THE BLOG
11/21/2013 12:55 pm ET Updated Jan 25, 2014

Protecting Servicemembers at Home and Abroad

This month we celebrate Veterans Day and the remarkable men and women who make extraordinary sacrifices to protect our country. As we honor the service and the bravery they have shown in conflicts across the world, we should remember their challenges on the homefront as well.

Like the rest of us, our soldiers, airmen, sailors, and Marines are consumers who buy homes, cars, computers, and other products essential to maintaining a household. As we heard in a hearing I held as Chairman of the Committee on Commerce, Science and Transportation, their steady paychecks and relative job security make our servicemen and women appealing targets for unscrupulous businesses pitching predatory loan products. That's not something any of us should be proud of. Indeed, it's unacceptable.

One of the essential promises we make to those who put their lives on the line to protect our freedom is that we will, in turn, honor their service when they are at home. That's a sacred pledge. To uphold it, we must make sure that we understand the unique challenges they face as consumers. And that their special role in our society may require some special protections.

Rigorous training requirements and the relative isolation of some bases can make it tough for our military servicemembers to comparison shop for goods and financing options. Frequent moves demanded by the job -- which can include months on end in war zones -- can make tracking bills and negotiating with debt collectors virtually impossible.

Beyond that, our soldiers, airmen, sailors, and Marines may also be particularly vulnerable to aggressive debt collection techniques. For example, many members of the military need security clearances to perform their jobs. We have heard reports about unscrupulous debt collectors who, in violation of federal law, threaten to put military servicemembers' security clearances at risk by disclosing their debts to their commanding officers.

This week we explored the financial issues affecting the economic well-being of military households: practices involving small-dollar loan products that carry extremely high long-term costs, and aggressive debt collection tactics our servicemembers may face when bills come due. Many families across the country face emergency expenses and times when their monthly budgets don't cover all of their expenses. There are a variety of lenders that offer products to help them bridge those financial gaps.

It becomes a different story, however, when these products involve predatory components such as egregiously high interest rates -- which in some cases top 300 percent -- high fees or waivers of rights hidden in the fine print of contracts, or other unfair or deceptive tactics. And it is particularly troubling when lenders use geographical proximity to military bases, and targeted advertising techniques to encourage members of the military community to enter into these predatory loans.

Some of the more common small-dollar, high-cost loan products advertised specifically to military members that I've heard about include:

• "payday loans," which take repayment from the borrower's next paycheck, and can carry annual percentage rates of 200-300 percent;

• Installment loans for cash or retail items like electronics, whose interest and fees ultimately can total more than the original price of the goods; and

• Auto title lending, where the loan is secured by title to a consumer's car, which gives lenders leverage to increase loan rates under the threat of repossession of the car.

Other concerning practices include various deceptive schemes used to sell automobiles to our servicemen and women.

One example of a recent predatory scheme targeting military members was uncovered by one of our witnesses yesterday, Tennessee Attorney General Robert Cooper. As General Cooper discussed in more detail, his inquiry showed that electronics retailer SmartBuy -- with stores on the outskirts of military bases -- pushed installment sales of consumer products, such as computers, to military servicemembers at inflated rates through deceptive tactics such as undisclosed fees and high interest rates.

Despite protections in state and Federal law, consumer advocates report that military servicemembers are still being harmed by these predatory practices. One recent news account highlighted the case of a Marine staff sergeant who took out an auto title loan for $1,600 -- not realizing that the fine print of the contract required him to pay back more than $17,000 over two and a half years. When he fell behind on payments his car was repossessed and sold at an auction.

A federal law called the Military Lending Act (MLA) is supposed to protect servicemembers from this kind of abuse, but it did not appear to apply in this case because the MLA only covers loans with a term of six months or less. This is clearly a loophole that needs to be closed.

This week, we learned more about trends in unfair and predatory business practices from a group of individuals who are leading the charge to promote consumer protection for our military. They have been working hard to promote partnerships among consumer advocates at the base, state, and federal level. I hope that the testimony yesterday will inform us about the best ways we can build on these efforts. Our military is always prepared to give full measure -- we owe them the same when it comes to protecting them from unscrupulous practices at home.