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Witness Testimony of Hon. Steve Israel, a Representative in Congress from the State of New York

Madame Chairwoman, Ranking Member Boozman, and Members of the Subcommittee, thank you for the opportunity to testify before you today. 

I have always believed in a robust military with the strength to handle threats to our country’s security. We need our troops to be well-supplied and well-trained. We need soldiers who can focus on the tasks at hand. Right now, our troops have to worry about roadside bombs, snipers, IEDs, and countless other dangers of combat. The absolute last thing they should be worrying about while in harm’s way is whether or not their families are being harassed by creditors and consumer agencies at home.

I recently met with a retired Long Island Naval Reservist who suffered from repossession threats, burdensome credit card debt and sky high interest rates during his deployment. Thinking he had taken all the necessary steps to keep his families’ financial history in order, Naval reservist Karl Botkin left to serve as a naval reserve officer in Kuwait from July 2005 to April 2006. But while he was deployed, his wife was at home being constantly harassed by creditors. She took it upon herself to call her automobile company to find out about reduced interest rates for deployed soldiers, but was told that there is no such law in place and “if you don’t pay we will come and get your car.”

Reservist Botkin’s wife also tried to call her credit card company but ultimately the debt on their credit cards grew and the creditor following standard procedure increased their interest rates and penalized them. Although, the money was later returned, it still caused distress to the family.

Karl and his family are not alone. This happens time and time again. Many times the creditors have no idea these protections are in place. On March 28, 2005, The New York Times reported that creditors and servicemembers were often unaware of the protections.

The New York Times also wrote about Sgt. John J. Savage III, who was an Army reservist on his way to Iraq when he got a call from his wife. They had been advised that their home was being foreclosed, even though the Servicemembers Civil Relief Act limits the ability of mortgage companies and other lenders to foreclose against active duty servicemembers. The problem is that so many lenders either do not know or do not fully understand the law.

Luckily, the foreclosure against Sergeant Savage and his family did not go through but it damaged his credit history. I would also point out that the same New York Times article reported that a creditor trying to collect an owed debt sued a soldier’s wife while her husband was serving in Baghdad.

The families of deployed soldiers should not have to deal with being harassed by credit card companies while worrying about their loved ones in harm’s way. If we are willing to send troops overseas, the least we can do is secure their financial wellbeing upon return from battle.

But among the rushed preparations and farewells, these reservists might not have the time to report to credit bureaus on their change to active status in a combat zone. They may not have time to request a reduction of interest rates in writing, or provide a copy of their orders to prove it. Moreover, they may not have time to request a military termination clause in apartment and car leases, or learn how to precisely navigate countless other loopholes, which cause only financial and logistical headaches and nightmares for the deployed soldier and their families.

Shouldn’t the government which is deploying the soldier make this transition easier for them and protect them?

If enacted into law, my bill HR 1598 the Servicemembers Credit Protection Act would strengthen the existing Servicemembers Civil Relief Act. It would safeguard credit ratings of soldiers deployed to war zones and facilitate awareness of their protected rights to credit bureaus, consumer, and collection agencies. The Department of Defense (DoD) would be required to notify the national credit bureaus within 30 days of deployment of servicemembers. The DoD would also notify those credit bureaus when the soldier returns home. The act would increase penalties for any organization that violates the established rights of the servicemember who is fighting to protect our country.

It is important to note that this bill does not exempt members of the Armed Services from paying their bills.  It does not stop information from being obtained from or placed on their credit reports.  It simply ensures that every man and woman who is fighting for us overseas does not have to worry about their financial rights being violated back home.

We have a responsibility to fight for their families while they are overseas fighting for us. Instead we dishonor our troops by allowing their families to be hounded by collection agencies, or having their credit rating affected by the absence of their hero.

Supporting our troops begins at home. And it is stories like Karl’s that inspired me to write this legislation to protect our troops from financial harassment and foreclosure.

It begins with responsible spending, accountability within leadership, and protecting the families and assets of the brave men and women who are willing to sacrifice everything for our country.

I hope this subcommittee will look favorably on this legislation and I am grateful for the consideration. I hope my bill would help show that our government will go beyond symbols and rhetoric and distribute tangible, practical relief and assistance that honors those who fight for us.

Thank you for your time and consideration.


BILLS IN THE KNAPSACK: A Law Gets Lost; Creditors Press Troops Despite Relief Act
The New York Times, Late Edition - Final
Monday, March 28, 2005, Section A; Column 3

By Diana B. Henriques

Sgt. John J. Savage III, an Army reservist, was about to climb onto a troop transport plane for a flight to Iraq from Fayetteville, N.C., when his wife called with alarming news: ''They're foreclosing on our house.''

Sergeant Savage recalled, ''There was not a thing I could do; I had to jump on the plane and boil for 22 hours.''

