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31–040 PDF 2006

FINANCIAL SERVICES NEEDS OF MILITARY

PERSONNEL AND THEIR FAMILIES

HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MAY 18, 2006

Printed for the use of the Committee on Financial Services

Serial No. 109–94

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

MARK R. KENNEDY, Minnesota 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

CAROLYN B. MALONEY, New York 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

DAVID SCOTT, Georgia 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

May 18, 2006 ..................................................................................................... 1

Appendix: 

May 18, 2006 ..................................................................................................... 31

WITNESSES 

WEDNESDAY, MAY 18, 2006

Dawson, Cutler, Vice Admiral USN (Ret.), President and Chief Executive 

Officer, Navy Federal Credit Union ................................................................... 10

Melvin, Valerie C., Acting Director, Defense Capabilities and Management 

Team, U.S. Government Accountability Office .................................................. 8

Walter, Elisse B., Senior Executive Vice President, Regulatory Policy and 

Programs, NASD .................................................................................................. 11

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 32

Kelly, Hon. Sue W. ........................................................................................... 35

Wasserman Schultz, Hon. Debbie ................................................................... 37

Dawson, Cutler ................................................................................................. 38

Melvin, Valerie C. ............................................................................................. 41

Walter, Elisse B. ............................................................................................... 67

(1)

FINANCIAL SERVICES NEEDS OF MILITARY 

PERSONNEL AND THEIR FAMILIES 

Wednesday, May 18, 2006

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:15 a.m., in room 

2128, Rayburn House Office Building, Hon. Sue W. Kelly [chairwoman of the subcommittee] presiding. 

Present: Representatives Kelly, Barrett, Davis, Israel, McHenry, 

Gutierrez, Moore of Kansas, Waters, and Cleaver. 

Chairwoman KELLY. This hearing of the Subcommittee on Oversight and Investigations will come to order. And without objection, 

all members’ opening statements will be made part of the record. 

Today’s hearing is on financial services needs of military personnel and their families. Since the terrorist attacks on September 

11th, the men and women of our armed forces have been deployed 

around the world and here at home to defeat the evildoers and 

guard our country against future attack. Active duty, Reserve, and 

Guard forces have all been involved, often being deployed overseas 

for more than a year at a time. 

In my district, the 124th Airlift Wing of the New York Air National Guard and Marine Reserve Refueling Squadron 542 at Stewart National Guard Base have been deployed, along with many 

other units. Each of the men and women deployed and their families depend on knowing that their finances will be secure when 

they return, and that criminals and fraudsters will not steal the 

funds that they have earned in serving our country. 

The Defense Department understands that financial issues have 

an important impact on readiness and morale, and has taken several steps to improve the quality of financial education and services 

to military personnel and their families. 

Every member of the military is now required to take classes in 

personal finance management, and each command is required to 

have a command financial counselor to turn to for advice. Unfortunately, this over-reliance on the chain of command gives many junior enlisted personnel the feeling that they will hurt their careers 

if they come forward and ask for help. 

The DoD still does not seem to have a system for determining 

the financial status of its personnel, or calculating the impact of financial problems on recruiting and retention. I believe that Congress has a duty to make sure that our entire financial services 

2

regulatory system is geared to making sure that military personnel 

and their families are the primary focus of regulatory activity. 

I am disappointed that the DoD recordkeeping is poor, that the 

performance measurers are nonexistent, and that DoD has not 

used its position on the Financial Literacy Education Commission 

this committee authorized to develop systemic programs for protecting its most vulnerable members. In that gap, institutions like 

NASD, credit unions, and private financial counselors and interested members of the public work hard to overcome these problems. 

Today’s hearing will examine what is being done to address these 

needs, and what challenges remain that need to be faced, and 

where Congress needs to act. I look forward to hearing from today’s 

witnesses, and I am very pleased that we are able to have all of 

you combined on this one panel today. I think it is going to make 

this go more smoothly. I turn now to Mr. Gutierrez. 

Mr. GUTIERREZ. Good morning. Ever since I was elected to Congress, I have served on this committee—but it was called ‘‘Banking’’ back then—and the Veterans’ Affairs Committee. Today’s 

hearing is of particular interest to me because of my work on both 

of these committees, and I thank Chairwoman Kelly for calling this 

hearing. 

At this time, I would also ask unanimous consent that our colleague, Steve Israel, a member of the Full Committee, be permitted 

to fully participate in this hearing, and at the appropriate time, 

make an opening statement. 

Chairwoman KELLY. So moved. 

Mr. GUTIERREZ. Last year, this committee passed the Military 

Personnel Financial Services Protection Act, designed to prevent 

predatory companies from using the U.S. military to prey on financially vulnerable service members by selling them insurance and 

investment products with little or no value. 

During consideration of the bill in the Financial Services Committee, I offered an amendment to extend these protections to abusive lenders who prey on our troops, such as payday lenders. These 

payday loans are the most abusive financial product being offered 

to our troops today. And according to military personnel, payday 

loans threaten troop readiness. 

The New York Times and other news outlets have reported extensively on this problem. During last year’s committee markup, 

Chairman Oxley agreed to work with me to include provisions regarding abusive lending in the amendment for Floor consideration. 

Our work resulted in the inclusion of some basic but important protections for our troops against payday lenders and other abusive 

lenders who target our troops. 

Under this legislation, lenders of both payday and other small 

loans who target the military can no longer continue a number of 

egregious practices, including: requiring the involuntary assignment of military wages to secure payment of a loan; contacting or 

threatening to contact the borrower’s commanding officer in the 

military chain of command in an effort to collect a loan; requiring 

the borrower to waive any rights under Federal or State law, including the Service Member Civil Relief Act; or using any words or 

symbols that create the impression that any department of the 

military endorses the lender or any service or product of the lender. 

