This Veterans Day, we reflect on the service and sacrifice of thousands of men and women who’ve worked for the U.S. military at home and abroad. From U.S. Coast Guard teams rescuing sailors in trouble to U.S. Army minesweepers in Africa, members of the military work hard every day. Upon their return, they’re supposed to be guaranteed a variety of benefits through the Veterans Administration (VA), along with respect and honor. Sadly, homelessness rates, mental illness and a variety of other problems are skyrocketing among veterans, a grim testimony to what really happens when people exit the military and return to civilian life.
One area of particularly egregious offenses lies in the financial sector, which preys upon veterans as well as active-duty military with a variety of exploitative and questionable lending practices. Loans with bait and switch terms, 400% interest rates and more are the way the financial sector thanks veterans for their service — and the results leave veterans broke, homeless and unable to access credit. Tragically, many can get excellent financial assistance through the VA itself, and needn’t resort to predatory loans to meet their financial needs.
What is driving veterans towards predatory lending, and why isn’t Congress making a move to rein in the financial industry?
The answer to the first question is complex. Many military members struggle with a lack of financial literacy, despite educational opportunities offered both in the military and during transition to the civilian world. Consequently, many may not be familiar with standard loan terms, what to watch out for and how to read financial contracts thoroughly for a better understanding of a loan. Furthermore, lack of financial literacy may also make veterans hesitant to self-advocate, speaking out and asking questions about the nature of the loans they’re being offered.
Worse still is the fact that lenders actively solicit customers, a hallmark of predatory lending. Such solicitations are often framed in very misleading ways, as I reported in 2011 when US Navy veteran Andrea Chandler discussed the cleverly-packaged solicitations she receives from lending firms. Despite the fact that she has an excellent loan with VA assistance, she constantly receives invitations in the mail to refinance. The invitations come with mock-ups of official seals and logos and offer enticing terms, until a closer reading reveals the dangerous fine print that would land the borrower in major trouble.
The majority of predatory housing loans are actually refinances, not new loans, which is one reason why they tend to fly under the radar. Veterans, along with other vulnerable groups targeted by lenders, are often ashamed when it comes to speaking out about predatory lending and their experiences with bad loans, and worse still, many will not reach out for help until it is too late. The financial industry is well aware of this, integrating a variety of practices into its marketing attempts aimed at veterans.
“Predatory lenders aggressively market their loan products through mailings, telephone sales, going door-to-door and partnering with home improvement contractors. It is often difficult to get information about the true costs of their loans. They target borrowers who can least afford their loans. There is evidence that predatory lenders are engaged in reverse redlining; that is, they aggressively market in city areas that have traditionally found it difficult to obtain financing from conventional lenders. So while people in these areas once could not obtain any loans, now they are exposed to expensive and dangerous loans,” notes Iowa Legal Aid.
Their documentation pertains to all borrowers victimized by predatory lenders, not just veterans. Trapped in a dangerous spiral of high interest, bait and switching (offering one set of terms and pressuring borrowers to accept worse ones at the time of loan closure), high origination fees, falsified assessments and more, veterans can be burdened with loans far too expensive to carry. Then, it’s only a matter of months or years before their homes become too costly for them to maintain and they’re out on the street with destroyed credit and limited options.
In the face of this, Congress has been slow to act. Numerous attempts at financial reform, including those specifically targeted at issues facing servicemembers, have been bogged down in committee or significantly weakened by the time they finally hit the floor. The VA has been struggling to cope with growing numbers of foreclosures and other financial issues affecting veterans, but the focus on debt relief may be a mistake. While it can help veterans who need assistance now, it doesn’t address the larger picture, that of a landscape where veterans are viewed as easy prey for bad financial products.
Full financial transparency, a ban on misleading marketing practices and a task force focusing on rapid identification of abusive lenders are clearly necessary for any long-term reform — despite the wishes of the financial industry, which is very pleased with the status quo.
Photo: North Charleston.