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Holly Petraeus: 'Some people don't balk at taking advantage of veterans' Holly Petraeus: 'Some people don't balk at taking advantage of veterans'
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When you join the US military, you are taught about a lot of things: discipline, respect, loyalty. Yet there’s one thing that they don’t teach you in the military: how to protect your own finances.When you join the US military, you are taught about a lot of things: discipline, respect, loyalty. Yet there’s one thing that they don’t teach you in the military: how to protect your own finances.
It’s not surprising, then, that many veterans get the short end of the stick for everything from mortgages to car payments to student loans.It’s not surprising, then, that many veterans get the short end of the stick for everything from mortgages to car payments to student loans.
Congress has caught on. Veterans are one of the groups that are supposed to be protected by the Dodd-Frank Wall Street Reform and Consumer Protection Act. When creating the Consumer Financial Protection bureau (aka the CFPB), Congress asked that there be an office tasked specifically with addressing the needs and concerns of the US military. Since January 2011, the office has been led by Holly Petraeus, wife of retired US army general David Petraeus. Petraeus, who previously served as the director of the Better Business Bureau Military Line and has military life in her veins; her husband, brother, father, grandfather and great-grandfather all served. Congress has caught on. Veterans are one of the groups that are supposed to be protected by the Dodd-Frank Wall Street Reform and Consumer Protection Act. When creating the Consumer Financial Protection Bureau (aka the CFPB), Congress asked that there be an office tasked specifically with addressing the needs and concerns of the US military. Since January 2011, the office has been led by Holly Petraeus, wife of retired US army general David Petraeus. Petraeus, who previously served as the director of the Better Business Bureau Military Line has military life in her veins; her husband, brother, father, grandfather and great-grandfather all served.
We talked with Petraeus about issues her office has tackled in the past three years and the problems US service members still face today.We talked with Petraeus about issues her office has tackled in the past three years and the problems US service members still face today.
Why is it important for CFPB to have an office dedicated to service members affairs?Why is it important for CFPB to have an office dedicated to service members affairs?
Congress actually opted to write that into the law that created the agency – that [there would be] an office for service members. The fact that so much of our military in the last 10-plus years [has] seen some financial consequences, as well as other consequences, [is why] Congress felt it was important that they had an office that addressed their consumer financial issues specifically. And that’s what my office does.Congress actually opted to write that into the law that created the agency – that [there would be] an office for service members. The fact that so much of our military in the last 10-plus years [has] seen some financial consequences, as well as other consequences, [is why] Congress felt it was important that they had an office that addressed their consumer financial issues specifically. And that’s what my office does.
What are some of the financial consequences that your office helps them contend with?What are some of the financial consequences that your office helps them contend with?
Well, a variety of things. I visited military installations when I first started over three years ago now, [and have now] been to 70 different installations. And the economic meltdown, especially in housing that precipitated our financial crisis, hit the military quite hard, because they are a mobile population. For those who had bought homes and saw them decline in value to the point where they went underwater, those service members faced a real dilemma when they got orders to move to a new duty station, in what would be called permanent change of station, or PCF orders. Well, a variety of things. I visited military installations when I first started over three years ago now, [and have now] been to 70 different installations. And the economic meltdown, especially in housing that precipitated our financial crisis, hit the military quite hard, because they are a mobile population. For those who had bought homes and saw them decline in value to the point where they went underwater, those service members faced a real dilemma when they got orders to move to a new duty station, in what would be called permanent change of station, or PCS orders.
They came to me, basically saying: “What are we supposed to do when we can’t sell [the house] for enough to pay the mortgage back? We can’t make rental on my insurance that will cover the cost, and we have to live someplace at the new duty station where we’re going.” They came to me, basically saying: “What are we supposed to do when we can’t sell [the house] for enough to pay the mortgage back? We can’t rent it out for enough to cover the cost, and we have to live someplace at the new duty station where we’re going.”
And there were, of course, federal assistance programs, [but] many of those had a requirement that you must be delinquent on your mortgage before you can actually get help.And there were, of course, federal assistance programs, [but] many of those had a requirement that you must be delinquent on your mortgage before you can actually get help.
