Vulnerabilities & Resources

Military Consumer Law

July 2022

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Disclaimer

The views expressed herein are solely those of the author / presenter and do not necessarily represent the opinion of the Department of Defense, Marine Corps, or any subdivision thereof.

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Military Personnel�Vulnerabilities to Scams & Bad Deals

• Hucksters manipulating positive military traits to advance scams
• Patriotism
• Pretended affiliation / endorsement of armed forces
• Festooning office w/ flags, unit logos
• Former (or pretended) vets as salesmen
• Discipline / respect for authority
• The seller / car dealer / etc as an expert / authority figure
• Integrity
• Military ethos of (often brutal) honesty. Surprise when non military authorities lie

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Military Personnel �Vulnerabilities to Scams & Bad Deals

• Transience
• Erodes ability to take / defend legal action
• Issues directly concerning travel: realty sales, exorbitant lease charges, distance education
• High percentage have inexperience with money / finance
• A steady paycheck but no experience
• Op Tempo generated impulsivity
• Periods of frenetic activity followed by short periods of release may lead to impulsive ,not well thought out decision

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Military Personnel �Vulnerabilities to Scams and Bad Deals

• On line vulnerabilities
• Easily identifiable email addresses / likely banking choices
• “Your account has been compromised, please contact NFCU at …”
• Provide personal info to many military agencies that can be (or have been) hacked or compromised; e.g. OPM, VA
• Targets of sophisticated hackers; e.g. foreign governments

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Military Personnel �Vulnerabilities to Debt Collection Threats

• Threat to security clearance
• Financial issues is #1 reason for loss of clearance
• Threat to contact chain of command
• Failing to pay as a criminal offense under UCMJ
• “Dishonorable” failure to pay just debt ( MCM 2019, Part IV, para 96)
• Attempted work around debt collection prohibitions “I’m not reporting a debt, I’m reporting a crime.”

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Marketing to Service members �Examples:

• Payday loan prevalence near military installations (esp. pre MLA)
• Auto sales, loans, and repair
• “free” transport to dealer
• Auto lenders specializing in loans to military (SNAAC)
• Life Insurance
• GAO studies highlight prevalence of the problem.
• NCGS 58-58-320 et seq “Dishonest & Predatory Sales to Military Personnel”

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Marketing to Service Members �Consumer Finance

• Consumer electronics
• Prevalence of electronics finance near military installations, even some marketing almost exclusively to military; e.g . Smart Buy
• Furniture
• Prevalence of furniture finance stores near military installations; e.g. Freedom Stores
• Jewelry
• “Build your credit” pitches
• Rent to Own as means of avoiding TILA, usury laws

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Statutory / Regulatory Protections

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Servicemember Civil Relief Act� 50 U.S.C. 3901 et seq

• Stay of civil suits (3901 / 3902)
• Reduction of interest on preservice obligations to 6% ( 3937)
• No non-judicial repo to enforce preservice obligations (3952)
• No non-judicial foreclosure on pre-service mortgage
• No non-judicial enforcement of storage or similar lien (3958)
• During service and 90 days thereafter
• See Whigham v Chase, 826 F.Supp. 2d. 914, re enforcement of preservice installment contract vice lien

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Servicemember Civil Relief Act

• Termination of residential lease (3955)
• Permanent change of station orders
• Deployment
• Death
• Catastrophic illness / injury
• Stop movement orders
• Termination of motor vehicle lease (3955)
• Termination of phone, cable, internet service (3956)
• When ordered to move for 90 days of more to location “that does not support the contract.”

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Military Lending Act �10 U.S.C. 987, 32 C.F.R. 232

• Authorized SECDEF to determine which loans to SM and dependents covered
• Initial reg very limited
• Current (2015) reg applicable to virtually all loans not specifically excluded
• Exclusions
• Purchase of merchandise where the item purchased is security for the purchase; e.g. typical vehicle sales contract
• Mortgages

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Military Lending Act�Interest Limitation

• Military APR (32 CFR 232.4)
• Include finance charge plus various junk fees when calculating
• Credit life insurance
• Debt cancellation
• All non excluded credit application fees
• Any fee for credit related ancillary product

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Military Lending Act�Limitations on covered loans include…

• No rollovers
• No waiver of SCRA or other state /federal recourse under the law
• No forced arbitration
• No vehicle title loans
• No allotment requirement for payment
• No prepayment penalty

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Military Lending Act �

• Preemption: States may provide more, but not less protection ( 10 U.S.C. 987 (d)
• Knowing violation a crime (up to 1 yr jail and fine)
• Contracts in violation void ab initio
• Civil liability
• Damages not less than $500 for each violation
• Punitive damages
• Declaratory / equitable relief
• Court costs and attorney fees

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NC SCRA �NCGS 127B-25 et seq (S. 420, 2019)

• Incorporates SCRA into NC law
• Extends protections to those on state Guard service
• Rights may not be waived

