The Threat of Financial Scams for Servicemembers and Veterans

This coming Monday is Veterans Day, a day to honor those men and women who served in America’s armed forces. In doing so, we often think of the enormous challenges faced by American servicemembers: the grueling physical tests of training and operations; the pain of time away from loved ones; and the risk of physical danger in deployment overseas.

One less-discussed challenge of military service is the unique vulnerability servicemembers and veterans can face to scams in the financial marketplace.  Servicemembers are often young, and may be receiving a steady paycheck for the first time. Many move frequently and are deployed for long periods of time out of the country, making it more difficult to maintain a stable financial lifestyle. And the challenges do not stop upon leaving the service. Many companies target veterans with aggressive or deceptive advertising to peddle bad deals.

There are many predatory businesses that seek to capitalize on servicemembers and veterans. On the roads outside major military bases, payday lenders, title loan companies, and pawn shops often line up like “bears on a trout stream,” as described by one study of payday loans in military communities. Scams targeting veterans may play upon their commitment to service to sell exploitative financial products and services.

Tricks and scams perpetrated against military servicemembers can do real harm. In 2010, a year before the U.S. withdrawal from Iraq, more than 20,000 members of the military and veterans lost their homes to foreclosure. Servicemembers can also be vulnerable to aggressive debt collection tactics. Negative information on credit reports can result in reduced military clearance levels, important for a military career. Just as debt collectors sometimes threaten civilians to call up their employer, debt collectors have called servicemembers with threats to “report the unpaid debt to their commanding officer, have the servicemember busted in rank or even have their security clearance revoked if they don’t pay up.” Because of the potential consequences, contact or the threat of contact with commanding officers places an immense amount of pressure on servicemembers to make the payment demanded of them, even if the debt is invalid.

For years now, many servicemembers looking to protect themselves from financial tricks and scams have been able to turn to the first federal agency devoted to protecting consumers in the financial marketplace: the Consumer Financial Protection Bureau, or CFPB. The CFPB was created with the intention of giving special attention to members of the armed services – the CFPB’s Office of Servicemember Affairs works full time to help members of the military, veterans and their families avoid bad deals, and find restitution when they are wronged. Since its inception in 2011, the CFPB has taken extensive action to support servicemembers, including responding to tens of thousands of complaints, working to strengthen the Military Lending Act, and helping ensure that servicemembers get their student loan benefits.

In 2017, Frontier Group published an analysis of servicemember complaints to the CFPB to paint a more detailed picture of challenges they face in the financial marketplace. We found that debt collection is the leading source of complaints by servicemembers and veterans to the CFPB – and that the two companies that received the most complaints had previously been cited for mistreating consumers. We also published some of the stories that accompany servicemember complaints. One consumer reported receiving “several letters threatening to contact commanding officers… This threat alone would have put me in a situation where I wouldn’t have been able to lead the men and women below me and likely end my career.”

Today, however, the CFPB’s ability to protect servicemembers and other consumers is at risk. Under the Trump administration, the CFPB is planning to scale back its supervision over loans to servicemembers and is considering legal changes that would increase their risk of getting ripped off by auto dealers. Acting Director Mick Mulvaney plans to ask Congress to put much stronger limits on the CFPB’s ability to create consumer protection rules. And Mulvaney has also suggested that he may limit public access to consumer complaints, which would mean servicemembers’ personal stories about mistreatment in the financial marketplace would be hidden from public view.

Despite these efforts, the CFPB still remains a valuable resource and one worth defending. Servicemembers and veterans can find information online at https://www.consumerfinance.gov/practitioner-resources/servicemembers/. More information on the work the CFPB has done to protect servicemembers – and the work that must be done to ensure the CFPB can continue its mission – can be found in our report, Protecting Those Who Serve.

Photo: A CFPB town hall meeting with Airmen from the 60th Air Mobility Wing to discuss resources for navigating the financial marketplace. Credit: CFPB