3

I am sorry to say that all of these unconscionable practices are 

currently used by certain payday and short-term lenders. 

In addition, extremely high-cost loans must be accompanied by 

a disclosure notice that informs the consumer of these protections. 

And there are other options available, including grants and interest-free loans from the military relief societies in the case of a family or other emergency. 

It may not sound like a lot, and I do wish that it contained additional limitations on loan amount and the number of turnovers by 

payday lenders, similar to legislation recently enacted in my home 

State of Illinois, but this is a good start, since many of these payday and other short-term lenders completely evade regulation by 

States and the Federal Government. 

I look forward to continuing to work on this issue, and I hope 

that the Senate will pass this worthy legislation, perhaps with 

these improvements, before we adjourn. 

Some may say these protections are not enough. I couldn’t agree 

more. However, I am very pleased that we were able to accomplish 

this first step in a bipartisan manner, and it passed the House 

overwhelmingly, 505 to 2, putting us on the record for the first 

time against exploitation of our troops by these abusive lenders. 

And I believe that it is always better to light a single candle than 

to sit and curse the dark. 

I am disappointed that the Department of Defense is not here to 

testify regarding any efforts they may be making in this area, but 

I look forward to the testimony of the other witnesses here today. 

Thank you, and I yield back the rest of my time. 

Chairwoman KELLY. Thank you. Mr. Davis, do you have an opening statement? 

Mr. DAVIS. Yes, Madam Chairwoman. Thank you, Chairwoman 

Kelly, I appreciate your leadership on this issue. And this is a personal priority for me, going back 30 years this June, and the anniversary of my enlistment in the United States Army. As a commissioned officer, as a unit commander, I dealt with troop credit issues 

at a wide number of posts around the United States and also overseas. 

The military community fosters a sense of trust, and this pervading value has led many service members, including myself and 

my wife, many years ago, to fall victim to predatory sales schemes. 

My goal in H.R. 458, The Military Personnel Financial Services 

Protection Act, was to target the financial services products offered 

by a number of predatory sales people that were unfairly taking 

advantage of this military culture of trust. 

I think that one thing we need to keep in mind in the process 

is the best and most practical pieces of legislation are those that 

have a narrow focus. The broader a bill becomes, the more difficult 

it becomes to get that bill passed. H.R. 458 is not a catch-all bill. 

It was specifically designed to do certain things. 

Last June, as my Democratic colleague noted, the House resoundingly approved H.R. 458, 405 to 2, with only 2 members voting against the bill. One can only conclude that the House agrees 

that our service members should not be targeted by the deceptive 

and predatory practices that H.R. 458 effectively eliminates. 

4

I think that one other thing that we want to keep in mind as 

well is that the abuses, when we deal with payday lending—one I 

have dealt with, firsthand, dealing with troop issues—are not large 

financial services companies. One of the things that I have personally seen in this process are competition for market share that’s 

taking place between financial services providers that are very 

large in scope. And frankly, what I don’t want to see is DoD get 

caught in the middle of something with fine-sounding language 

that actually would create a tremendous problem for agencies participating directly with one organization eliminating market share 

of others. 

I think the practicality here, as those of us who have been platoon leaders, company commanders, and battalion commanders understand, is the large community financial services provider, the 

large financial services firms that are accountable and have internal mechanisms, are not the problem. The problem is the pawnshops, sole proprietorships, those who are not accountable to any 

professional organization, and take advantage of our troops are the 

ones who create the problems for those in the command, and for 

young families. 

And I think if we understand the isolation of that abuse, and we 

focus on very practical and powerful results that give local commanders, and local leaders, the opportunity to enforce State law on 

post and also to eliminate those pernicious sole proprietorships 

that really are the root of the problem, and avoid this becoming a 

smoke screen for competition between other financial services organizations, I think we will have a great piece of legislation. 

H.R. 458 effectively eliminates certain practices that have been 

a problem. Colleagues of mine from the military have told me that 

they would eliminate certain firms from coming on their post now, 

were this a piece of legislation. And like Representative Gutierrez, 

I am hopeful that the Senate will take this up. I encourage all of 

my colleagues to urge the Senate Committee on Banking, Housing, 

and Urban Affairs to act on H.R. 458 in the coming weeks. 

Thank you again, Chairwoman Kelly, and Ranking Member 

Gutierrez. Thank you to the witnesses for coming today on both 

panels, and I look forward to hearing your testimony today. 

Chairwoman KELLY. Thank you, Mr. Davis. Mr. Moore? 

Mr. MOORE OF KANSAS. Thank you, Madam Chairwoman. And 

welcome to the witnesses who will be testifying today. Making decisions related to financial matters can be a difficult and overwhelming undertaking for any person. For our military service 

members and their families, this task can be especially challenging. 

With the service member away and often completely unavailable, 

military families must deal with not only separation from their 

loved ones, but increased financial hardship as well. Added complexities and costs frequently arise in household budgets with servicemen and women overseas, the strain of which can affect both the 

deployed individual and their families at home. 

A recent study published by the GAO found that adverse consequences resulting from service members’ financial problems include a negative effect on overall unit readiness. This is a concern 

to me, as well as many of the people on this panel, and our colleagues. 

5

Increasingly, service members are faced with more frequent and 

lengthy deployments, as a result of the involvement of the United 

States in the war on terror, and our continued presence in Iraq and 

Afghanistan. Congress and the Department of Defense have taken 

steps in recent years to help decrease the likelihood that deployed 

soldiers will experience financial problems, including granting increases in basic military pay, providing special pay increases for active service members deployed to hostile environments, and mandating personal financial management programs to provide service 

members with financial literacy training and counseling. 