I was able to go to various federal agencies and explain that the last thing a service member wanted was to be delinquent, because it could impact their security clearance. One of the main causes, if not the number one cause of service members losing security clearance, is for financial reasons. So they are very, very reluctant, to do something that will negatively impact their credit report. I was able to go to various federal agencies and explain that the last thing a service member wanted was to be delinquent, because it could impact their security clearance. One of the main causes, if not the number one cause, of service members losing their security clearance is for financial reasons. So they are very, very reluctant to do something that will negatively impact their credit report.
Some of them were actually being advised by their own [loan] servicers to just go delinquent, to stop paying for a few months in order to be considered for help. And obviously that’s not good.Some of them were actually being advised by their own [loan] servicers to just go delinquent, to stop paying for a few months in order to be considered for help. And obviously that’s not good.
I talked to Fannie Mae and Freddie Mac, who hold about 60% of US mortgages, I think, at this point, and also the Department of the Treasury and explained it to them. And they were great. They said, “All right, we’ll change our guidance to say that a military PCS move is a qualifying hardship for our system’s programs.” That was certainly very encouraging.I talked to Fannie Mae and Freddie Mac, who hold about 60% of US mortgages, I think, at this point, and also the Department of the Treasury and explained it to them. And they were great. They said, “All right, we’ll change our guidance to say that a military PCS move is a qualifying hardship for our system’s programs.” That was certainly very encouraging.
[Federal mortgage] help also expects the home to be owner-occupied. And again, that’s almost impossible for a service member on orders. I would use myself as an example: during my husband’s time – 37 years on active duty – we moved 24 times. And, as an army child, as well, I have never lived in a house more than four years – ever. When treasury heard that, they actually changed their criteria for tier-one [mortgage] modification and said, “All right, if the service member intends to come back to the house and doesn’t buy another house somewhere else, we’ll still consider it owner-occupied.” Which again was very heartening. [Federal mortgage] help also expects the home to be owner-occupied. And again, that’s almost impossible for a service member on orders. I would use myself as an example: during my husband’s time – 37 years on active duty – we moved 24 times. And, as an Army child, as well, I have never lived in a house more than four years – ever. When Treasury heard that, they actually changed their criteria for tier-one [mortgage] modification and said, “All right, if the service member intends to come back to the house and doesn’t buy another house somewhere else, we’ll still consider it owner-occupied.” Which again was very heartening.
I think the most exciting outcome of the conversations I had with the federal housing agency that oversees Fannie Mae and Freddie Mac [is when] they came back a few months later; they had decided that if a service member on PCF orders had to do a short sale because of a PCF move, if it was a Fannie or Freddie mortgage, that they would forgive the difference between what they could sell the house for and what was owed – which was huge, as you can imagine. That went into effect in November of 2012. I think the most exciting outcome of the conversations I had with the federal housing agency that oversees Fannie Mae and Freddie Mac [is when] they came back a few months later; they had decided that if a service member on PCS orders had to do a short sale because of a PCS move, if it was a Fannie or Freddie mortgage, that they would forgive the difference between what the service members could sell the house for and what was owed – which was huge, as you can imagine. That went into effect in November of 2012.
You also launched an initiative called the financial fitness forum.You also launched an initiative called the financial fitness forum.
We did do a forum the first year, where we brought in consumer advocates, but also [banking] industry [representatives] to say, “Let’s talk about small loan alternatives for service members.”We did do a forum the first year, where we brought in consumer advocates, but also [banking] industry [representatives] to say, “Let’s talk about small loan alternatives for service members.”
It was a very productive meeting. We heard what some of the people who loaned to service members were doing to make affordable small loans. Since then, we deal a lot with those who help veterans and the military that are called VSOs, veteran service organizations, or MSOs, military service organizations. We have done some telephonic town halls with them and we have also done a series of online education video events, for those who serve in the military directly; for example, JAGs or education service officers or financial program managers – to be sure that they have the most up-to-date information when they talk to their military customers. It was a very productive meeting. We heard what some of the people who loaned to service members were doing to make affordable small loans. Since then, we deal a lot with those who help veterans and the military that are called VSOs, veteran service organizations, or MSOs, military service organizations. We have done some telephonic town halls with them and we have also done a series of online education video events, for those who serve the military directly; for example, JAGs or education service officers or financial program managers – to be sure that they have the most up-to-date information when they talk to their military customers.