He had reason to be angry. A longstanding federal law strictly limits the ability of his mortgage company and other lenders to foreclose against active-duty service members.

But Sergeant Savage's experience was not unusual. Though statistics are scarce, court records and interviews with military and civilian lawyers suggest that Americans heading off to war are sometimes facing distracting and demoralizing demands from financial companies trying to collect on obligations that, by law, they cannot enforce.

Some cases involve nationally prominent companies like Wells Fargo and Citigroup, though both say they are committed to strict compliance with the law.

The problem, most military law specialists say, is that too many lenders, debt collectors, landlords, lawyers and judges are unaware of the federal statute or do not fully understand it.

The law, the Servicemembers Civil Relief Act, protects all active-duty military families from foreclosures, evictions and other financial consequences of military service. The Supreme Court has ruled that its provisions must ''be liberally construed to protect those who have been obliged to drop their own affairs to take up the burdens of the nation.''

Yet the relief act has not seemed to work in recent cases like these:

At Fort Hood, Tex., a soldier's wife was sued by a creditor trying to collect a debt owed by her and her husband, who was serving in Baghdad at the time. A local judge ruled against her, saying she had defaulted, even though specialists say the relief act forbids default judgments against soldiers serving overseas and protects their spouses as well.

At Camp Pendleton, Calif., more than a dozen marines returned from Iraq to find that their cars and other possessions had been improperly sold to cover unpaid storage and towing fees. The law forbids such seizures without a court order.

In northern Ohio, Wells Fargo served a young Army couple with foreclosure papers despite the wife's repeated efforts to negotiate new repayment terms with the bank. Wells Fargo said later that it had been unaware of the couple's military status. The foreclosure was dropped after a military lawyer intervened.

Little-Known Legislation

The relief act provides a broad spectrum of protections to service members, their spouses and their dependents. The interest rate on debts incurred before enlistment, for example, must be capped at 6 percent if military duty has reduced a service member's family income.

The law also protects service members from repossession or foreclosure without a court order. It allows them to terminate any real estate lease when their military orders require them to do so. And it forbids judges from holding service members in default on any legal matter unless the court has first appointed a lawyer to protect their interests.

The law is an updated version of the Soldiers' and Sailors' Civil Relief Act, which was adopted on the eve of World War II and remained largely unchanged through the Persian Gulf war of 1991. But in July 2001, a federal court ruled that service members could sue violators of the relief act for damages. And the terrorist attacks on Sept. 11 prompted Congress to take up a long-deferred Pentagon proposal to update the old act. The revised statute, clearer and more protective than the old one, was signed into law in December 2003.

But the news was apparently slow in reaching those who would have to interpret and enforce the law.

''There are 50,000 judges in this country and God knows how many lawyers,'' said Alexander P. White, a county court judge in Chicago and the chairman of one of the American Bar Association's military law committees. ''Are people falling down on the job -- the judges, the bar, the military? Probably.'' And broad understanding of the law ''is not going to happen overnight.''

Military lawyers, credit industry organizations and some state courts and bar associations have also tried to spread the word about the new law. But these efforts are not enough, said Col. John S. Odom Jr., retired, of Shreveport, La., who is a specialist on the act. ''What we need is a way to reach Joe Bagadoughnuts in Wherever, Louisiana,'' he said. ''Because that's where these cases are turning up.''

One reason they are surfacing in unlikely places is the Pentagon's increased reliance on Reserve and National Guard units that do not hail from traditional military towns, said Lt. Col. Barry Bernstein, the judge advocate general for the South Carolina National Guard. When these units are called up, he said, their members find themselves facing creditors and courts that may never have dealt with the relief act.

As a result, some service members heading off to war have confronted exactly the kinds of problems the law was supposed to prevent. The Coast Guard alone handled more than 300 complaints last year; military law specialists say the numbers are probably higher in the branches sending troops abroad.

Financial Difficulties
Sergeant Savage's lender eventually dropped its foreclosure against him after receiving repeated warnings from military lawyers at Fort Bragg, N.C. But damage was done. The foreclosure dispute remained on his credit history, hurting his ability to revive his struggling wireless Internet connection business when he returned home to Asheboro, N.C., he said. By then he had retired on full disability after being seriously injured while working on a sabotaged electrical system at the former Baghdad Convention Center.

Sergeant Savage has not let the matter end. Represented by Colonel Odom, he has filed a lawsuit in federal court in Greensboro, N.C. He says the EverHome Mortgage Company, a unit of the EverBank Financial Corporation in Jacksonville, Fla., violated the relief act by failing to cap his mortgage at 6 percent, wrongfully initiating foreclosure and, after dropping the foreclosure, failing to remove information about it from his credit history.