Additionally, in November of 2003, I introduced legislation with 

my colleague, Jim Ramstad, that would require the Department of 

Defense to pay for domestic trouble for troops home on R&R leave. 

I understand that this panel is dealing primarily with the financial 

concerns and loans, things of that nature, that military personnel 

may become involved in. But the hearing notice said, ‘‘The hearing 

will focus on the financial services needs of U.S. military service 

members, including active duty personnel as well as those serving 

in the Reserve and National Guards, and their dependents,’’ so I 

think it’s important to mention these things, as well. 

While the DoD—and I’m talking about reimbursement for troop 

travel, now—would cover the cost of flights from the deployment 

sites to various hubs, namely Baltimore and Atlanta, when they 

were brought back on R&R after 6 months in country, they were 

brought back for 2 weeks of R&R, and I was just really astounded 

when I learned that they were required to pay for their own domestic travel. 

In fact, I talked to soldiers after the fact who told me, ‘‘Congressman, I didn’t even come home for the R&R with my family, because 

I didn’t have $1,000 for the domestic travel.’’ And what an insult 

to the people that we say we value. 

Jim Ramstad and my bill never came up for a hearing, but I did 

talk to Secretary Rumsfeld personally, and presented him a copy 

of a letter that described the need here. And 3 weeks later, it became law. I think that this is a military burden that families 

should not have to bear, and I am glad that now our government 

is paying for the service members’ entire trip home. 

I also did a bill with my friend and colleague on this committee—

not here on this subcommittee, but on this committee—Spencer 

Bachus. When I learned that young persons killed in Afghanistan 

and Iraq and their families get three things from the United States 

government—a letter of condolence, ‘‘We’re sorry about the loss of 

your loved one,’’ which is very appropriate; an American flag; and 

the third thing was a so-called death gratuity benefit of $12,000, 

which again, I thought was a slap in the face to a family who had 

just made the ultimate sacrifice—I filed a bill and Spencer and I 

got 243 House Members on the bill which would increase the benefit to $100,000. 

I contacted Senator Hagel’s office in Nebraska, and he filed our 

bill in the United States Senate. Again, this never went through 

a committee, never got called up for a hearing, but is now the law. 

We made a lot of noise about this, and somebody in the Administration heard about this. And sometimes things work in strange 

and wonderful ways, even if it’s not traditional. 

6

And I think this is another area where we owe the people who 

serve our country and their families, and I am glad that we are 

able to accomplish this. And we will get on with the hearing now. 

Thank you very much. 

Chairwoman KELLY. Thank you very much. Mr. Israel, you have 

been recognized. 

Mr. ISRAEL. Thank you, Madam Chairwoman. Let me thank you 

and the ranking member for allowing me to sit in on this very important hearing. 

I am one of four members of the Financial Services Committee 

who also serve on the House Armed Services Committee. My 

friend, Mr. Davis, also has that distinction. And I am very proud 

of the work that Congress did in passing the Military Personnel Financial Service Protection Act. It is a very important step. 

I do have one concern, and that is what brings me to this hearing 

today, with respect to the credit protections that our service members have, which are not effectively enforced. 

I had a town meeting in my district last year, and one of the 

things that I heard consistently was that long and frequent deployments are actually wreaking havoc on the credit reports of our 

service members. Many of them are not aware of the protections 

that they have under the Service Members Civil Relief Act. In fact, 

some creditors are not aware of those protections. 

And so, you end up with situations that have been reported in 

our media nationally, soldiers who are in Humvees having their 

cars repossessed back home. Soldiers who have gone to fight for our 

country having their homes foreclosed on back home. Credit reports 

that are being seriously damaged. 

You know, it’s one thing to go and fight our country’s battles, but 

then when you have to come home and fight with a creditor because your report was adversely affected because somebody may 

not have known about the Service Member’s Civil Relief Act, that’s 

completely unfair, and we can do better. 

Mr. Davis and I have introduced the Service Members Credit 

Protection Act. It was introduced in consultation with our military, 

as well as folks who have been involved in the credit industry. And 

it takes the following common sense steps. 

Number one, it requires the Department of Defense to give the 

national credit bureaus a detailed description of the rights that a 

service member has under the Service Member’s Civil Relief Act. 

Number two, it requires national credit bureaus to be informed 

of the deployment of a service member to a combat zone. The credit 

agencies would then make a notation on the service member’s—in 

the service member’s file, so that when a creditor contacts the 

agency, they are—they know, absolutely, without any doubt, that 

the individual that they are looking at, that they may want to file 

a complaint on, that they’re getting a credit history on, is in a combat situation and is protected by Federal law in the Service Member’s Civil Relief Act. If they still violate that and go ahead and try 

to foreclose on a property, or repossess a car, the penalty is doubled. 

Just a couple of final points, Madam Chairwoman. This does not 

exempt our service members from having to pay their bills and 

having to pay their bills on time. It doesn’t stop information from 

7

being reported to the credit agencies. All it does is make sure that 

everybody knows what the Federal protection is, who is under the 

Federal protection, and if they still insist on violating that Federal 

protection by seeking to repossess or foreclose, or adversely affect 

one’s credit, they have to pay a higher price. 

And frankly, I know we all agree on both sides of the aisle, if 

somebody is willing to pay the high price of going to Iraq, Afghanistan, or elsewhere in defense of this country, then unscrupulous 

creditors should have to pay a high price for violating the law and 

ruining their credit, taking their personal property away, their 

cars, and other things. 

I am hopeful that our committee and the Armed Services Committee will have hearings on this, and I appreciate the chairwoman’s indulgence in letting me come today. 

Chairwoman KELLY. Thank you. We have been joined, and by 

unanimous consent, would welcome any comment by Congresswoman Waters. 