For instance, we did one in the past year on the new mortgage rules that were going into effect so that [military members] would have up-to-date information on that. The first one we did was about military and student loan servicing – again, that’s another one we thought was important. We have done one on debt collection. We hope to be helpful for those who serve in the military [and] we figured we’d train the service folk so then they can spread the effect very widely with those that they help. For instance, we did one in the past year on the new mortgage rules that were going into effect so that [military members] would have up-to-date information on that. The first one we did was about military and student loan servicing – again, that’s another one we thought was important. We have done one on debt collection. We hope to be helpful for those who serve in the military [and] we figured we’d train the service folks so then they can spread the effect very widely with those that they help.
You mentioned student loans. Are veterans struggling to pay their student loans? What other struggles doe they face? You mentioned student loans. Are veterans struggling to pay their student loans? What other struggles do they face?
There are a number of issues [regarding] student loans for the military. One concerns the student loan debt that [members] may have before they enter the military, when they enter into active duty. That student loan debt is covered by the Service Members Civil Relief Act and they have the right to ask for interest rate on the debt to be reduced to 6% while they are serving on active duty. We have definitely seen cases where they have been turned down for that, improperly. Or sometimes [they’re] asked to re-prove that they went onto active duty repeatedly, which they aren’t supposed to have to do [a second time]. There are a number of issues [regarding] student loans for the military. One concerns the student loan debt that [members] may have before they enter the military, when they enter into active duty. That student loan debt is covered by the Service Members Civil Relief Act and they have the right to ask for the interest rate on the debt to be reduced to 6% while they are serving on active duty. We have definitely seen cases where they have been turned down for that, improperly. Or sometimes [they’re] asked to re-prove repeatedly that they are on active duty repeatedly, which they aren’t supposed to have to do [a second time].
But also, [service members] are not really being told what their options are. For instance, if it’s a federal loan, they can do something called income-based repayment where they can their payments adjusted that’s affordable on the salary that they earn. But also, [service members] are not really being told what their options are. For instance, if it’s a federal loan, they can do something called income-based repayment where they can have their payment adjusted so it’s affordable on the salary that they earn.
[Service members also] qualify for something called public service loan forgiveness. If they make 120 qualifying monthly payments for 10 years basically, they are done. The debt is paid.[Service members also] qualify for something called public service loan forgiveness. If they make 120 qualifying monthly payments for 10 years basically, they are done. The debt is paid.
So instead of being informed about these options, in some cases, they are just being told or it’s being suggested to them that they should just defer paying on the loan while they are on active duty. [This] may sound appealing but if it’s not a federally subsidized loan, it’s going to keep accruing interest while you are not paying on it. So you end up with quite a surprise when you realize you owe more at the end of the deferment period than you did when you started.So instead of being informed about these options, in some cases, they are just being told or it’s being suggested to them that they should just defer paying on the loan while they are on active duty. [This] may sound appealing but if it’s not a federally subsidized loan, it’s going to keep accruing interest while you are not paying on it. So you end up with quite a surprise when you realize you owe more at the end of the deferment period than you did when you started.
Do you find that most veterans know how to use the benefits offered to them like the GI bill and other relief programs?Do you find that most veterans know how to use the benefits offered to them like the GI bill and other relief programs?
I think veterans are well aware of the GI Bill. Many of them are using it. One thing that has concerned me is, in some cases, where they are spending it. They are being very heavily marketed to by what’s called the for-profit college industry, where the colleges obviously run like a business. They sells their courses, which are their products, to their customers, the students and the profit they make goes to their investors or back into the business. I think veterans are well aware of the GI Bill. Many of them are using it. One thing that has concerned me is, in some cases, where they are spending it. They are being very heavily marketed to by what’s called the for-profit college industry, where the colleges obviously run like a business. They sell their courses, which are their products, to their customers, the students and the profit they make goes to their investors or back into the business.
There is an amendment to a Higher Education Act that specifically said that for-profit colleges can only get 90% of their revenue from education funds. They have to get the other 10% from other places. There is an amendment to a Higher Education Act that specifically said that for-profit colleges can only get 90% of their revenue from federal education funds. They have to get the other 10% from other places.
