Military personnel move regularly, earn steady paychecks and have to protect their security clearances. That makes them more vulnerable to illegal debt collection practices
Unscrupulous debt collectors have a special affinity for military personnel.
Enlisted service members earn steady paychecks, move regularly and can lose a security clearance if they have excessive debt. They may be overwhelmed with paperwork and stress during and after a deployment. Those issues make them more likely to miss paying a bill, more vulnerable to unlawful debt collection tactics and easy targets for fraudsters trying to collect on nonexistent debts.
“We receive complaints from service members about debt collection issues at nearly twice the rate of their civilian counterparts,” says Holly Petraeus, assistant director of Servicemember Affairs at the Consumer Financial Protection Bureau. “We’ve heard that when National Guard units deploy, debt collectors will call family members and try to pressurethem to pay without giving them a chance to call the service member. The worst one I heard about was a debt collector pressuring a recent combat widow to pay them immediately from the death gratuity.”
In a report released March 22, 2016, debt collection complaints accounted for nearly 50 percent of the more than 19,000 complaints the CFPB received from military members. Complaints are up 13 percent from 2014 to 2015. See chart below, “Service member complaints.”
Credit card debt was the most likely cause of those complaints, underlying 30 percent of the debt collection complaints.
“The complaints highlighted in today’s report show that members of the military continue to have serious problems when it comes to debt collection,” said CFPB Director Richard Cordray in a news release. “The bureau will continue to closely monitor complaints from servicemembers to ensure our brave men and women are getting the protection they deserve.”
The debt could be a real bill that slipped between the cracks during a military move. “When you move, you think you’ve paid a final bill,” Petraeus says. “The company says they will tell you if you owe more money — but sometimes they don’t. Then a late charge comes in and they send it directly to collection. In my case, it was a cable company. I went to talk about my current account and they showed me this unpaid debt that had been sent to collection. It was less than $5. Obviously you’re willing to pay it if you know about it.
Sometimes the supposed debt is one that’s simply not owed. It may have been paid already, discharged in bankruptcy, the result of ID theft, or never owed in the first place. This is a problem that affects not just the military but also civilian consumers.
Or, you may indeed owe the debt, but not to the entity trying to collect it — because a debt broker sold the same portfolio to more than one buyer, says Christopher Koegel, the assistant director, division of financial practices, at the Federal Trade Commission.
We receive complaints from service members about debt collection issues at nearly twice the rate of their civilian counterparts.
|— Holly Petraeus|
Servicemember Affairs, CFPB
Attempts to collect debt that was never incurred — “phantom debt” — represent 70-80 percent of the debt collection complaints that come into the FTC, Koegel says. Amounts of the bogus debt range from several hundred to several thousand dollars. Sometimes, the scammers inflate the amount of money owed, he says.
Those attempts often appear legitimate because the collector has identifying information about the consumer. “They have a fair amount of personal information about the consumer to help overcome the consumer’s personal skepticism,” Koegel says. “Often consumers who have taken out payday loans may have taken out several. The consumer gets confused and thinks, ‘Maybe I did take out a payday loan a few years ago.'”
In two cases, (FTC versus Cornerstone and Co., and FTC versus Bayview Solutions), debt brokers listed consumer debt for sale on a website that was free, open to the public and contained borrowers’ identifying information including consumer names, addresses, birthdates, contact information, employer names, credit card numbers, bank account numbers and bank routing numbers.
“Anybody, including our investigators, could go on the spreadsheet and see all the information you would need to collect from consumers and ‘create’ a debt,” he says.
“The FTC sued to have that information pulled off the website and make sure consumers were notified of the breach.”
Pay up or else
Even if the debt is real, the debt collector’s tactics could be violating the Fair Debt Collection Practices Act. Making false threats of litigation or any threats of arrest, false claims to be an attorney or law enforcement agency — even spoofing phone numbers on caller ID — are all Illegal intimidation tactics. Debt collectors also sometimes threaten to disclose or do illegally disclose the debts without permission to third parties including family members, employers and — especially tough for service members — military commanding officers, says Christopher Koegel, the FTC’s assistant director, division of financial practices.
You may be going through PTSD. I was really struggling. Companies do prey on us.
|— Sgt. Bryan Noyes|
Victim of illegal collection practices
“Debt collectors may contact the service member’s chain of command to disclose the debt — something they’re not supposed to do under the Fair Debt Collection Practices Act,” Petraeus says. “They know if the commanding officer gets a lot of calls, he or she is apt to go to the service member and say, ‘I’m getting a bunch of calls about this, fix it.’ Even if they don’t owe it, the service member will pay the debt so it will go away.”