Ms. WATERS. Thank you very much. I appreciate the opportunity 

to come today to share one of my concerns, something that’s been 

nagging me for a long time. 

I am very concerned, angered even, about the payday loan industry, and the fact that they are—have increasingly targeted members of the military. They set up near the bases—you must know 

about this; our service personnel don’t make a lot of money. I almost laugh when I see a lot of talk about teaching them how to 

save and invest. They don’t have a lot to save or invest. 

That’s why they become the targets of these payday loan operations, who realize that they run out of money, and they lend them 

money at 400 percent interest rates. They are basically robbing 

them of the opportunity to ever get a handle on their finances. Because when they can’t pay, they just roll it over and charge more 

interest, and it never stops. 

I have not seen any effort by the military to do anything about 

this. And I think we can do something about it. Some thoughts that 

have come to mind, Madam Chairwoman, is wondering about the 

ability of the military to set up credit unions where they could be 

responsible for assisting the military personnel, and/or some way 

by which there is a warning about these operations that set up 

near the bases and exploit military personnel because they don’t 

have a lot of money. 

I have not seen anything that is being done to protect them, or 

to educate them to basically serve as a buffer between our military 

personnel and these predators with the payday loan industry. So 

I wanted to put that on the record here today. And Madam Chairwoman, I am hoping that one of our witnesses here today can address that issue. 

Chairwoman KELLY. Thank you very much. We welcome your 

presence here. 

A couple of things have been said that I want to touch on before 

I introduce the witnesses. There was some discussion about pawn 

shops and sole proprietorships and MSB’s, the payday loans and 

check-cashing people. We all understand that not everyone who is 

in those businesses is predacious. And they serve a purpose for 

some people. 

8

So, I want to make clear to the panel, that this is—we are here 

to collect information, and in fact, a payday loan sometimes is 

cheaper than a bounced check at a bank. I think it’s important that 

people understand that we’re not here to voice our own prejudice, 

but to hear the facts about what actually is there, and what you 

think—we should be doing, about rectifying a situation which can 

be badly abused. 

Our first witness today is Valerie C. Melvin. Ms. Melvin is currently acting director of military and DoD civilian personnel issues 

within the U.S. Government Accountability Office, Defense Capability and Management Team. She was appointed to this position 

in October of 2005, after being accepted into the GAO senior executive service candidate development program. Prior to this appointment, she was an assistant director in GAO’s information technology team, where she manages and reviews in the areas of social 

security, veterans affairs, commerce, energy, and science and technology. 

Ms. Melvin graduated from the University of Maryland, with a 

bachelor’s degree in business administration, and a master’s degree 

in management information systems. She is a certified government 

financial manager. Ms. Melvin has received many GAO awards 

during her career, including meritorious service awards, and the 

excellence in human capital management award. Ms. Melvin, we 

are honored by your presence, and we look forward to your testimony. Please begin. 

STATEMENT OF VALERIE C. MELVIN, ACTING DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. MELVIN. Thank you. Madam Chairwoman, Ranking Member 

Gutierrez, and members of the subcommittee, I am pleased to be 

here today to discuss the financial management issues of military 

personnel and their families. 

The ability to understand and make informed decisions regarding 

the management and use of financial resources is a critical issue. 

DoD has noted that mission readiness, as well as quality of life, in 

part, depend on whether service members use their financial resources responsibly. 

Over the past 4 years, GAO has conducted a number of studies 

on financial management issues affecting service members, both active duty and Reservists. Among these reports, one issued in April 

2005 highlighted some of DoD’s efforts to address service members’ 

financial difficulties. At your request, my testimony today will summarize the results of that study, as well as selected findings from 

other reports. 

In this regard, a fundamental message from our work is that 

service members and their families face a number of challenges 

that reflect an important and continuing need for assistance and 

education on financial matters. DoD is the largest employer and 

trainer of young adults in the United States, with many entry-level 

service members having limited experience with handling finances. 

Moreover, many service members move frequently, and are separated from their families during overseas deployments. A 2002 

study noted that 20 percent of junior enlisted service members reVerDate 0ct 09 2002 14:45 Dec 15, 2006 Jkt 031040 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\DOCS\HBA138.090 HFIN PsN: TERRIE
9

ported that they struggled to make ends meet, financially. And another 4 percent regarded themselves as in over their heads with respect to their finances. 

As further evidence of their difficulties, a 2003 DoD survey, 

which asks service members whether they had experienced three 

types of negative financial events, found: 19 percent of deployed 

and 17 percent of non-deployed pressured by creditors; 21 percent 

of deployed and 17 percent of non-deployed behind in paying bills; 

and 16 percent of deployed, and 13 percent of non-deployed who 

had bounced 2 or more checks. 

Both Congress and DoD, as you have noted, have taken important steps to decrease the likelihood that service members will experience financial problems. Since 1999, DoD has requested, and 

Congress has granted, annual increases in basic pay for all active 

duty service members that exceeded the average increases in private sector wages, as well as increases in special pays and allowances for deployed service members. 

Also, as you have noted, the military has developed personal financial management programs to provide service members with 

training, counseling, and other assistance to avoid and mitigate the 

adverse affects of financial problems. 

However, while these actions have been a necessary step in the 

right direction, achieving effective results will require additional efforts by the Department and the service members. Our study 

found, for example, that some service members had not received 

the required financial management training, and only one service, 

the Army, was maintaining data to show who had actually completed the training. 

At the same time, we found that some service members were reluctant to seek assistance through the programs that exist, often 

out of fear that doing so would limit their career progression. 