And I think the intent of that was to say that no college should exist just to see/feed federal money through, that they should be offering something valuable enough that would pay for it by other means. But unfortunately, as defined in that amendment, federal education funds are defined as Title IV funds and GI Bill is not Title IV. And neither is what’s called [military] tuition assistance, which is the college funding program that military [personnel] can use while on active duty. That makes the military money extremely attractive to for-profit college industry because it fills that 10% that they need. As a result, they are marketed very heavily to the military, and very successfully, frankly. A lot of military education money is now spent at for-profit schools. And I think the intent of that was to say that no college should exist just to feed off federal money, that they should be offering something valuable enough that students would be willing to pay for it by other means. But unfortunately, as defined in that amendment, federal education funds are Title IV funds and GI Bill is not Title IV. And neither is what’s called [military] Tuition Assistance, which is the college funding program that military [personnel] can use while on active duty. That makes the military money extremely attractive to the for-profit college industry because it fills that 10% that they need. As a result, they are marketing very heavily to the military, and very successfully, frankly. A lot of military education money is now spent at for-profit schools.
I’m not going to try to paint them all with the same brush. Some of them provide a good education, but there are others [for which] there are some serious questions. Questions about graduation rate, student default rate, accreditation. I’m not going to try to paint them all with the same brush. Some of them provide a good education, but there are others [about which] there are some serious questions. Questions about graduation rate, student default rate, accreditation.
Would the degree from that school be accepted by the industry you may want to go into? Will your credits transfer if you decide you want to get out to transfer to another school? All those are issues that the military hasn’t been able to get adequate answers to, and if you think about it, the college degree is the largest consumer financial purchase you’ll ever make – except possibly a house. So, really, it’s something you want to be shopping very carefully for. Would the degree from that school be accepted by the industry you may want to go into? Will your credits transfer if you decide you want to transfer to another school? All those are issues that the military hasn’t been able to get adequate answers to, and if you think about it, the college degree is the largest consumer financial purchase you’ll ever make – except possibly a house. So, really, it’s something you want to be shopping very carefully for.
You’ll want to be sure it’s going to be the best outcome for your money. The president took an interest in this and [signed] an executive order back in April of 2012, concerning principles of excellence in military education. And among other things, he ordered the Veteran’s Affairs, the Department of Defense, the Department of Education to work together and to, first of all, make it easier for military personnel to see what they’re getting. In other words, to comparison-shop, and to give them a place to complain if they have problems, because up to that point it was done on a very ad-hoc basis. You’ll want to be sure it’s going to be the best outcome for your money. The president took an interest in this and [signed] an executive order back in April of 2012, concerning principles of excellence in military education. And among other things, he ordered the Department of Veterans’ Affairs, the Department of Defense, and the Department of Education to work together and to, first of all, make it easier for military personnel to see what they’re getting. In other words, to allow them to comparison-shop, and to give them a place to complain if they have problems, because up to that point it was done on a very ad-hoc basis.
All of that actually just rolled out in the last month. It is now a central complaint portal that veterans, who are using tuition assistance, can access someone at the Department of Defense. If they are using GI Bill, there is a complaint-system at the Veterans’ Affairs, and the Department of Education provided an email address so that complaints might go there. Veterans’ Affairs also set up a college comparison tool modelled on something that we have done at the CFPB, and I recently read statistics that show hundred of thousands of folks have accessed that already, [although] it hasn’t been up very long. That’s very heartening. All of that actually just rolled out in the last month. There is now a central complaint portal that service members, who are using tuition assistance can access someone at the Department of Defense. If veterans are using GI Bill, there is a complaint-system at the Veterans’ Affairs, and the Department of Education provided an email address so that complaints might go there. Veterans’ Affairs also set up a college comparison tool modelled on something that we have done at the CFPB, and I recently read statistics that show hundred of thousands of folks have accessed that already, [although] it hasn’t been up very long. That’s very heartening.
Ultimately, it’s on the shopper to do some of research to see what they are getting. We have to try to make the information accessible to them, and I think that this initiative has helped do that.Ultimately, it’s on the shopper to do some of research to see what they are getting. We have to try to make the information accessible to them, and I think that this initiative has helped do that.
You mentioned that some colleges target veterans. Is it correct that veterans are also often victims of affinity targeting?You mentioned that some colleges target veterans. Is it correct that veterans are also often victims of affinity targeting?
