WASHINGTON — In the face of continued reports of predatory lending and collection practices against service members, a top official Wednesday acknowledged mistakes made by major financial institutions and said they are “working diligently” to comply with a federal law that protects military personnel from suffering financial hardships, especially while serving overseas.
“There were shortcomings across the industry and we’re coming out of it,” said Paul Leonard, senior vice president of governmental affairs at the Financial Services Roundtable, whose membership is a who’s who of financial industry leaders that includes 12 of the top 15 bank holding companies by asset size in the United States. Leonard was testifying before the Senate Veterans Affairs Committee.
FSR members have been cited for numerous violations of the Servicemembers Civil Relief Act, which is a law that protects military service members on active duty. The legislation maintains a wide range of safeguards for military personnel including issues like rental agreements, vehicle leases, income tax payments, health insurance and mortgage and credit card interest rates.
“These protections are in place because service members should not have to worry that their cars will be repossessed while they are on the front lines overseas, that they could lose their home, or that their spouses and children will be evicted while they are on deployment,” Eric Halperin, special counsel for fair lending at the Department of Justice, told the committee.
A 2012 Government Accountability Office report cited at least 15,000 instances of financial institutions failing to properly reduce service members’ mortgage interest rates and more than 300 cases of improper foreclosures.
Several of those instances resulted in high-profile settlements.
Last year, Capital One coughed up $12 million for a bevy of SCRA violations. Wrongful foreclosures, improper repossessions of motor vehicles and denials of the 6 percent interest rate guaranteed by SCRA for some credit card and car loans were among the violations cited by the Department of Justice.
And in April, the Justice Department reached a $39 million settlement with Bank of America and a Morgan Stanley subsidiary on behalf of 316 service members whose homes were unlawfully foreclosed upon between 2006 and 2010.
Following the settlement Justice launched a comprehensive audit for possible SCRA violations at the nation’s five largest mortgage servicers — Wells Fargo, Bank of America, Citibank, JPMorgan Chase and Ally Financial.
“Members of the military who have made great personal sacrifices on behalf of this country should not be required to transition to civilian life only to find their credit ruined and their homes foreclosed on and sold,” Halperin said.
Leonard said the responsible parties accept blame for their roles, and that miscues by various financial institutions were due to several factors, including an inability to handle the number large of requests by military personnel.
“Many financial service companies were overwhelmed by the number of consumers in distress,” he said. “Companies did not have integrated systems to identify military personnel.”
But regardless of the circumstances, leaders on Capitol Hill called for financial institutions to shape up or face the consequences.
“This unacceptable behavior must stop,” said Sen. Bernie Sanders, I-Vt. “We must continue to improve education on the protections of SCRA and the industry must improve its compliance with the act. Aggressive enforcement of these protections must continue when violations occur.”