Underlying all of this is that DoD lacks an oversight framework 

with results-oriented performance measures and reporting requirements to evaluate the effectiveness of its financial management 

programs across the services. Without such a framework, neither 

DoD nor Congress will have the necessary visibility into and oversight to ensure the most effective delivery of financial training and 

assistance to service members. 

In closing, Madam Chairwoman, I would like to emphasize that 

DoD has recognized the importance of financial literacy, and the 

potentially adverse effects on military readiness when service members experience serious financial problems. 

Moreover, the programs that exist to assist service members are 

positive. Nonetheless, more effort is needed to increase awareness 

and use of these programs, and ultimately bring about lasting solutions in this critical area. Your hearing today will go far in focusing 

attention on this important matter. 

This concludes my prepared statement. I would be happy to respond to any questions that you may have. 

[The prepared statement of Ms. Melvin can be found on page 41 

of the appendix.] 

Chairwoman KELLY. Thank you very much, and thank you very 

much, Ms. Melvin, for staying within the 5-minute time line. I neglected to mention, if you haven’t testified before us before, that 

10

the boxes there have three colored lights. Green means you have 

5 minutes. When it gets to be yellow, it means there is one minute, 

sum-up period, and when it’s red, that’s obvious. 

We turn now to the—our second witness, Vice Admiral Cutler 

Dawson, president of Navy Federal Credit Union, and Elisse B. 

Walter, senior executive vie president, regulatory policy and programs, for NASD. 

Admiral Dawson is the president of Navy Federal Credit Union, 

and it’s the world’s largest credit union, from what I understand. 

Prior to his retirement from the Navy, ADM Dawson was the captain of four different Navy ships, the USS Enterprise Battle Group, 

and the United States Second Fleet. 

Elisse B. Walter is the executive vice president of NASD, and 

leads NASD’s investor education foundation. Prior to her service 

with NASD, Ms. Walter worked for the Commodities Futures Trading Commission and the SEC. Ms. Walter is a graduate of Yale 

University and Harvard Law. We welcome both of you, and we look 

forward to your testimony. You may begin, please, Admiral. 

STATEMENT OF CUTLER DAWSON, VICE ADMIRAL USN (RET.), 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, NAVY FEDERAL CREDIT UNION 

VADM DAWSON. Thank you, Chairwoman Kelly. Chairwoman 

Kelly, Ranking Member Gutierrez, and members of the subcommittee, as mentioned, I am Vice Admiral Retired Cutler Dawson, and president of Navy Federal Credit Union. I am here today 

on behalf of Navy Federal, my credit union, to provide you with an 

overview of the financial products and services we provide to sailors and Marines and their families, worldwide. 

In late 2004, I completed 34 years of service in the Navy, and 

was chosen to take the helm at Navy Federal. During my time on 

active duty, I saw what the credit union did and continues to do 

for sailors and Marines. It is truly their credit union. 

Navy Federal began operations over 70 years ago, with a group 

of Navy Department employees, when they pooled their surplus 

dollars to make emergency loans to fellow employees. At the end 

of the first year, the credit union included 49 members, 18 borrowers, and assets of $450. We now serve sailors and Marines 

worldwide with 112 branch offices, including 21 overseas. Our 

motto is, ‘‘We serve where you serve.’’ 

We have not strayed from our mission of serving those members 

who share a common bond of military or civilian service with the 

Department of the Navy. 

While we provide a full range of financial products and services 

to all of our members, we continue to focus specifically on our core 

active duty members. We recognize that military life is always 

unique, and even more so today, especially for the families of our 

sailors and Marines. 

To meet these unique requirements, we operate in overseas locations, where our members are serving the Nation. We conduct personal financial management training and pre-deployment counseling through Navy and Marine Corps programs in our branch offices. Last year, we conducted over 1,500 such sessions, reaching 

almost 100,000 members. 

11

We also assist members in financial difficulty through budgetary 

counseling and debt management services at no cost to the member. We assist survivors of deceased members, serving as a liaison 

between family members, attorneys, and the military service. And 

sadly, I will say that we have lost over 400 members in Iraq and 

Afghanistan since 2001. 

We guarantee utility deposits and security deposits for members 

in areas of major Navy and Marine Corps installations, and we provide members remote access to their accounts, via the Internet 

worldwide, even on ships at sea. 

And we seek to offer financial alternatives to provide lower loan 

rates and higher savings dividends than are typically found outside 

the Navy and the Marine Corps installations. And Ms. Waters, I 

have visited a payday lender, just to see what they were all about. 

Over the years, this steady focus on active duty members and 

their families, and the affinity of our members have, for the Navy 

and Marine Corps, resulted in a very loyal membership. Recent 

member focus groups have reaffirmed that the vast majority of our 

members believe that we do support our active duty members, particularly in today’s world. 

In summary, Madam Chairwoman, Navy Federal Credit Union 

recognizes that providing financial products and services needed by 

our sailors and Marines and their families, wherever they might 

be, is our mission. And I believe that we are meeting that mission. 

I thank you for the opportunity of being here today, and I look 

forward to your questions. 

[The prepared statement of VADM Dawson can be found on page 

38 of the appendix.] 

Chairwoman KELLY. Thank you very much, Admiral. 

Ms. Walter? 

STATEMENT OF ELISSE B. WALTER, SENIOR EXECUTIVE VICE 

PRESIDENT, REGULATORY POLICY AND PROGRAMS, NASD 

Ms. WALTER. Thank you. Madam Chairwoman, Ranking Member 

Gutierrez, members of the subcommittee, and of the committee, 

good morning. I am Elisse Walter, of NASD, and I am grateful to 

the committee for inviting us to testify about our efforts to protect 

members of the armed forces from abusive and misleading sales 

practices. 

We have prepared a comprehensive written statement, and with 

your permission will submit it for inclusion in the record. 