Unethical debt collectors also directly threaten to get the service member’s security clearance revoked, she says. A security clearance is not automatically revoked because of unpaid debt, Petraeus says. “But debt collectors know even the threat is effective,” she says. “Many jobs you cannot do without a clearance. For example, everyone on a nuclear submarine has to have a secret or higher clearance.”
In many cases, the name of the supposed creditor is not recognizable to the consumer. That’s because the original debt holder has concluded the debt is uncollectable, written it off, taken a tax deduction and then sold the debt to a third-party debt collector for pennies on the dollar.
“We’ve had service members says to us, ‘I’d be happy to pay the debt if I could find out who I owe it to,'” Petraeus says.
Sgt. Bryan Noyes was a victim of illegal debt collection practices.
One veteran’s story
Sgt. Bryan Noyes survived an Iraq deployment from 2003 to 2007 as a forward observer, one of the 10 most dangerous jobs in the Army. “I was usually on top of buildings or right across the street from where the enemy was,” says Noyes, now a district service officer with the Veterans of Foreign Wars in Portland, Maine. “I coordinated movement on the ground, if they needed backup with artillery. We’re an extremely valuable target if the enemy gets us.”
Once he left the Army, he became a valuable target for debt collectors. “When you come out of the military, you’re easily vulnerable to scams,” he says. “You may be going through PTSD. I was really struggling. Companies do prey on us.”
Noyes paid the bills he knew he owed. “I knew I owed those bills because the credit cards were in my wallet,” he says. Other bills were to creditors he’d never heard of and for large amounts he knew he never would have been approved to borrow.
The harassment calls were constant. “I put an app on my phone to count and one day I had 15 messages from the same debt collector,” Noyes says. Debt collectors called as early as 3 a.m. and as late as 1 a.m.
Pine Tree Legal Assistance in Maine helped him resolve the issue, getting three cases totaling $5,000-$7,000 dismissed, Noyes says. “What I tell veterans nowadays is, ‘If you need money, go to your bank or credit union. They know you.'”
How to protect yourself
Petraeus urges service members to take advantage of education and protections they have:
- The CFPB and Military One Source — a support resource for service members — offer financial planning, counseling and education geared toward soldiers and veterans. The CFPB offers financial coaching for transitioning veterans and other economically vulnerable consumers.
- Service members who deploy can place an active duty alert on their credit reports to require businesses to take extra steps before issuing credit in their names.
- Service members also are protected from high interest rates and other predatory practices under the Military Lending Act.
- The Servicemembers Civil Relief Act protects service members on active duty from certain financial civil actions.
- Veterans Affairs benefits that are directly deposited into the veteran’s account or issued onto a card are protected from garnishment to collect on debts. The bank must protect two months’ worth of benefits and allow the veteran to use that money. Payments issued on paper checks are not protected; veterans are urged to take advantage of direct deposit to get that protection.
- The FDCPA protects all consumers, requiring, among other things, that third-party debt collectors send a validation notice within five days of first contacting a consumer about a debt. That information must include the name of the creditor, the amount owed and how the consumer can dispute or the debt.
Federal law says consumers who feel they don’t owe the debt can request a debt verification letter within 30 days of receiving the debt validation notice. At that point, the collector must stop contacting the consumer until written verification is provided.
The third-party debt collector may not even have that information. One study by the FTC showed that only 12 percent of accounts sold to third-party debt collectors came with any underlying documentation, says Lisa Stifler, a senior policy counsel who leads the Center for Responsible Lending’s work on debt collections.
Often, accounts lack key information needed for verification. For instance, 89 percent don’t list the original principal amount; 65 percent lack the date of first default; and 54 percent omit the name of the original creditor, Stifler says. “All of the above are critical pieces of information for debt collection,” Stifler says.
The debt collector, however, may claim the information is sufficient.
“Unfortunately, it’s not always black and white,” she says. “If you cannot get verification, you should not be obligated to pay. Often, though, it takes a complaint to the FTC, the CFPB or an attorney’s intervention.”
|SERVICE MEMBER COMPLAINTS BY PRODUCT BY YEAR|
|Product||2014 complaint volume||2015 complaint volume||% changer from 2014-2015||% of all complaints|
|Bank account and services||1,100||1,100||2%*||6%|
|Other financial services||100||200||179%||1%|
|* Complaints are rounded to the nearest hundred, so percentages (based on nonrounded values) may appear inconsistent with complaint volume|
|Source: Servicememebers 2015: A Year in Review, released March 22, 2016|