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09 February 2011
"We deeply regret that servicemembers have been overcharged and in some cases faced foreclosure because of these errors," said Stephanie Mudick, executive vice president of J.P. Morgan Chase & Co.'s (JPM) office of consumer practices in her prepared testimony. "We are acting to make these customers whole as soon as possible and enhancing our safeguards to prevent such mistakes going forward. Chase is determined to get this right."
She said the bank has made operational changes to better handle military loans and is reaching out to customers who may be in the military to advise them of their legal protections.
Chase has overcharged more than 4,000 military personnel in active service and took the homes of 14, possibly violating the Servicemembers Civil Relief Act, or SCRA, that caps interest rates and stops foreclosures for active-duty servicemembers. A U.S. Marine Corps captain had filed a lawsuit alleging that he was overcharged by Chase.
In January, after conducting an internal audit, Chase admitted it had mistakenly foreclosed on military families and overcharged thousands for mortgages. Lawmakers at Wednesday's hearing voiced concern that Chase, a company that received funds from the government's 2008 financial-industry government rescue program, would have made such errors. They were also concerned that overcharges to military personnel could be rampant, with other banks overcharging military personnel and threatening to take their homes just as the federal government is trying to combat the nation's foreclosure crisis. Rep. Cliff Stearns,R-Fla.,suggested that the Government Accountability Office conduct a broad investigation into breaches of the military lending law.
Committee Chairman Jeff Miller, R-Fla., said he's determined to make sure the Servicemembers Civil Relief Act remains a valuable tool that's working and being properly enforced. "What we have here now is what some might call a teachable moment," he said in his opening remarks.
Richard Harpootlian, a South Carolina-based attorney representing servicemembers such as the U.S. Marine Corps Capitain Jonathan Rowles, argued that enforcement provisions of the military lending law need to be enhanced. He said Congress should consider stiffening the maximum sentences for SCRA violations so that some violations would be deemed a felony. Congress should also raise the potential for incarceration of certain breaches, he said.
Harpootlian also testified that Congress should make way for the government to impose civil fines for any violation of the military lending law, regardless of the existence of preexisting knowledge or intent. In addition, he said Congress should consider offering a discounted fine to SCRA violators that self-report breaches of the law and help provide a way for servicemembers to recover reasonable attorneys' fees.
Tougher enforcement action and the threat of monetary penalties and jail time would help send a clear warning to the financial industry, Harpootlian said. "Put somebody in jail," he said. Captain Jonathan Rowles' wife told lawmakers that she had to deal with Chase while her husband was deployed on active duty. She said she had to deal with numerous collection calls even though she repeatedly sent the bank paperwork to verify that her husband was on active duty. "I was left alone to deal with Chase and their problems. We have two children. One of them was born premature ... yet at the same time, i'm dealing with Chase, getting their phone calls, getting their harrassment," she told the panel. "This constant harrassment and constant ignorance for the SCRA benefits to servicembmers is ridculous."
In her prepared testimony, Holly Petraeus, a new U.S. federal government military liason setting up a servicemembers affairs office in the Consumer Financial Protection Bureau, stressed that strong enforcement of existing military lending laws would go a long way to help support military familes. She added that there could be a need for new laws that would close up some gaps. "One way to help is to enforce the laws that are already on the books to protect them, and to hold to account those who ignore them," she said. "Another is to write new rules when needed.
Petraeus noted that each year, hundreds of people in the military have their security clearances revoked each year due to financial problems, which then means they can't do the job they were trained for. She noted that a recent Department of Defense survey found that servicemembers consider their finances to be the second largest source of stress in their lives, behind career concerns but ahead of deployments, health, family, and war.
"Protecting our servicemembers from suffering devastating financial repercussions from answering the call to service is not only the right thing to do -- it is also important to our national security," Petraeus told the House panel. "Military personnel who are distracted by financial problems cannot do their jobs to the best of their abilities."
-By Maya Jackson Randall, Dow Jones Newswires;