My focus today is on a recently launched NASD effort to educate 

service members and their families. The program is designed to 

help them make better financial decisions and avoid fraudulent 

and inappropriate products and sales pitches. 

As you know, Madam Chairwoman, America’s men and women 

in uniform make great personal sacrifices to protect our Nation’s 

security. They should not have to worry about the honesty and integrity of those who offer to help them make sound financial decisions for themselves and their families. In 2003, NASD learned 

that a Texas broker-dealer was targeting members of the armed 

forces with misleading sales pitches and improper sales tactics. 

As a result, more than a half-million of complicated and often extremely expensive products called systematic investment plans, or 

12

periodic payment plans, were sold to service persons. Not surprisingly, most of the service persons who bought the plans were young 

and inexperienced. 

Since this matter has come to light, as Mr. Davis stated, the 

House has passed legislation outlying the plans. We responded 

forcefully to end these practices, sanctioned those responsible, and 

ensured that victims were being compensated for their losses. We 

also are taking action to educate military personnel broadly about 

saving and investing. 

We did this first by bringing an enforcement case against the firm selling these plans. The firm was censured and fined $12 million in December 2004. That amount included restitution to thousands of customers who had terminated plans after January 1, 

1999, and had paid effective sales charges greater than 5 percent. 

As of today, more than $4.4 million has been returned to these customers, and we are currently working with the Department of Defense to locate additional service members owed reimbursement. 

The remaining funds from our enforcement settlement, about $6.8 million, were transferred to the NASD Investor Education 

Foundation to be dedicated to the development and deployment of 

comprehensive financial education programs for members of the 

armed services and their families. Working closely with the Department of Defense, the NASD foundation has launched a campaign 

to help service members and their families manage their money 

with confidence by helping them to understand basic financial concepts, including saving, investing, and the markets. 

This program is being implemented online and in military installations worldwide. It encourages members of the armed forces to 

take control of their financial futures, by providing them and their 

spouses with financial information to help them make more intelligent saving and investing decisions. 

The multi-faceted program includes: an online resource, 

saveandinvest.org, which has had over 280,000 visitors since it was 

launched in February of this year; on-the-ground training to support the military’s current personal financial management program; a spousal fellowship program that will train a corps of military spouses to provide financial counseling and education within 

the military community; and for our first training session with 200 

slots—we received over 2,600 applicants. 

A printed online publication—see it right here—which we put 

out, in combination with the National Endowment for Financial 

Education and the National Military Family Association, to help 

service members and their families deal with the financial issues 

surrounding deployment and duty station changes. We are working 

in partnership with DoD, the SEC, the National Military Family 

Association, and other organizations. 

In the last 2 months, NASD has conducted a series of free education forums at bases and duty stations around the world. I 

should add as an aside, we do financial forums for the general public at large, and I am pleased to see that we have done them with 

several members of the committee who are here today. 

The first of our military education forums took place in Honolulu. 

It was closely followed by three programs at two bases in Japan, 

and aboard the USS Ronald Reagan, now on a tour of duty in the 

13

Arabian Gulf. These events have been well attended. In Honolulu, 

we drew almost 500 members of the military and their families 

from all branches of the armed services. 

The other programs have drawn almost 1,300 additional members of the military and their families. The programming that we 

offer is designed to meet the needs of both officers and enlisted personnel. Our programs have included seminars on stock scams, 

predatory lending—a terribly important issue for members of the 

military—saving for retirement and investing in mutual funds, 529 

college savings plans, bonds, and annuities. 

These events give us valuable insight into what issues are important to members of the military. In both Okinawa and Yokosuka, 

for example, there was a great deal of interest in predatory lending, and how to dig out of debt. We have also found there is a lack 

of clear knowledge about 529 plans. 

And importantly, it has become clear, from audience questions, 

that the thrift savings plan is not well understood. And we plan to 

create additional content to explain the TSP clearly and concisely 

to military personnel. 

The NASD Investor Education Foundation continues to schedule 

on-base events. The next two are at the Naval submarine base in 

Kings Bay, Georgia, in June. Madam Chairwoman, this concludes 

my statement. I thank you again for the opportunity to testify, and 

would be happy to answer any questions you and the committee 

members may have. 

[The prepared statement of Ms. Walter can be found on page 67 

of the appendix.] 

Chairwoman KELLY. Thank you so much, Ms. Walter. Yes, I—

Ms. Walter brought to my mind that I neglected to say that, without objection, your full written statements will be made part of the 

record. And I appreciate the fact that you did that, Ms. Walter. 

Ms. Melvin, I am going to start my questioning with you. I was 

distressed when I noticed that you had said that in—and I’m reading from the GAO report—based on DoD pay data for January 

2005, almost 6,000 of 71,000 deployed service members who had 

dependents did not obtain their family separation allowance in a 

timely manner. 

I would like you to talk to us about this problem, and what has 

taken place to avoid a repetition of this kind of thing. 

Ms. MELVIN. At the time that we did our work, what we found 

was that in talking to service members—we went to 13 installations in the United States and in Germany—that a number of them 

had encountered problems in receiving the family separation allowance, difficulties that resulted largely from the fact that there were 

no procedures in place, necessarily, to make sure that the proper 

forms could get entered, the proper information, I should say, could 

be entered into DoD’s pay systems. 

Beyond that, we also found that, in some cases, the service members themselves simply didn’t know enough about the separation 

allowance to have taken all of the necessary steps to have their paperwork in order, and to make sure that their information was provided to DoD. 