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NC Consumer Finance Act �NCGS 53 Art 15

• DoD has opposed interest rate increases
• SB 489 (2013)
• Lenders get limited increases
• Military Protections NCGS 53:180.1
• Covered borrower: E4 & below
• Pre-loan notice (may be verbal) to CO or XO
• Mail contract and TILA disclosure to command within 5 days of execution
• Borrower has 30 days to rescind (must repay borrowed funds)
• No forced arbitration
• No contacting SM / spouse via phone or email if SM known to be deployed to combat zone (if creditor has received notice of deployment)

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Student Loans�

• For profits marketing to SMs
• The 90 / 10 rule.
• To be eligible for fed funds, 10% of the student must be paying w/ non title IV funds.
• Military tuition assistance doesn’t come under title IV.
• Loophole ends January 1, 2023, IAW “American Rescue Plan”
• Public Service Loan Forgiveness
• 10 yrs of authorized payments under any fed program + covered loan + concurrent public service =loan discharge
• Special waiver period thru Oct 31, 2022
• Consolidate into federal direct loans and reach back to have payments qualify

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Student Loans

• Fed Loan Servicers
• As condition to be loan servicer, must check monthly to determine if borrower is SCRA reduction eligible and if so, reduce interest to 6% even w/o request.
• Fed Loan discharge for total disability
• Base Education Center
• Info and assistance

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�Credit Reporting / ID Theft�Active Duty Fraud Alert �

• 15 U.S.C. 1681c-1 (c )
• 12 Month Fraud Alert
• CRA must take reasonable precautions to prevent unauthorized credit report disclosure
• 2 yr exclusion from lists to 3^rd parties to solicit credit or insurance

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Resources�Turning rights on paper into reality

• Military Legal Assistance
• NC Commanders Council
• Armed Forces Disciplinary Control Board
• Military Relief Societies
• Installation PFMs
• US DoJ: SM and Vets Initiative
• CFPB: OSA & enforcement
• ABA Military Pro Bono / Op Standby

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Military Legal Assistance�Auth: 10 U.S.C. 1044

• Strengths
• Free
• Knowledge / training in niche military issues
• Connected to within service network
• Connections to outside agencies
• Weaknesses
• Most attorneys very junior
• Only very rarely authorized to undertake litigation
• High volume (esp famlaw, deployment related estate planning)
• Lack of consumer law training (esp state specific)

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North Carolina Commanders Counsel

• Composed of all installation Commanders in NC
• Chairman: CG MCIEAST
• Weighs in on legislative issues relating to military
• Land use (most frequent)
• Other examples
• Opposition to payday, car title lending
• Opposition to large rate increases, NC RISA & CFA
• Reform rules re eligibility of SMs for public school

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Armed Forces Disciplinary Control Board�Off Limits Designation

• Joint Forces Order
• AR 190-24 / OPNAVINST 1620.2A
• AFI 31-213 /MCO 1620.2D
• COMDTINST 1620.1E
• Strengths
• Powerful sanction in military towns
• Multi-disciplinary board
• Weaknesses
• No subpoena power
• Board has no investigators
• Business evasions thru name / location changes
• Reactive
• Collateral duty for AFDCB personnel

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Armed Forces Disciplinary Control Board

• Info sources
• Public enforcement actions
• Consumer Complaints
• Court records
• Employees & other witnesses
• Health Inspection results
• Law Enforcement
• Raids (prostitution, illegal narcotics)
• Frequency of police calls

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Service Relief Societies

• Budgeting
• Visiting Nurses
• Financial Education
• Emergency Interest free loan; e.g. car repair, essential travel

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Installation Personal Financial Management

• Financial education
• Assistance with problems and scams

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U.S. Department of Justice�Service members and Veterans Initiative

• Info and enforcement
• SCRA (10 U.S.C. 3901 et seq)
• USERRA (employment) (38 U.S.C. 4301-4333)
• Uniformed & Overseas Citizens Absentee Voting Act (52 U.S.C. 20301-20311)
• https://www.justice.gov/servicemembers
• On line complaints
• Case summaries and court docs
• Info

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U.S. Department of Justice�Enforcement examples

• US v PRG Real Estate Management (2019)
• Allegations: 152 illegal defaults, illegal residential lease termination charges
• Result: Settlement, $1.7 M restitution, $62K penalty
• US v BMW (2018)
• Allegations: Illegal vehicle lease termination charges violating SCRA
• Result: Settlement $2.165 M restitution, $68,788 penalty
• US v Honda (2021)
• Allegations: Illegal vehicle lease termination charges violating SCRA
• Result: Settlement $1.6M restitution, $64K penalty

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US Department of Justice�Enforcement Examples

• US v Sallie Mae / Navient (2014)
• Allegations: Failure to reduce interest on preservice obligations to 6%
• Result: Settlement, $60 M restitution, $55K penalty
• US v Bayport Credit Union (2022)
• Allegations: Failure to reduce interest on preservice obligations to 6% / repo vehicles w/o court order to enforce preservice contract
• Result: $70K restitution, $40K penalty
• US v NW Trust Services (2017)
• Allegations: Non-judicial foreclosure on preservice mortgages
• Result: $750K restitution

