Holly Petraeus takes on those who prey financially on military families
QA with newly named head of Office of Servicemember Affairs
There may be no better person to have your back in a financial firefight than Holly Petraeus.
Americans have become uncomfortably accustomed to seeing our military in harm's way in recent years. But for many of the 300,000 servicemen and women serving overseas, the financial impact of debt has become nearly as dangerous and stress-inducing as the threat of an IED or suicide bomber.
Office of Servicemember Affairs
The daughter of one general and the wife of another, Holly Petraeus has her own fight on her hands now. Named to head the Office of Servicemember Affairs within a new federal consumer watchdog agency, Petraeus' assignment is to fight the often predatory lenders who prey on soldiers. Her weapon of choice: education.
Enter Holly Petraeus, recently tapped by Elizabeth Warren to head the Office of Servicemember Affairs within the new Consumer Financial Protection Bureau, a consumer watchdog agency created by the 2010 Wall Street reform law.
As the daughter of Army Gen. William Knowlton, a previous superintendent of West Point, and spouse of 35 years to Gen. David Petraeus -- the Commander of the International Security Assistance Force in Afghanistan who is soon to be nominated to head the CIA -- Petraeus has spent much of her life advocating on behalf of military members and their families.
Her position with the new agency follows her six-year tenure as director of the Better Business Bureau (BBB) Military Line, which worked with the Department of Defense Financial Readiness Campaign to provide consumer education and advocacy to military families.
It will differ from the BBB in one important respect: It will have teeth.
We spoke to the down-to-earth Petraeus with the moving boxes barely unpacked in her new office at the CFPB.
CreditCards.com: What prompted you to move from the BBB to work with Elizabeth Warren at the Consumer Financial Protection Bureau?
Holly Petraeus: There were a couple of things that appealed to me. First and foremost was the fact that it is going to be an agency with enforcement authority and the power to write rules and correct situations that need correcting. The BBB is a reporting agency, and while I had a wonderful six years there, it was very appealing to me to be able to work with a brand new government agency, to help it have a military focus from the beginning and to have the power to enforce against people who are breaking the law to harm consumers.
CreditCards.com: Has the financial picture gotten worse recently for military families?
Petraeus: I think the Internet has made it a lot easier to rip people off. It's very easy to set up a fake website, rake in some money and then take it down within days or weeks, and then just create a new site with a different name and start all over again. I think that has gotten worse, and from everything you read, identity theft is certainly a growing issue as well.
CreditCards.com: Servicemembers are singled out as targets for this type of abuse, right?
Petraeus: Yes. Sadly, a scammer is no respecter of what one does or is. They see a target in the military, partly because they have a rock-solid paycheck from the government twice a month and they're not going to be laid off or quit their jobs. Their pay can be garnished for nonpayment of debt and the military is an organization that says, "You will pay your debts." That means that you have a population that is going to faithfully send in that payment, which makes them attractive to lots of businesses, both good and bad.
CreditCards.com: As someone who grew up in a military family, you've seen firsthand the subtle and not-so-subtle financial entrapment of men and women in uniform.
[A] lot of local rip-off artists know that, if a military customer is going to move away, that person is not going to have the time or the money to come back and go after them in small claims court. So they can pretty much rip them off with impunity ...
Petraeus: I'm not sure I would even call it subtle. A lot of it, frankly, is right outside the gates and has big signs saying "Military E-1 and Up," "We love our military," and "Military discounts -- shop here!" They want them to walk in the door. You find everything from buy-here-pay-here car dealers, to electronics stores selling items at high prices and even higher financing, to rent-to-own furniture stores where you end up paying a lot more than it's worth -- if you make it all the way through the payments. If you don't, of course, the furniture just goes back and you have nothing to show for those payments that you made.
CreditCards.com: It's a tough landscape for any young couple, much less for a spouse who is left behind when the other is deployed overseas.
Petraeus: It can be very hard. You've got a spouse at home who may not have that much experience managing finances. Plus, with Internet access being what it is, you may have the spouse who is deployed doing some spending, as well, via computer. And if they're not exactly on the same sheet of music, they could both be spending the same dollar.
