Senator Richard Durbin
332 Dirksen Senate Office Building
Washington, D.C. 20510
Re: Servicemembers Bankruptcy Relief Amendment
Dear Senator Durbin:
The National Consumer Law Center (NCLC), on behalf of its clients, fully supports
and urges passage of the Servicemembers Bankruptcy Relief Amendment as an amendment
to S.256, the Bankruptcy Abuse and Consumer Protection Act of 2005.
In May, 2003, NCLC issued a Report entitled “In Harm’s Way - At
Home: Consumer Scams and the Direct Targeting of America’s Military and
Veterans.” The Report described and documented the wide array of consumer
scams directly targeted at the military community. The principal findings were:
Scores of consumer-abusing businesses, such as payday and automobile “title-pawn”
lenders, directly target this country’s active-duty military men and
women daily. Members of the military informed NCLC, citing numerous examples,
that clusters of these businesses exist near the gates of every base, which
was confirmed by NCLC’s own visits to three bases. NCLC’s analysis
found many of these businesses violate the law or impose far higher costs
than are generally available elsewhere to the same consumers.
Veterans are targeted too, by an often expensive scam in which streams of
their military pension and benefits payments are purchased for a lump sum.
The effective interest rates veterans pay for these buyouts are often very
high. NCLC’s analysis found that these buyouts are not only very expensive
but, more importantly, that any such purchase of veterans’ benefits
is illegal under a federal law prohibiting assignment of those benefits.
Military personnel are ripe targets for consumer predators because many
are low-income (always the most-targeted group) but have a far longer list
of economically attractive qualities than most low-income people. Periods
of deployment like those for the war in Iraq are especially vulnerable times.
And military conduct codes that stress the need for orderly personal lives,
including orderly finances, may inadvertently be driving service people toward
the quick fixes many consumer predators offer.
Military leaders have expressed concern that widespread financial stress
in the ranks, a documented problem many of them partly attribute to scams,
may be impacting readiness.
NCLC’s continuing work in this area has confirmed that the conditions
described in the Report still hold true today. Just last week, the Report's
principal author obtained overwhelming confirmation of the Report’s findings
during conversations with numerous sources while speaking at the Naval Air Station
in Jacksonville, Florida.
The financial pressures placed on many military families by these consumer
scams and the loss of income following the call to active duty have caused many
of these families to file bankruptcy. The Servicemembers Bankruptcy Relief Amendment
helps to ensure that these families are able to obtain needed relief in their
bankruptcy cases. The provisions concerning the availability of federal exemptions
and the means test exclusion appropriately address problems unique to military
families when in bankruptcy.
The Amendment also provides for the disallowance of claims filed in a bankruptcy
case on payday and other high-cost loans made to servicemembers when the annual
interest rate exceeds 36%. In preparing our report, we contacted several payday
lenders outside of military bases about the rates they charge. In one case,
we were told that a two-week loan of $350 would incur a $105 interest charge
(disguised as a payment for a worthless catalog certificate). This generates
an annual percentage rate (APR) of 780%. Limiting claims of payday lenders to
a 36% APR in bankruptcy will greatly assist military families in successfully
completing chapter 13 cases and avoiding financial ruin.
In addition, the Amendment addresses problems faced by retired and disabled
veterans who fall victim to the deceptive schemes used by certain lenders who
provide loans, often at usurious interest rates, by obtaining an assignment
of military retirement and disability payments. Some of these veterans have
sought relief in bankruptcy after being deprived of necessary retirement income.
Although several courts have ruled that these pension loan assignments are void
and unenforceable against veterans, the lenders have argued that the debts derived
from these transactions are nondischargeable in bankruptcy, and at least one
court has agreed. In re Smith, 302 B.R. 530 (Bankr.N.D. Miss. 2003). The Amendment
makes clear that these loans are dischargeable in bankruptcy and that any claims
filed by such lenders shall be disallowed.
NCLC strongly supports your plan to offer this Amendment to help our nation’s
servicemembers.
and NCLC