Yesterday, the House Veterans Affairs Committee held a hearing on violations of the Servicemembers Civil Relief Act. Over the past several weeks, NBC News and other outlets have reported about the big banks foreclosing on active-duty military personnel while they are serving abroad in Afghanistan, Iraq, and other outposts. This violates a law that have been in place since as far back as World War I, stipulating that legal proceedings against service members must be stayed until they come back from active duty. In addition, mortgage servicers have violated a more recent law that caps interest rates at 6% for active-duty military personnel.
The potency of this issue cannot be underestimated. “Service members hold a favored position among Democrats and Republicans,” said Rep. Brad Miller (D-NC), who is not on the veteran’s affairs panel but who sat in on the hearing. “Republicans are more willing to hold a hearing on the abuse of service members than the abuse of other homeowners.”
At the hearing, Stephanie Mudick, an executive VP of JPMorgan Chase, acknowledged that the bank foreclosed on 18 active-duty service members and overcharged 4,500 service members with higher interest rates on their mortgages than the cap. They have since refunded the money.
Rep. Bob Filner, the ranking member of the Veteran’s Committee, was incensed. He told the JPMorgan exec that the bank was responsible for homicide:
“People who are under pressure commit suicide. I would call it homicide, frankly, because you are putting them under pressure. You are responsible for that,” Filner told Stephanie B. Mudick, a JPMorgan Chase executive vice president of consumer practices.
Mudick didn’t directly respond to Filner, but said that JPMorgan would work to correct its mistakes in the future. A JPMorgan Chase spokesman referred HuffPost to her testimony.
Even Republicans criticized JPMorgan for their negligence under the law. Chairman Jeff Miller (R-FL) called this “a wake-up call for the entire financial services industry.”
But really, according to Brad Miller, who wrote a clarification to the Servicemembers Civil Relief Act last year clarifiying that service members had the right to a private civil action for these abuses, the financial services industry was just following a familiar script. “They’ve made a calculation, because the penalties are modest and the remedies are difficult. They have consciously ignored a law on the books since the first World War,” Miller said. “The thinking behind the law is that if you’re deployed, if you’re in harm’s way, you should be able to give that your entire attention. It’s hard to imagine that the banks did not know that was the law.”
Under current law, service members cannot get more than a misdemeanor against the banks when they violate this law. Clearly the financial incentives are there for the banks to continue their actions, hope they don’t get caught, and if they do, pay the fine as part of the cost of doing business. Rep. Miller likened it to past investigations of companies with faulty consumer products, where they found the memos showing the companies knew the risks and calculated the consequences and their legal exposure, and reasoned that they were lower than the costs if they fixed the defects in the product. “Businesses do that. You have to change that, by providing people with enforceable rights.”
He also cited the power of shame as a major motivator in getting the banks to do the right thing. Normally I would blow that off – bank executives don’t seem capable of shame – but in this case, when the victim is a service member, in this country that has an impact.
Given the sheer size of the largest servicers – the top 4 service 2/3 of the nation’s mortgages – it’s hard to imagine that JPMorgan’s abuse of service members is isolated to their firm, or isolated just to that subset of customers. “I think we cannot count on them to do the right thing. They are going to make the calculation. If we want them to change their conduct we have to change their calculation.”
I asked Rep. Miller if this very public abuse could be used to leverage attention on the broader abuse by servicers and the need for a serious crackdown. He responded with a story about today’s House Financial Services Committee markup. Republicans were going through their appropriations for funding, and they tried to strip out $35 million authorized through Dodd-Frank for legal assistance for homeowners facing foreclosure. This has been the source of a partisan debate in the committee. “They were going on about the national debt and how we can’t afford this money,” Miller said. “I asked to be recognized, and I said that we all know this is not about the debt. This is about the banks opposing it because they want homeowners to be powerless. And I mentioned the hearing yesterday and these violations of service members. And they caved! They caved right away after mentioned that. They are afraid of that issue, don’t want to be seen as apologists for banks who abuse service members.”
Miller’s lesson? “It is an issue that does have power.” Perhaps it’s the avenue to raise attention on the spectacular abuse happening in the servicing industry.
You can find more about the hearing here.
UPDATE: A quick clarification on that last part, about the $35 million in funding for foreclosure legal aid. The Financial Services Committee markup was about the scope of committee work throughout the Congress. Republicans wanted to remove that $35 million from the scope of their work. That’s when Miller talked about the military families and Republicans caved. So, this means that the funding can be brought up in a future appropriation by the committee, but has not to this point.