Affinity marketing, when you appeal to a certain group, takes a couple of forms with the military. One is obviously [merchandise] branded with lots of American flags, eagles and sometimes, even though it’s not legal, with the seals of the Department of Defense, the military services and lots of talk about “how we understand your community”, etc.Affinity marketing, when you appeal to a certain group, takes a couple of forms with the military. One is obviously [merchandise] branded with lots of American flags, eagles and sometimes, even though it’s not legal, with the seals of the Department of Defense, the military services and lots of talk about “how we understand your community”, etc.
A great form of affinity marketing – if you’re trying to do it – is to hire former military as your employees. I would say military culture is one that fosters respect for rank, for superiors, so if you have a retired senior enlisted or senior officer selling people that this is a good company, or that this is a good place for them to spend their money, that can be very, very effective.A great form of affinity marketing – if you’re trying to do it – is to hire former military as your employees. I would say military culture is one that fosters respect for rank, for superiors, so if you have a retired senior enlisted or senior officer selling people that this is a good company, or that this is a good place for them to spend their money, that can be very, very effective.
What’s your main advice to veterans on protecting themselves from potential financial scams?What’s your main advice to veterans on protecting themselves from potential financial scams?
You know, obviously the most basic [advice] is simply “buyer beware.” There are a lot of offers out there specifically targeted to the military. In fact, if you get on your computer and you google the two words “military loans” you’ll get about 65m things that come up. And many of them are very expensive forms of instalment loans. In some cases [they can be] outright scams, [like] advanced fees scams, where you end up sending money upfront in order to get a loan – almost always a sign that you will never see your money again. You know, obviously the most basic [advice] is simply “buyer beware.” There are a lot of offers out there specifically targeted to the military. In fact, if you get on your computer and you google the two words “military loans” you’ll get about 65m things that come up. And many of them are very expensive forms of instalment loans. In some cases [they can be] outright scams, [like] advanced fee scams, where you end up sending money upfront in order to get a loan – almost always a sign that you will never see your money again.
One way for people to gain access to veterans is to promise to help them get better and to get their benefits. We have seen an unfortunate trend toward that. There’s a veterans’ benefit called Aid and Attendance that’s designed to help seriously disabled veterans who don’t have much money. It’s designed to help them with daily activities of living: bathing, cooking, basically to provide them with an attendant to help them. And few of those people [scammers] have definitely used that as a hook to say, “We will help you qualify for these benefits” or “We will help you get them quickly,” which should be a red flag because it all has to go through the Veterans Affairs process. Nobody is going to be able to bypass that. One way for people to gain access to veterans is to promise to help them get their benefits. We have seen an unfortunate trend toward that. There’s a veterans’ benefit called Aid and Attendance that’s designed to help seriously disabled veterans who don’t have much money. It’s designed to help them with daily activities of living: bathing, cooking, basically to provide them with an attendant to help them. And a few of those people [scammers] have definitely used that as a hook to say, “We will help you qualify for these benefits” or “We will help you get them quickly,” which should be a red flag because it all has to go through the Veterans Affairs process. Nobody is going to be able to bypass that.
In some cases, if the veteran has too much money to qualify, the so-called advisor will help make them poor by putting their money into something inaccessible. We saw one where they put in an annuity where the veteran wouldn’t be able to get it out until he was in his 90s. Sadly, there are people out there who don’t balk at taking advantage of those who served our country, and it’s very painful to us to see them succeed at doing that. In some cases, if the veteran has too much money to qualify, the so-called advisor will help make them poor by putting their money into something inaccessible. We saw one where they put the money in an annuity where the veteran wouldn’t be able to get it out until he was in his 90s. Sadly, there are people out there who don’t balk at taking advantage of those who served our country, and it’s very painful to us to see them succeed at doing that.
We just want the military and veterans to be very cautious when responding to an offer, even if its wrapped in the flag and they say they love the military. That doesn’t mean it’s the best deal for you. If you have questions, you can certainly come to CFPB.gov. We have a section on our website called “Ask CFPB” that has the answers to over a thousand of consumer questions, some of them military specific. We want people to be too smart to be caught up in these bad deals. We just want the military and veterans to be very cautious when responding to an offer, even if it’s wrapped in the flag and they say they love the military. That doesn’t mean it’s the best deal for you. If you have questions, you can certainly come to consumerfinance.gov. We have a section on our website called “Ask CFPB” that has the answers to over a thousand consumer questions, some of them military specific. We want people to be too smart to be caught up in these bad deals.