Compliance Blog

Happy Friday compliance friends!  My name is Becky Harris, and I am one of two new Regulatory Compliance Counsels at NAFCU.  This is my inaugural blog post, and I’d like to use my first impression to talk about our nation’s 1.4 million servicemembers, and the top issues that impact their financial lives. 

On May 6, 2021, the CFPB’s Office of Servicemember Affairs (OSA) published its 2020 annual report summarizing its activities and servicemember complaints from 2020.  We previously blogged about the CFPB’s 2020 Consumer Response Annual Report, which included servicemember complaint data but did not focus on the specific concerns faced by servicemembers, which the OSA report does.  Here, I’ll cover the top complaints that servicemembers submitted last year.

The CFPB received about 40,800 servicemember complaints in 2020 – a 14% increase from 2019 – the largest annual complaint volume from servicemembers since the bureau’s inception in 2011.  Complaints mentioning coronavirus or related keywords represented about 8% of the 2020 servicemember complaint submissions; however, the absence of a COVID-19 or coronavirus keyword in a complaint does not mean the complaint was not related to the financial impact of the pandemic.

Similar to the general consumer response report, the top complaints from servicemembers were credit or consumer reporting (41%) and debt collection (22%).  Mortgages came in third (11%) - compared to being in the 5^th spot for general consumer complaints - followed by credit cards (9%) and deposit accounts (6%).  Compared to 2019, there were several products with notable increases in complaints, including credit reporting (up 30%), money transfers and virtual currency (up 36%), and prepaid cards (up 66%).

The report compares the percentage of complaints submitted by servicemembers versus non-servicemembers, and concludes that servicemembers are more likely to submit complaints about debt collection, mortgages, and credit cards.  However, non-servicemembers are almost 20% more likely to submit complaints about credit or consumer reports.  The report also provides information on the geographic locations where servicemembers submitted complaints, and found that no state was left out.  The states with the most complaints submitted were Georgia, Nevada, the District of Columbia, Maryland, Virginia, and South Carolina.  The military bases with the most cumulative complaints were Ft. Bragg, Ft. Hood, and Camp Pendleton.

The CFPB received about 16,600 credit or consumer reporting complaints from servicemembers in 2020 – an almost 30% year-over-year increase.  The most prevalent credit or consumer reporting complaint submitted was regarding incorrect information on a servicemember’s report (56% of all credit or consumer reporting complaints), followed by problem with a company’s investigation into an existing issue (31%).  These two issues can lead to considerable problems for servicemembers, especially those who are required to hold security clearances which may entail routine credit checks.  These credit checks can lead to the denial or revocation of security clearance.  This means that inaccurate credit reporting can have a substantial impact on a servicemember’s ability to maintain a security clearance required to keep and perform their job.

Debt collection was the second largest category of complaints, with the most common type of complaint being “attempts to collect debt not owed” (51% of all collections complaints).  Debt collection complaints are submitted at a higher rate by servicemembers than non-servicemembers.  The CFPB indicated in the report that this is problematic because they are aware that servicemembers are often targeted in illicit debt collection practices, as some dubious tactics have been used such as contacting superiors about a servicemember’s debt or threatening disciplinary action under the Uniform Code of Military Justice. In addition, debt collectors often threaten to contact other third parties about the debt or suggest they will take negative or legal action against the servicemember.

As mentioned in the previous blog, many servicemembers cite identity theft in debt collection complaints, where the debt is incurred without the servicemember’s knowledge.  A common theme in these types of complaints include instances of identity theft occurring while the servicemember was away on active duty, thus making it physically impossible for the debt to be owed by them.  The CFPB has provided financial education material and webinars, and encourages servicemembers to use active duty or fraud alerts to protect their credit from potential fraud or identity theft.

The third-most frequently mentioned product in complaints from servicemembers is mortgages, with the top complaint being “trouble during payment process” (46% of all mortgage complaints), followed by “applying for a mortgage or refinancing an existing mortgage” (21%).  The CFPB also states that it continued to receive complaints from servicemember borrowers who received numerous unsolicited mailers about refinancing their current VA loans, many who reported that the mailers were designed to look like official notices from either the federal or state government.  This appears to be an ongoing issue, as the bureau raised the alarm in a 2017 blog post about VA refinancing offers that sound too good to be true, as well as 9 enforcement actions in 2020 against companies that used deceptive mailers to advertise VA-guaranteed mortgages.

Rounding out the top five complaints are those about credit cards and deposit accounts.  A good deal of credit card complaints were about problems with a purchase shown on the statement (31%), including disputed charges for unauthorized purchases as a result of identity theft.  Most of the deposit account complaints were about issues with managing an account (61%), in particular the timing of deposits and withdrawals, leading to overdraft fees and negative account balances. 

This post just covered the top 5 complaints submitted by servicemembers in 2020, and they are big ones.  However, you can check out the full report for the complete rundown of all servicemember complaints, and more information on the OSA’s activities from 2020.