Deployment aside, the moves are a challenge because a lot of local rip-off artists know that, if a military customer is going to move away, that person is not going to have the time or the money to come back and go after them in small claims court. So they can pretty much rip them off with impunity and figure most of the time nothing will happen.
CreditCards.com: How big of a problem is credit card debt for military families?
Petraeus: Debt is a problem with the military, and credit card debt certainly is a part of that. When you first enter the military, that's a pretty small paycheck, and it doesn't stretch as far as you think it might. I talk to a lot of the military's financial counselors, and they counsel a lot of people who get in over their heads. It is often just one triggering event that does it -- one episode of overspending, one big car repair bill, one thing that tips them over into having to borrow.
CreditCards.com: But they have other options besides pulling out a high-interest credit card.
Petraeus: Yes, there are options that I think the military would prefer that they use, one of which is to go to one of the military aid societies for a zero-percent interest loan, if they truly have an emergency situation, rather than borrow it expensively somewhere else.
I remember my former boss's son was a first sergeant and he had one of his soldiers come to him who was about to sign a contract with one of these self-styled military lending companies. He was going to borrow $1,000 and they were going to charge him $450-plus in fees and 18 percent interest. Of course, the first sergeant tore up the contract and took him to apply for a zero-percent interest loan from Army Emergency Relief.
The reason you can lose a security clearance on financial grounds is because people who are desperately in need of money do desperate things sometimes -- things that they would not ordinarily do.
CreditCards.com: There's also the embarrassment factor at work.
Petraeus: Yes, another fairly common thread is that they don't want to get in trouble at their unit or 'fess up that they have a problem because they think they'll get yelled at. So their inclination is to go to a civilian source for money rather than to go on base where they fear somebody will hear about it.
CreditCards.com: Those fears are not entirely unfounded. They can actually lose their security clearance if they plunge too far into debt, right?
Petraeus: Yes. The reason you can lose a security clearance on financial grounds is because people who are desperately in need of money do desperate things sometimes -- things that they would not ordinarily do. The security clearance folks see that as a real vulnerability. Currently, financial problems are the No. 1 cause of loss of security clearances. Finances are fairly easy to check because you can pull a credit report. It definitely is an issue. If someone loses their clearance because they have serious financial problems, in many cases that means they will not be able to do the job that the military has spent time and money training them to do.
CreditCards.com: Might we see a day when the military issues its own credit card?
Petraeus: They've gone a little way in that direction through the base exchanges, which issue credit cards, and some banking partnerships. I don't think the Department of Defense will ever get into the business of its own branded loans beyond what they are doing right now, which is to have a relationship with certain military banks and credit unions and to have the exchanges market two branded credit cards. I would add that they do have a relationship with the military aid societies, so a commander has the discretion to approve a small, short-term loan for one of his troops without a whole lot of red tape.
Knowledge is power. I hate to see people learn by hard experience; I would much rather see them learn in a financial education class.
CreditCards.com: The other financial stressor on military families these days is the specter of foreclosure.
Petraeus: A lot of military homeowners are caught in a really bad situation right now. Current guidance to civilians is, if your home value has declined, just sit tight and keep paying and it will go back up. But military personnel can't sit tight if they have orders that tell them to move. What can they do? There is a Homeowner's Assistance Program within the military, but you have to have bought your house before July 2006, and the program stopped taking applications in September 2010. For military personnel who bought after July 2006, right now there is no special program in place for them. We've heard from numerous families that are caught in this dilemma.
CreditCards.com: What will be your first priority at the OSA?
Petraeus: One of the biggest priorities for me is to develop really good financial education that will help prevent military personnel and their families from getting into some of these situations. There is no enforcement agency in the world large enough to go after every little small-timer who may be pulling something. The best answer is to educate people to recognize red flags and avoid them. Knowledge is power. I hate to see people learn by hard experience; I would much rather see them learn in a financial education class. It's going to be our job to help the Department of Defense develop ones that really resonate and stick with people.
CreditCards.com: What sort of reception do you expect from the major financial institutions?
Petraeus: I think right now in this country there is a very positive feeling toward the military and a very strong desire to treat them well. I'm certainly getting that message from the business community, and that includes the financial institutions. As far as my piece of this is concerned, I'm hearing a lot of positive messages; people want to know what they can do to help.
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