The mortgage company denied that it violated the act or treated Sergeant Savage unfairly. His case ''has unique and extenuating circumstances'' that will be raised when the dispute comes to trial, Michael C. Koster, EverHome's president, said in a written statement.

''We are confident that court documents will reveal that EverBank treated Mr. Savage equitably and worked diligently to resolve this matter,'' Mr. Koster said.

Extent of Coverage

When Sgt. Michael Gaskins of Fort Hood, Tex., was sent to Iraq last April, his wife, Melissa, was left to cope with a dispute over a delinquent loan from the Tallahassee Memorial Hospital credit union; the couple took out the loan just before Sergeant Gaskins enlisted in November 2001. When the credit union took the couple to court in Texas last year, a military lawyer at Fort Hood alerted the local judge that the new relief act required that the case be deferred because Sergeant Gaskins was abroad.

But on Feb. 18, a county court judge in Gatesville, Tex., ruled that Mrs. Gaskins had lost the case by default. She was ordered to pay the credit union more than $6,000 and turn over the family truck, which secured the loan. Colonel Odom, who is also representing the couple, is trying to have the default judgment overturned, in part on the ground that the relief act protects spouses as well as service members.

The credit union in Tallahassee, Fla., disputes that. ''It's our position the act does not protect her,'' said Palmer Williams, a lawyer for the organization. Judge Susan R. Stephens, the county judge who signed the default judgment, said she did not think that Mrs. Gaskins had ever invoked the relief act but said she would review the matter when it came before her.

The relief act was also supposed to prevent the kind of situation that the marines returning to Camp Pendleton faced when they discovered that their cars and other possessions had been sold to cover towing and storage fees.

''The act says you need a court order to do that, and you can't get a court order without notice to the service member,'' said Maj. Michael R. Renz, director of the joint legal assistance office there. ''I've got six attorneys here, and each one of us has handled at least two or three of these cases within the last eight months.''

'I'm Not Sleeping'

Stephen Lynch, a civilian lawyer for the Coast Guard in Cleveland, said he had stepped in repeatedly over the past year to help service members invoke their rights under the act.

One of them is a young soldier sent to east Asia, leaving a wife and two children at home in northern Ohio. His periods of unemployment and the death of a newborn daughter last July left the young family struggling financially. Their situation was aggravated by delays in the processing of his first military paychecks, said Mr. Lynch, who asked that the couple's name not be used because their debt problems could hurt the soldier's career.

The soldier's wife said she had tried for months to renegotiate their mortgage with Wells Fargo Home Mortgage. But on March 8, just three weeks after paying the bank $3,000 that the U.S.O. had raised on her behalf, she was served with foreclosure papers.

''I'm having anxiety attacks,'' the wife said in an interview that night. ''I'm not sleeping.'' She said she was especially worried about how much to tell her husband. ''The other military wives I've spoken to all say, 'Don't let them know you're upset; don't let them hear you cry.'''

Kevin Waetke, a spokesman for Wells Fargo, said the foreclosure action was dropped as soon as Mr. Lynch contacted the bank's lawyers. The bank had not known the couple was eligible for relief, he said.

Different Experiences

A Coast Guardsman, Kevin Cornell, was baffled by his experience with Citigroup's credit card unit. When he enlisted, he had a Citibank card and another from Sears, whose credit card operations Citibank acquired in late 2003. When he applied last fall to have the interest rates on both cards capped at 6 percent, Citibank did even better: it cut the rate on his pre-enlistment balance to zero.

But the Sears card was another story; a different Citibank employee refused to make the interest rate cut on that card retroactive to his date of enlistment, as the new relief act requires. Again, Mr. Lynch intervened. But he said he wondered how many other service members had been misinformed.

Janis Tarter, a spokeswoman for the bank, said the company's policy was to go beyond the requirements of the relief act on all its credit cards. ''We regret the difficulty that our customer encountered,'' Ms. Tarter said. ''It is not representative of the level of service we work to provide.''

Burden of Enforcement

Some problems that military personnel are confronting suggest that the new law may need more work by Congress. For example, although mandatory arbitration clauses are becoming increasingly common in credit agreements, arbitration is not even mentioned in the relief act.

But the biggest problem, both bankers and military lawyers say, is that the enforcement of the act rests initially on the shoulders of the service members themselves. They must notify their creditors or landlords of their military status to invoke their rights under the act. It is one more chore for a soldier getting ready for overseas duty, and it often does not get done properly.

And if a landlord or creditor, out of ignorance or intransigence, refuses to comply with the act, the service member may not have the time or money to fight back, said Capt. Kevin P. Flood, a retired Navy lawyer.

''Sure, if you take them to court and win, you can even collect damages,'' Captain Flood said. ''But most of our people are not in that position. They are just regular Joes, and they don't have the money to hire a lawyer.''