On July 13, 2022, the House Committee on Oversight and Reform, Subcommittee on National Security held a hearing entitled “Protecting Military Servicemembers and Veterans from Financial Scams and Fraud.” A recording of the hearing is available here.
July has been designated as “Military Consumer Month,” a public-private marketing initiative created by state and federal agencies and military and consumer groups designed to draw attention to financial issues impacting the military community. Chairman Lynch opened the hearing by citing to a recent AARP survey, which found servicemembers and veterans are 40% more likely to be exploited by financial fraud, including robocalls, suspicious texts, and scam offers, than their civilian counterparts. The same survey found four out of every five servicemembers and veterans were targeted in 2021 by scams directly related to their military service or benefits, with one in three reporting they lost money as a result.
After opening statements from Subcommittee Chairman Stephen Lynch (D-MA) and Ranking Member Glenn Grothman (R-WI), five witnesses offered testimony and responded to questions from the Subcommittee members. The following witnesses appeared at the hearing:
- Malini Mithal, Division of Financial Practices, Bureau of Consumer Protection, FTC
- Jim Rice, Assistant Director, Office of Servicemember Affairs, CFPB
- Brendan Carr, Minority Witness, Commissioner, FCC
- Troy Broussard, Senior Advisor, Veterans and Military Families Initiative, AARP
- Robert Burda, Interim CEO and Chief Strategy Officer, Cybercrime Support Network
Malini Mithal testified that the FTC received over 200,000 reports of military fraud in 2021, totaling over $267 million in losses. She highlighted enforcement actions taken by the FTC to address exploitation of servicemembers, including actions targeting predatory auto sales and finance practices, fraudulent investment schemes, deceptive recruitment methods used by for-profit schools, and bogus charities that falsely promote themselves as helping military causes. Ms. Mithal also discussed the importance of coordinated education and outreach by various government agencies, specifically through www.MilitaryConsumer.gov and the creation of Military Consumer Month with the Department of Defense (DoD) and the CFPB. (Ms. Mithal recently discussed other areas of FTC enforcement focus with Ballard Spahr’s Alan Kaplinsky in an episode of the Consumer Finance Monitor Podcast available here.)
Jim Rice from the CFPB discussed several issues recently highlighted in the CFPB’s Office of Servicemember Affairs Annual Report for 2021, including credit reporting issues and debt collection practices related to medical debt. Mr. Rice described younger servicemembers as prime targets for bad actors, as they are inexperienced financially but have a steady paycheck. He cited frequent relocation and the accompanying need to share personal information as making servicemembers especially vulnerable to scams, and noted the unique harm that fraud presents for servicemembers because of the impact of credit issues on their security clearance.
Mr. Rice highlighted the Military Lending Act (MLA) as a basis of CFPB enforcement actions, and discussed the importance of the MLA and the Servicemembers Civil Relief Act (SCRA) in protecting military customers. According to Mr. Rice, “The market is moving fast and we must ensure servicemember protections keep pace,” calling out Buy Now Pay Later (BNPL), abuses of the military allotment system, and other emerging products and services in the digital space as areas of concern. He did not, however, detail how the Bureau intends to use the MLA or SCRA to address risks it perceives in emerging products, such as BNPL.
In his written testimony, made available by the CFPB, Mr. Rice described in more detail other practices that are of concern to the CFPB and that may well violate the MLA. First, he pointed out that some lenders appear to be structuring loans as purchase money loans to “evade the MLA” by taking advantage of an exclusion for such loans when they are secured by the personal property being purchased. Second, he noted that the CFPB is seeking to determine whether the MLA’s prohibition on mandatory arbitration is working and is “sufficient to protect servicemembers and their families from these provisions in credit contracts.” Finally, he indicated that certain lenders appear to be partnering with banks to create “allotment savings accounts” from which loan payments will be made in an attempt to circumvent MLA prohibitions on the repayment of loans by military allotments, a practice that he asserted might also raise UDAAP questions.
Brendan Carr of the FCC focused his testimony on the unique set of security concerns posed by the video-sharing app TikTok, which is owned by Beijing-based ByteDance Ltd. Mr. Carr testified that TikTok is treated like just another app and not a sophisticated surveillance tool, noting a pattern of misrepresentations by TikTok regarding the amount and extent of personal data collected from users and how much of that data has been accessed within China. Like other topics discussed, he noted the heightened concerns that arise in the context of military users.
Troy Broussard of the AARP identified three fraud-related trends that cut across different scams and demographics – the use of gift cards, cryptocurrency, and internet safety. In discussing gift cards, Mr. Broussard cited their general availability, relatively high limits on the amount of money that can be added to cards, and the ability to access funds instantly as making them a “weapon of choice” for criminal activity. He also called out fake veterans charities, purported VA mortgage loan schemes, and bogus free medical equipment for service-related injuries as the top-three military-specific scams the AARP has identified. Robert Burda from the Cybercrime Support Network also discussed internet safety issues, including online shopping scams and accessing of personal information by fraudsters through social media.
Discussion during the Q&A portion of the hearing included continued efforts to address robocalls, the importance of interagency efforts between the CFPB, DoD, FTC, and others in both outreach and enforcement, and the extent of any foreign actor participation in fraud against servicemembers. Chairman Lynch and Ranking Member Grothman have co-sponsored HR 8321, the Military Consumer Protection Task Force Act of 2022, to establish a joint task force led by the Secretaries of Defense and Veterans Affairs, to combat military consumer fraud.