies apply SCRA interest rate reductions for all accounts held at an institution if a servicemember invokes protections for a single account and proactively check servicemembers’ military status to apply these benefits automatically for active duty servicemembers.
Last month, the CFPB released new credit card market research showing that major credit card companies have some of these recommended practices in place, but not others. CFPB found that every major credit card company studied applied SCRA benefits to every account a servicemember held at the institution with a single request—saving servicemembers not only money, but also time spent on the phone or filling out forms. However, the report found that only some companies were proactively checking servicemembers’ military status to streamline or even automate benefits. This finding is significant because it suggests that companies can implement automation and other proactive measures, but it is also clear more needs to be done to make these practices widespread across the entire market.
Protecting servicemembers from military allotment system abuses
Military payroll deductions, called allotments, provide a way for companies to force automatic payments. As the CFPB documented over the past decade, the allotment system is ripe for abuse, and certain companies have repeatedly taken advantage of consumers. That is why the CFPB and other bank regulators worked with the Department of Defense over the years to close many of the loopholes that allowed these companies to siphon off servicemembers’ hard-earned pay, and forbade companies from mandating payment by allotment, in certain circumstances.
We continue to hear from servicemembers and their families, however, that some lenders are evading these protections. For example, lenders may attempt to get around the rules by creating allotment-funded savings accounts for servicemembers and then arranging for automatic payments from those accounts. Servicemembers get left with debt on over-priced goods and may even incur junk fees on multiple new accounts they didn’t know existed.
The CFPB will continue to work to address allotment violations and junk fees associated with allotment savings accounts. As a first step, the CFPB’s examiners reviewed the activities of allotment providers that offer allotment savings account products, including accounts owned by servicemembers. This review uncovered that certain providers failed to provide servicemembers with timely statements that would have informed them that they were being charged a monthly fee. To address these issues, the allotment providers corrected this failure and refunded fees charged to affected servicemembers. Certain providers also stopped opening multiple allotment accounts for the same consumer.
While these changes are an important step forward, we will continue to work with our partners across the Armed Forces to address problems in the military allotment system. We are also working to address these same types of problems when other types of federal employees access a similar allotment system.
Protecting servicemembers from identity theft
A January 2023 CFPB report found that reports of military identity theft are increasing. This trend makes services that help protect servicemembers from identity theft such as timely security freezes and removal from pre-screened credit offers more important than ever.
CFPB has addressed this issue head-on with credit reporting agencies. In October 2023, the CFPB found that Transunion had failed to provide crucial identity theft protection for thousands of individuals, including active-duty members of the military. For months, the company failed to remove consumers and servicemembers with extended fraud alerts and active duty alerts from pre-screened solicitation lists, in violation of the Fair Credit Reporting Act.
In addition, TransUnion also failed to place or remove security freezes on tens of thousands of credit reports in a timely manner, since at least 2003. Despite these failures, TransUnion falsely represented to consumers that their requests were processed when they were not. The CFPB’s order requires TransUnion to pay $3 million to consumers, clean up problems that caused these violations, and pay a $5 million penalty.
Additionally, earlier this year, the CFPB identified that credit reporting companies may be enrolling servicemembers in paid credit monitoring products without providing servicemembers with sufficient information about the free credit monitoring they are eligible for. The CFPB recommended that credit monitoring companies work to proactively identify servicemembers and ensure that they receive the free credit monitoring services they are entitled to under the law. Problems with credit reports are the number one reason that servicemembers contact the CFPB, and we will continue to monitor the actions of national credit reporting companies and enforce the law when necessary.
Engagement with servicemembers is critical to our work
Insights from servicemembers and military groups remain an important driver of CFPB’s work. In October 2023, Director Chopra and staff from throughout the CFPB sat down with more than a dozen military and veteran service organizations to hear about the financial challenges that are impacting the military community.
We have heard that housing issues remain at the forefront of military financial security particularly when servicemembers change duty stations. As servicemembers continue to face challenges in both the rental and mortgage markets, the CFPB is closely monitoring the impacts of permanent change of station moves on military families.
We also continue to hear reports about unaccredited claims agents that market “consulting services” to Veterans when submitting claims to the Department of Veterans Affairs (VA). Earlier this year, the CFPB published a joint WARNO with the VA on unaccredited individuals and organizations and the CFPB is working closely with federal and state agencies to protect veterans’ benefits.
Military groups continued to raise concerns about accessing protections under the Public Service Loan Forgiveness program, harmful practices like transcript withholding, and loan servicers providing incorrect information to military students as federal student loan payments resume. The same concerns were noted in the 2023 CFPB’s Education Loan Ombudsman report.
From 2011 through 2022, servicemembers, veterans, and their families have submitted more than 323,000 complaints, with 66,400 complaints submitted in 2022 alone. The CFPB’s Office of Servicemember Affairs also publishes an annual report that explains complaint trends by state and by servicemember status, including veterans and members of the National Guard and Reserves.
The CFPB will continue to work with all our partners as the financial marketplace evolves so we can understand the unique needs and challenges of members of the military community. If you have a problem with a financial product or service, submit a complaint to us, and we’ll work to get you a response.