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Today we honor the men and women who defend our freedom. In this country, we are extremely fortunate that so many brave Americans volunteer to serve in our armed forces. At incredible personal sacrifice, they go to some of the most dangerous corners of the world to make sure that we remain safe here at home.
My father served in the Army, and I have quite a few extended family members who have also served. I often think about my cousin, who is a nurse in the Navy. I very rarely see her, because she is constantly being sent all over the world. She has served in Afghanistan a couple of times, and often disappears without being able to tell us where she has been. I have so much respect for her willingness to drop everything and do what is asked of her. And, when I thank her, she tells me it is no big deal. And in her mind, it is not a big deal because so many other people who are ready to risk their lives, without hesitation, surround her.
On behalf of the entire team at MagnifyMoney, I want to thank all of the men and women of the armed forces for their service.
Although so many of us show our gratitude for the service of our veterans, there are some people who take advantage of our men and women in uniform, particularly in financial services. Some of the worst offenses include:
- Debt collectors, who engage in illegal and abusive practices, targeted particularly at service members
- Payday loan companies, who often use patriotic imagery and set up shop near bases, and charge extortionate prices
- Banks, particularly targeting service members, with outrageous overdraft fees (a form of payday lending)
- Mortgage companies (particularly servicing companies) that deny service members the protections that they deserve under the law
- Large banks that make it too difficult to receive the protections of the Servicemembers Civil Relief Act (SCRA)
- Any financial organization that doesn’t give our service members the benefit of the doubt
Some businesses make a strategy out of exploiting our men and women in uniform, and their unique living situation. Fortunately, the CFPB has created an Office of Servicemember Affairs, led by Holly Petraeus. If you have experienced difficulties or unfair treatment from a financial organization, you can complain online to the CFPB, by clicking this link. They have a dedicated team that deals with service member complaints, and to-date have helped return $200 million to men and women in uniform.
We will deal with each of the biggest issues below.
Service members are uniquely at risk: credit defaults (failure to pay your bills) can result in having your security clearance revoked under the Uniform Code of Military Justice. And collection agencies know that.
Some collection agencies are particularly aggressive, and they will:
- Contact your chain of command, trying to humiliate you into payment
- Contact your spouse, making threats
- Demanding payments from widows immediately, trying to get their hands on the death benefit
This happens far too often, and it is repulsive.
Remember that you have rights, and you do not have to tolerate abusive and illegal debt collection actions. Our recommendation:
- Make sure, particularly before a deployment, you have a power of attorney given to someone who can negotiate on your behalf with the debt collection agency. Typically this is a spouse or a parent.
- Immediately report any illegal contacts from the agency to the CFPB. Remember: they cannot contact your chain of command. They can only speak to you or someone you designated about your debt
- Restrict their ability to contact you, in writing. Below is a sample letter that you can use:
Dear [Debt collector name]:
I am responding to your contact about collecting a debt. You contacted me by [phone/mail], on [date] and identified the debt as [any information they gave you about the debt].
You can contact me about this debt, but only in the way I say below. Don’t contact me about this debt in other way, or at any other place or time. It is inconvenient to me to be contacted except as I authorize below.
You can only contact me at:
[Mailing address if you want to get mail]
[Phone number and convenient times if you want to be contacted by phone]
[If correct, include the following] My employer prohibits me from receiving communications like this at work.
Thank you for your cooperation,
It is very easy to get stuck in a payday-lending trap. Although a payday loan may feel like an easy solution when you have an immediate need for money, it can become an expensive debt trap that becomes impossible to escape.
Fortunately, there are alternatives for service members. PenFed (a credit union), has a foundation. They have created a program: ARK (Asset Recovery Kit). This is basically a way to escape a payday loan: PenFed will lend you $500 for a $5 fee. No credit report is pulled, no interest is charged, and it is confidential and fast. However, in order to receive the money you need to sit with a consumer credit counselor. I believe this is a good requirement.
You can learn more about this program, and apply here.
Banks – and their Overdraft Fees
Payday lending companies typically charge $15 to $20 for every $100 that you borrow for 2 weeks.
