Inner City Press Community Reinvestment Report- December 19, 2005

            Military personnel on active duty are being overcharged on high interest loans by some of the largest banks in the United States, a new investigation of compliance with the Servicemembers’ Civil Relief Act (SCRA) by Inner City Press has uncovered.  Through documents obtained under the Freedom of Information Act, Inner City Press has documented widespread violations of the SCRA, defrauding and overcharging of those in active military service, and regulatory inertia in dealing with the abuses.  See also, US soldiers’ families allege loan discrimination by HSBC," by Karl West, The Herald (Glasgow, Scotland), December 5, 2005.

The nation’s largest bank, Citigroup, is described in consumers’ complaints as demanding original copies of initial deployment orders, of refusing to deal by telephone with servicemembers’ immediate relatives, and of reporting adversely to credit agencies. HSBC / Household is described as seeking to narrow SCRA’s interest rate reductions to only those “in a hostile zone,” leaving that term undefined. Other banks most complained-of include JP Morgan Chase, Wells Fargo, MBNA and Bank of America.

            The Servicemembers’ Civil Relief Act, at 50 USCS Appendix Section 527(1)(a) provides that “An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember's spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent per year during the period of military service.”

            The purpose of the SCRA, formerly known as the Soldiers’ and Sailors’ Civil Relief Act, is to provide interest rate relief and other protections “to servicemembers of the United States to enable such persons to devote their entire energy to the defense needs of the Nation.” Section 502. The above-named banks, however, routinely seek to deny the SCRA protections to servicemembers.  Citigroup, for example, beyond deployment orders has demanded original enlistment papers, as reflected in this complaint to Citigroup’s AT&T Universal credit card unit in Jacksonville, Florida, now placed online at www.innercitypress.org/citiscra4.jpg

“We received your letter telling us that you could not process [REDACTED]’s request to reduce the Annual Percentage Rate (APR) under the Soldiers and Sailors Civil Relief Act of 1940. We understand that you need another document to show when exactly she enlisted in the Army. We, her husband and children, regretfully inform you that we do not have access to any of her documents that pertain to her military career. As she is already in Kuwait, there is no way that she can send these documents to you until her return home. She is not expected to return for six months to a year.”

            Using prior military service as an excuse to maintain high interest rates despite the SCRA appears to the strategy as other Citibank units as well, as reflected by the complaint to Citibank’s regulator, the Office of the Comptroller of the Currency (OCC), now online at www.innercitypress.org/citiscra4.jpg

 “I am writing in regards to a dispute with The Associates credit card company of Citicorp Credit Services, Inc. (USA). The dispute pertains to my eligibility to receive the interest credit from the Sailors’ and Soldiers’ Relief Act (SSCRA) (50 U.S. App. Sec. 526).

“I first contacted The Associates in May of 2002. At that time I was denied enrollment. I was told that because I originally entered the military in 1989, I was ineligible. However, my tour of duty was over in 1993. I opened my account with The Associates in 2000. At that time, I was a civilian and had no intentions of signing back up with the military. Yet, in March of 2002, I entered into the US Army on full-time, active military duty. As the law states, the SSCRA regulates the amount of interest I am to be charged for any credit accounts I opened before entry into military service.

"I have disputed this matter with The Associates to no avail. I have sent them copies of my original orders showing my current enlistment date, as well as a copy of the law. Still I was denied. I was then forced to go to my JAG office on base to seek legal counsel. From there I was directed to the Attorney General’s office in Irving, TX, the headquarters for the aforementioned party. The Attorney General’s office then put me in touch with the legal representatives of the [REDACTED] County, where I received contact information for the OCC Customer Assistance Group.

"The Associates have repeatedly denied my claims based on prior service. Yet, I have found nowhere in the law where it states this as a deciding factor. So I write to you now, to examine the law and enforce the necessary actions. I have enclosed all pertinent documents in regard to this matter. I have been enrolled in a debt consolidation company, and have made payments to The Associates monthly for the last year.”