So, it was a situation in terms of both DoD not having taken 

some steps through its policies and procedures, as well as the servVerDate 0ct 09 2002 14:45 Dec 15, 2006 Jkt 031040 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 F:\DOCS\HBA138.090 HFIN PsN: TERRIE
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ice members not having sufficient awareness in all cases. And I 

think some of that goes back to the issues that I have heard mentioned in the statements relative to the fact that many of these 

service members are junior enlisted personnel who don’t have the 

financial literacy or the financial know-how necessary, to address 

these matters. 

In our report, we did make a recommendation—make recommendations, I should say—asking that DoD take steps toward 

making sure that the service members’ family separation allowances were computed, and that they receive them. DoD did agree 

with our recommendation, and indicated that it was taking measures to actually have policies and procedures in place that would 

address that particular issue. 

Chairwoman KELLY. Thank you. I want to know if you can tell 

us what the DoD needs to get a results-oriented, department-wide 

database put together, so that they can assess the effectiveness of 

their—the PFM’s, the personal financial management programs. 

That’s another thing you pointed out down at the bottom of one of 

your pages. 

I am concerned about this, because if we’re doing things we have 

no metric to find out if they’re effective. Can you talk to us about 

that, and tell us what you think can be a comprehensive approach 

by the DoD to cover the problem? 

Ms. MELVIN. You’re exactly right, that the oversight issue is very 

significant, and it is one that we take very seriously in looking at 

DoD’s actions. It’s pervasive across a number of programs that DoD 

has. 

In this case, our position is that DoD does need to have performance-based metrics, evaluation tools, and measures that it can use 

across its systems to, in fact, make more results-oriented decisions 

relative to the programs that it has. 

As far as what DoD can do, I think there are a lot of steps that 

the Department will have to figure out, relative to how it wants to 

address it. One of the things I can say, though, is that there are 

a number of ways in which DoD can take some immediate steps 

toward that, through looking at some metrics, perhaps, that already exist, perhaps going to looking more at, for example, what 

service members have their paychecks garnished. There are a number of ways in which they might start to take incremental steps toward putting in place a framework that would have results-oriented measures. 

But the Department itself will have to look at this closely. It will 

have to make decisions relative to what will constitute the types 

of measures that it needs to have, and ultimately, to have the 

mechanisms, the framework, the measures there to make sure that 

it can have a results-oriented approach. 

Right now, much of what the Department does is output-oriented, versus outcome-oriented. 

Chairwoman KELLY. Thank you. I would like to ask the whole 

panel what—my colleague, Ms. Waters, brought up predatory lenders. And I would like to ask the whole panel to answer the question 

about how the DoD and the individual services themselves can approach, especially the young and newly enlisted personnel, to help 

15

them protect themselves from predatory lenders and from people 

who are doing similar things. I will start with you, Ms. Walter. 

Ms. WALTER. Well we, of course, are working with DoD on these 

issues. And as I noted in my opening statement, predatory lending 

is a very big concern among the audience members that we have 

seen at our onsite forums. And I guess that’s the bad news and the 

good news. Bad news, obviously, because this is a terribly important issue, and it’s frequently abused, but good news because it 

shows that people really are interested in learning more. 

In fact, in terms of our online resources, the page that we have 

that’s entitled, ‘‘Stay Away From Payday Lenders,’’ has, in fact, received—it is the most popular page, other than the homepage on 

our site. So there is a great deal of interest among military service 

members in learning more about the practices of payday lenders, 

and we are more than happy to continue to work and to expand 

our efforts on that important subject. 

Chairwoman KELLY. Thank you. I am out of time, so I turn to 

my—I’m sorry, I asked the whole panel that, right. Good thing 

Mike reminded me. Admiral? 

VADM DAWSON. I have offices in Hampton Roads, branches in 

Hampton Roads. As I mentioned to Ms. Waters, I was visiting 

them last year, and three doors down from one of our branches was 

a payday lender. I had never been in a payday lender office before, 

so I went over there to check it out. 

It was a nice office. It was clean. The people in there were very 

courteous and nice. I couldn’t get up to the counter to talk to anyone, because there was a line. 

I read the disclosure while I was there, and it wasn’t 400 percent 

APR, it was 782 percent APR for a $500 payday loan. At my credit 

union, we talk about payday lending, and we say that payday lending is the spiral of doom for people who get involved with it. We 

do what we can to offer alternatives, so people do not have to take 

payday loans. But 782 percent is a big bite. 

But I also would like to say that financial education is not 

unique to the military. It’s unique to our whole country. We talk 

about this at credit unions all the time, that we all need to do a 

better job at financial management education. And that’s one of the 

ways that we can all get there. 

One last thing. I mentioned that I saw a very nice message that 

went out to everyone in the Navy the other day. They even—sometimes retired people get those. But it was from the chief of naval 

personnel, and he was discussing payday lending. And he was instructing all those in the Navy that counsel individuals to do so. 

And so, Ms. Waters, there are some things that are starting to 

be done, the Navy being one of them. And I hope that it continues. 

Chairwoman KELLY. Thank you. Ms. Melvin? 

Ms. MELVIN. Yes. I would reiterate the financial education as a 

large piece of what can be done to help our service members, making sure that they’re aware of what their options are, and having 

the choices to make that don’t necessarily include going to a particular type of creditor that might take advantage of them in that 

way. 

Beyond that, I would also go back to the oversight issue that I 

spoke to earlier. I think it’s important for DoD to have a full 

16

awareness of what types of situations exist on and off its bases, relative to the use of creditors and resources of that nature. 

And then thirdly, there is a mechanism that DoD could use, and 

that’s the Armed Services Disciplinary Control Boards. And while 

they don’t exist solely to perform that function, they are a valuable 

resource. 

When we did issue our report on predatory lending, one of the 

things we noted, however, was that those boards weren’t meeting 

routinely to make the types of assessments of the businesses that 

the service members were using. One option and a recommendation 

that we made was that DoD, in fact, increase the use of such 

boards to have more oversight and more insight into what the businesses are, and to be able to provide information to service members, to help them make more informed decisions regarding their 

use. 