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US Department of Justice �Enforcement Examples

• US v Santander (2015)
• Allegations: Non-judicial repo to enforce preservice vehicle security agreements
• Result: $9.3M restitution, $55K penalty
• US v Citi Financial (2017)
• Allegations: Non-judicial repo to enforce preservice vehicle security agreement
• Result: $Settlement, $907 M restitution
• US v Honolulu (2018)
• Allegations: Non judicial repo / sale of vehicles to enforce storage lien
• Result: $150K restitution, $60,788 penalty

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US Department of Justice �Enforcement Examples

• US v San Antonio
• Allegations: Non-judicial repo to enforce preservice vehicle security agreement / failure to return personal property in vehicles
• Result: Settlement, $150K restitution, $62 K penalty

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Consumer Finance Protection Bureau�Office of Servicemember Affairs

• Wall Street Reform & Consumer Finance Protection Act
• PL 111-203 (2010) // 12 U.S.C. 5301 et seq
• Authority to enforce CFPA, MLA, and wide scope of federal finance, lending, debt collection, credit reporting statutes.
• On Line Tools
• Find HUD counsellor
• Info on many subjects
• Sample letters
• On line complaint
• Military Liaison to DoD

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Consumer Finance Protection Bureau�Enforcement Examples

• CFPB v LendUp Loans (2021)
• Allegations: Failure to disclose MAPR, illegally high interest, mandatory arbitration, all in violation of MLA
• Result: Settlement, $300K restitution, $950K penalty
• In Re Omni Finance of Nevada (2020)
• Allegations: Requiring payment via allotment (SM) or EFT (civilian) in violation of MLA & EFTA respectively
• Result, Settlement, $2.175 M penalty

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Consumer Finance Protection Bureau�Enforcement examples

• CFPB/NC/ VA v Freedom Stores (2014) Allegations:
• Allegations: Unreasonable publication, illegal threats, unauth withdrawals from fm bank accounts of borrowers (and family members) , illegal litigation venue, distant litigation venue
• Result: Settlement, $2.5M restitution, penalty $100Kl
• CFPB v Sterling InfoSystems, Inc
• Allegations: CRA screens job applicants for clients. Provides incorrect info, fails to correct bad info, distributes stale info.
• Results: settlement, 5 yr injunction limiting scope of business, $6 M restitution, $2.5 M penalty

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Consumer Finance Protection Bureau�Enforcement examples

• CFPB v Encore, Midland Funding, et al (2015)
• Allegations: Violations of debt collection, credit reporting and other consumer statutes tens of thousands of times
• Result: $34 M restitution, $10 M penalty

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• In re EdFinancial Services (2022)
• Allegations: Fed Student loan servicer misleads borrowers re PSLF / TEPSLF
• Result: $1M penalty

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American Bar Association

• Military Pro Bono program
• Pro bono counsel to eligible clients (generally, junior SMs) with eligible case type
• Referrals from military counsel to regional supervisor to ABA program
• Assignment limited; must have participating attorney in relevant jurisdiction willing to take the case
• Operation Standby
• Telephonic advice to military attorneys in participant’s field of expertise

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Media

• Generally sympathetic to SMs
• Typical media angles
• Drama
• Connection to military
• Context to a wider public issue
• Widely varying scope of journalist knowledge / sophistication
• Disclaimers when not speaking on behalf of DoD
• Client waivers / consent where needed & appropriate
• Coordinate media interviews w/ PAO

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• Legal Services Support Team Lejeune / Legal Assistance
• https://www.mcieast.marines.mil/Staff-Offices/Legal-Services-Support-Section-East/Legal-Services-Support-Team-Camp-Lejeune/
• Department of Justice Servicemembers & Veterans Initiative
• https://www.justice.gov/servicemembers
• See esp “Cases” section concerning enforcement actions
• On line complaint platform
• Consumer Finance Protection Bureau
• https://www.consumerfinance.gov/
• See Enforcement / Enforcement actions concerning cases
• On line complaint platform

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Online Resources

Online Resources

• NC State Bar LAMP Committee
• www.NCLAMP.gov
• USMC Electronic Publications Library
• Orders; e.g. Marine Corps Order 1620.2D / AFDCB
• https://www.marines.mil/News/Publications/MCPEL
• DoD Orders and Directives
• https://www.esd.whs.mil/dd/
• E.g. DoD Inst 1344.07 / Commercial Solicitation of DoD Installations
• ABA Military Pro Bono Project
• https://www.militaryprobono.org/

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Online Resources

• Judge Advocate General School of the Army publications
• https://tjaglcs.army.mil/publications
• See esp Legal Assistance Deskbooks / Consumer Law

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• Please submit a question through the Zoom question panel.

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Q & A