The attachment, on Department of the Army stationary, reflects Citigroup’s Associates charging 12.99% interest.  In April 2005, a mother wrote to the OCC, in a letter now online now online at www.innercitypress.org/citiscra12.jpg

“Enclosed is a copy of my son’s military orders calling him to active duty, a copy of the affidavit designating me as his authorized representative, and a copy of my letter to Citibank, Sioux Falls, SD, dated 8 December, 2004. Citibank has given me all kinds of excuses for not acting on this matter. First they wanted an affidavit specifically addressed to them. They desisted on their request once I explained to them that the military do not have the time and manpower to prepare affidavits in the manner Citibank wanted. Then they told me that my son’s active duty orders were not with the correspondence I had mailed them. Then they said I needed to prepare a document which they were going to mail to me; I have never received such document. Last time I called I was told that they were still investigating!”

Another mother complained:

…”His unit was deployed to the Middle East. In February 2003 his fiancé and I applied to Citibank to have his finance charges reduced under the Soldier’s and Sailor’s Relief Act of 1940. (Account # [REDACTED]). We have supplied Citibank with several letters of proof of my son’s service (copy of one enclosed) with no satisfaction. We recently received a letter requesting a “Proof of Service Letter” from Citibank. While the people at Citibank that I have spoken with are polite and helpful, nothing has been accomplished. Telephone calls to the customer service number are no help as the group that handles Soldier’s and Sailor’s Act requests are in Jacksonville, FL and can’t be reached by telephone, only by mail. I think the enclosed letter (which Citibank already has) from the Headquarters of II MEF should be sufficient proof of my son’s service and that Citibank’s foot dragging is nothing more than an attempt on their part to make the process so long and drawn out so that we will give up as they do not want to lose the 24.24% interest that is being paid on the account.”

   Even when compliance is belatedly obtained from Citigroup, accounts are still turned over to collection agencies, and credit ratings impacted, as reflected in this complaint to the FDIC, placed online at www.innercitypress.org/citiscra5.jpg

“My husband enlisted in the United States Marine Corps during the recent war in Iraq. Upon the advice of his recruiter, I requested relief from our creditors in accordance with the Soldiers’ and Sailors’ Civil Relief Act of 1940. Citibank finally responded and complied with the Act. However, they ALSO have turned this account over to TWO COLLECTION AGENCIES (copy of letter enclosed).

“I am filing a complaint against Citibank because they are ruining our credit rating by ignoring my requests regarding relief and selling this account to collection agencies.”

   The attached notice – even the name of the collection agency has been redacted by the Office of the Comptroller of the Currency – reflects a balance of $1,937.13. It begins: “This is to advise you that Citibank (South Dakota) Na (P) has transferred your delinquent account to our office for pre-legal collection.”

            HSBC’s subprime consumer finance units, operating under names including Household, HFC, Beneficial and Orchard Bank, also stretch to find excuses to maintain high interest rates contrary to the SCRA, as reflected by this sample complaint now online at www.innercitypress.org/hsbcscra15a.jpg  and www.innercitypress.org/hsbcscra15b.jpg

 “My husband reenlisted into the US Navy on 12/[ ]/02. I have placed all of our pre-existing financial obligations under the Sailors and Soldiers Civil Relief Act which sets the maximum finance charge of 6% on all of our debts. Every one of our creditors have placed our accounts under this Act and lowered our interest rate, except for Household Bank. Household Bank told me that my husband’s reenlistment was only a ‘formality’ and that they are not going to honor the Act or my request to have our account placed at 6%. They continue to charge us 15.90%.”

  Contrary to the above-quoted language of the SCRA (applying to “the period of military service”), HSBC’s Household came up with the novel argument, reflected in the complaint now online at www.innercitypress.org/hsbcscra18.jpg  that the interest rate must only be reduced if the soldier is in a “hostile zone” –

 “All phone calls and faxes from 2-26-2004 have been ignored, misplaced and denied by Household Credit Services. One customer service rep stated that Buper orders could not be used in accordance to the SSCRA and unless the ‘soldier was in a hostile zone, the lowering of the APR would not be enforced.’”

