On this day, Veteran's 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 personnel?
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 leave."
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 Phoenix's Apollo Group (NAS: APOL) , Corinthian Colleges (NAS: COCO) , and the Washington Post's (NYS: WPO) 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 careful.
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 Citigroup (NYS: C) , Bank of America (NYS: BAC) , Wells Fargo (NYS: WFC) , and JPMorganChase (NYS: JPM) -- 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 services.
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 impact 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 sought.
Petraeus concluded the interview by noting that, "They took an oath to protect their country and the least we can do is be their voice."
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