Overdrafts on basic checking accounts can be even more expensive: they can be over $35 per incident. And some of the worst banks are the ones that target the military. When we recently reviewed the fees charged per branch, the absolute worst performer was Fort Hood National Bank, which targets the military. It makes $1.3 million per branch on banking fees – which is outrageous.
Given the mobile nature of a service member’s life, we recommend considering:
An internet-only bank, like Ally Bank has completely free ATM usage (including the reimbursement of other bank ATM charges anywhere in the US). In addition, there is no overdraft fee if money is transferred from your savings account to your checking account, and the overdraft fee is capped at $9 per day. You can compare that to other options on our checking account page.
There are certain financial organizations that target the military, and understand your unique needs. However, their overdraft fees are not always good deals, and their ATM networks are more limited.
cashRewards Credit Card from Navy Federal Credit Union: The Active Duty account is great if you can link a savings account or a line of credit. If you link a savings account, there is no fee for an overdraft transfer. And, if you need to borrow money, they offer a reasonable overdraft line of credit that is much cheaper than a payday loan or overdraft at a traditional bank. However, if you don’t have a line of credit or a savings account, you can be charged up to $60 per day in fees, similar to the large banks. In addition, you do receive $20 worth of ATM rebates per month (for active duty). If you go to the ATM 1 time per week, that should cover you.
Here is a common story: your house in underwater (you owe more money on your mortgage than your home is worth), and you receive a PCS (Permanent Change of Station). You feel stuck. When you call your mortgage company, they tell you that you don’t have any options.
They are wrong.
If you are in active duty (or just left), if you or your spouse have been injured in active duty, of if you have received a PCS, then you may be able to qualify for a military hardship on your mortgage.
Fannie Mae has created an entire resource guide here.
Freddie Mac has created a resource here.
I would recommend the following steps:
- Tell your mortgage company that you may qualify for military hardship, and you want to talk to a specialist. If you do not receive what you need, then
- Contact Fannie or Freddie (depending upon which one owns your mortgage). If your mortgage is not Fannie or Freddie, or you still don’t receive what you need, then
- Contact the CFPB Complaint Office.
Don’t wait to reach out. With mortgages, the earlier you reach out for help, the better.
In addition, you have certain protections from foreclosure. If you obtained your mortgage before you entered military service, than the lender is required to get a court order before they foreclose – even in states that do not require a court order. If the lender does receive a court order, and you can prove that you are unable to meet your financial obligations because of military service, the foreclosure must be stopped (or the mortgage adjusted).
Your SCRA Rights
When you join the military, you have certain protections under the SCRA (Servicemembers Civil Relief Act). Namely:
- Any debt that you had before entering military service (including mortgages, student loans, credit cards and other loans) cannot charge an interest rate higher than 6% while you are in the military. That can be a massive reduction (especially on credit cards), and you should make sure you take advantage of it. Call your lender and tell them you are eligible for SCRA interest rate relief. (Some banks, like Chase, will reduce the interest rate further. Others, like Bank of America, charge the full legal max)
- You cannot be evicted if your monthly rent is less than $3,047.45 per month.
- You have protection from foreclosure (as detailed above)
There are some additional rights – which are summarized well here.
Sometimes banks just lack common sense. When my cousin was deployed, she ended up paying her credit card bill a week late. (She couldn’t pay earlier because she was on a ship in the Pacific, called at a moment’s notice). The credit card company charged her a late fee and increased her interest rate. When she explained that she was in the Navy, they didn’t budge.
Everyone is rushing to wave the red, white and blue on Veteran’s Day. But real patriotism is not taxing our service members with obscene charges. That ranges from the small (nickel and diming on late fees) to the outrageous (harassing a widow, illegally, within 24 hours of her husband’s death to collect on a payday loan).
To all service members: I thank you for your service. I encourage you to reach out to us ([email protected]) if we can be of any help. And I urge you to complain to the CFPB if you run into trouble. You make too many sacrifices on our behalf; banks and lenders should not have the ability to take advantage of you.
Uncle Sam image taken from Creative Commons.