   Even to those in “hostile zones,” HSBC sends bill collection notices over the Internet, as reflected in the May 2005 complaint now online at www.innercitypress.org/hsbcscra22.jpg

“I am currently deployed for operation Iraqi freedom serving FOB [REDACTED]. I am having a problem with one of my creditors and am requesting assistance. I was mobilized on October 16, 2004 and have since paid off an account with Household Bank / Orchard Bank (same company) I had 2 accounts with them. I have sent in my TCS orders, my mobilization orders, a letter from my commander, my promotion orders to 1LT, and a personal memo from my explaining my situation and specific requests according to the SSCRA. Since then, I have sent this information 4 times to the company and they continue to harass me via internet for payment. They tell me that I owe $30 and form October they have charged me an inflated interest rate and given me late fees. They actually owe me money from the 2 accounts since they had not ever reduced my interest rates nor stopped the fees. I do not have regular phone lines however I have a DNVT line [REDACTED] or via email…. Your soldier in arms.”

  Wells Fargo’s practices are reflected in the complaint to the OCC now online at www.innercitypress.org/wellsscra54.jpg

“On [ ] January 2003, my Army Reserve Unit, the [REDACTED] received notification of mobilization and deployment to the Persian Gulf area. Within days I received my individual mobilization order, which specifically stated I was mobilized in accordance with Title 10, a Presidential call up, in support of Operation Enduring Freedom. I contacted Wells Fargo whom I had 2 home equity accounts with, and advised of my mobilization and the fact that I was eligible to receive a reduced interest rate of 6% on my two outstanding home equity accounts per the Soldiers and Sailors Civil Relief Act of 194[0]… In mid July 2003 I returned to my residence from the Persian Gulf at which time I learned from my wife that Wells Fargo never reduced our interest rate to 6% as is required by Federal law…”

   JP Morgan Chase’s practices, and their impact on front-line military personnel, are reflected in the complaint now online at www.innercitypress.org/jpmcscra47a.jpg and www.innercitypress.org/jpmcscra47b.jpg

“I am writing you from Baghdad, Iraq asking, once again, for Bank One to drop my interest rate on these three cards to 6%. I have phoned in and spoken with your customer service on two previous occasions, once in May 2004 when my deployment began, and again in September 2004, before I actually deployed to Iraq. Both times I was instructed by the customer service that because the three accounts in question were for Overdraft Protection, they did not qualify under the Soldiers and Sailors Relief Act. This makes no sense to me, considering the accounts are clearly operated like a credit card. I have used these accounts to complete balance transfers, operate as a Visa credit card, and for overdraft protection. It is clear that even though the account functions as a credit card, Bank One is using the technicality of it being classified as an Overdraft Protection to ensure that soldiers like me cannot benefit from the Soldiers and Sailors Relief Act on these type of accounts. I am asking you to please reconsider. The following three accounts in question are as follows:

Account 1 [REDACTED] 13.99% interest

Account 2 [REDACTED] 28.99% interest

Account 3 [REDACTED] 13.99% interest

…In November 2004 my wife, pregnant with twins, had a miscarriage due to increased stress from the deployment and current financial burdens. She has also had to sell my car to help meet current financial responsibilities. Right now, in Baghdad, I am responsible for the well being of 117 soldiers. Everyday we are facing multiple threats every time we leave the gate. In 60 days my soldiers and I have been hit by 31 roadside bombs. I, personally, do not have the time to get involved, nor do I need to be worrying about the bills back home.”

            The purpose of the Servicemembers’ Civil Relief Act is to provide interest rate relief and other protections “to servicemembers of the United States to enable such persons to devote their entire energy to the defense needs of the Nation.” 50 USCS Appendix Section 502. Given the lack of compliance with the SCRA by the above-named largest banks and bank holding companies, Inner City Press will be redoubling its reporting on this issue.

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