Advocates and Veterans Groups Urge Financial Institutions to Follow Military Consumer Protection Law During COVID-19 Mobilizations

Financial Companies’ Track Record of Servicemember Violations Warrants Enhanced Protections Amid Pandemic

May 1, 2020 | WASHINGTON, DC — Today, the Student Borrower Protection Center, Student Veterans of America, Veterans Education Success, and over a dozen national military and veteran service organizations sent letters to the nation’s major financial institutions urging them to ensure that service members—including those called up to support COVID-19 emergency response efforts—are not being mistreated or denied their rights under federal law. The coalition of borrower and military services organizations is calling on companies, including mortgage lenders, student loan companies, auto lenders, and credit card companies to ensure they protect service members’ rights. The letters are especially urgent given the industry’s widespread abuses of service members during the last financial crisis.

The Servicemembers Civil Relief Act (SCRA) allows military borrowers to focus on the immediate mission at hand by establishing critical consumer protections, including limitations on interest, repossession, foreclosure, and eviction. The letters sent today lay out measures that financial institutions should take to support military personnel activated and mobilized during the current coronavirus pandemic.

The number of troops deployed to states across the country to help deal with the response to coronavirus recently surpassed 36,000 and continues to increase rapidly. As National Guard units continue to deploy, advocates are calling on financial companies to do their part, as required by federal law, to alleviate many of the unique financial constraints that military borrowers experience when called on active duty.

The letters are available here: https://protectborrowers.org/wp-content/uploads/2020/04/SCRA-Compilation-of-Letters.pdf

“During the last economic crisis, too many military families suffered because financial companies flouted critical consumer protections,” said Seth Frotman, Executive Director of the Student Borrower Protection Center. “With servicemembers on the front lines during this current crisis, companies must step up and honor the sacrifices being made by our men and women in uniform.”

“This crisis is barely the tip of the iceberg for the hurdles our nation faces. Servicemembers and veterans hold a critical role in leading our country through these times,” said Will Hubbard, Chief of Staff of Student Veterans of America. “If financial institutions fail to learn from past mistakes and uphold fundamental financial protections, the consequences of the past are likely to return.”

“As servicemembers are asked to support our nation during the coronavirus pandemic so must the companies that serve them,” said Mike Saunders, Director of Military and Consumer Policy at Veterans Education Success. “These protections are critical to servicemembers’ financial readiness and will ensure that they are focused and ready to answer the nation’s call.”

Track Record of Servicemember Abuse

During the last financial crisis, there were widespread reports of consumer financial companies engaging in SCRA violations, including illegal foreclosures and evictions. In some cases, service members returned from active deployment only to learn they had lost their homes to unlawful foreclosure. Ultimately, the Department of Justice reached a settlement with major banks for mortgage abuses topping $300 million.

In the years following the financial crisis, service member abuses occurred across the consumer financial marketplace. For instance, Capital One faced SCRA violations because of illegal credit card and auto loan practices. The student loan servicing giant Navient had to repay $60 million to nearly 78,000 servicemembers over violations of the SCRA. Since 2011, the Department of Justice has obtained nearly half a billion dollars in monetary relief for over 100,000 servicemembers who were harmed by SCRA violations.

The letters sent today to industry leaders all around the country urged the following measures: 

  • Automatically apply SCRA benefits for members of the military. By checking their client portfolio against the Department of Defense’s list of active-duty service members, companies can identify qualifying borrowers and automatically provide interest rate reductions, without active-duty personnel having to reach out and activate the benefits themselves. This practice has already been put into place for student loans and has resulted in a 500% increase in service members receiving interest rate protections under law.
  • Seamlessly apply SCRA benefits across all product lines. During the 2008 financial crisis, financial institutions failed to invoke SCRA protections across their entire line of products. For example, a service member would seek the interest rate cap for his or her mortgage, but the financial institution would not automatically extend the interest rate cap to the servicemember’s credit card account. Companies should establish in-house procedures to invoke SCRA protections when a borrower uses multiple products with a company. Some companies are already performing this practice, but it should be adopted across the market.
  • Provide enhanced protections for servicemembers. Financial institutions should take  proactive measures that go beyond baseline SCRA compliance in their support of military families.  This includes providing interest rate reductions below the 6% interest rate cap required under the SCRA and extending it beyond the traditional limitations on only pre-service debt. For example, some banks already provided a 0% interest rate on certain credit card debt for service members.
  • Redouble compliance efforts around limitations on repossessions, foreclosures, and evictions.There are limitations on repossessions, foreclosures, and evictions under SCRA. Nevertheless, since 2011, the Justice Department has secured millions in fines and restitution for service members because of violations of the law.

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