Chairwoman KELLY. Thank you. My time is up. Mr. Gutierrez? 

Mr. GUTIERREZ. Thank you very much. I want to, first of all, 

thank Congressman Davis for working with me on getting the minimum changes and protections into the law, and hoping the Senate 

will take up the legislation, as we have heard from the witnesses 

here, including the vice admiral, about the state of predatory lending and payday loans. 

I am always astonished at how difficult it is to get action, either 

in this committee or the Congress, to protect the public in general, 

but in this case particularly the military, against those who wish 

to charge 700, 750, 800 percent interest rates. 

I know that we live in a free market system, but sometimes 

those free markets need to be curbed in when there are abuses, especially when they look like they’re from the military, and they use 

military logo and are right outside military bases. 

Anyway, let me follow up. I want to follow up on the chairwoman’s questioning, because she is right on, and headed in the 

right direction. I would like to ask Ms. Melvin from GAO. In its 

report on predatory lending, the GAO recommended that the armed 

forces’ disciplinary control boards meet at least semi-annually to 

determine whether to put offices of payday lenders off limits. DoD’s 

response says it would be ineffectual. Do you accept the DoD response? 

Ms. MELVIN. Actually, in the response that DoD made to us, they 

actually agreed with our recommendation, and at least informing 

us what their actions would be, stated that they would actually do 

more meetings—I believe our recommendation was that they meet 

at least semi-annually. And their response to us was that they 

would take action to meet at least quarterly, I believe. 

So, that was their intent. We have not gone back—we have actually gone back and followed up on a routine basis, but we have not 

seen evidence, I should say, yet as to how routinely they are meeting at this point. 

Mr. GUTIERREZ. Okay. So DoD responded that they thought they 

should meet quarterly on this issue? 

Ms. MELVIN. Yes, they— 

Mr. GUTIERREZ. Have they ever met, to your knowledge, on this 

issue with the Armed Forces Disciplinary Control Board? 

17

Ms. MELVIN. We have not looked at that at that level. And I’m 

sorry, but I am not able to respond to that at this particular— 

Mr. GUTIERREZ. So they said they would meet quarterly as to 

whether or not they should put the offices of payday lenders off 

limits? 

Ms. MELVIN. They said that their boards would meet quarterly 

to consider the businesses, and the other practices of payday lenders, and also other businesses which have adverse effects for the 

military. 

Mr. GUTIERREZ. Does the DoD have a single point of contact for 

Federal and State enforcement officials who are investigating predatory lenders? 

Ms. MELVIN. No, there is no single— 

Mr. GUTIERREZ. Do you think the DoD should have a point of 

contact so that Federal and State enforcement officials who have 

investigated predatory lending would have a communications level 

with them? 

Ms. MELVIN. One of the things that we have noted in our work 

is that, especially across States, when it comes to certain types of 

lending and insurance there are concerns relative to the differences 

among States. Our work has actually talked to the need for more 

coordination across the different States, and with State regulators, 

and in that regard, to make sure that there are some designated 

offices or individuals who, in fact, can hear the complaints of consumers, military consumers, in this case and be able to share that 

information with the regulatory agencies. 

Mr. GUTIERREZ. So, in response to the GAO’s report on financial 

product sales, DoD concurred in the GAO’s recommendation that 

the DoD solicitation policy be revised to require that service members’ complaints related to financial products be provided to relevant State and Federal financial regulators. 

DoD provided you with an estimated completion date of January 

1, 2006. Did they meet that date? Are complaints actually being referred? 

Ms. MELVIN. It’s our understanding that the policy is still in 

draft and hasn’t been issued yet. 

Mr. GUTIERREZ. So they didn’t meet the completion date of January 1, 2006? 

Ms. MELVIN. Yes. 

Mr. GUTIERREZ. Okay. 

Ms. MELVIN. That’s correct. 

Mr. GUTIERREZ. So no complaints can be referred since they 

haven’t done that. I think it’s going to be pretty quick—still got a 

green light—it’s going to be pretty critical to get the DoD in here, 

so that we can hear from them, especially hearing from the vice admiral, who said that the admiral went around telling people—that’s 

why I’m going back to the Armed Forces Disciplinary Control 

Board, because if they do make this an issue, then commanders at 

all levels can speak to those under their command about not going 

and forming them, actually instructing them not to go to payday 

lenders, not to go here, and what places they should or shouldn’t 

go. 

I have one last question, and this one is for Elisse Walter. Has 

the DoD established a single point of contact for NASD to discuss 

18

enforcement and disciplinary actions? If you want to notify DoD 

that a particular individual or firm that targets military personnel 

has been subject to disciplinary action by your agency, who would 

you contact in the DoD? 

Ms. WALTER. Well, we have a number of contacts in DoD that we 

could inform. What we have done, really, relates—we have taken 

action with respect to the flow of information in the other direction. 

We want to encourage complaints that come in, either through personal financial managers or otherwise to be referred either to us 

or to the governmental securities regulators for investigation. 

And we have facilitated that on our end by assuring—we have 

a centralized process for looking at complaints. So we have a single 

point of contact, a single office to contact at our end, and that is 

open and available. I’m not aware that DoD has established a particular point of contact with respect to this matter, but I think we 

feel that we have good channels of communication to provide them 

with information. 

Mr. GUTIERREZ. So the DoD hasn’t established a single point of 

contact for you, in terms of enforcement and disciplinary actions? 

Ms. WALTER. Not that I am aware of. 

Mr. GUTIERREZ. Okay. And if you want to discuss the matter, in 

terms of a particular targeting of personnel, you contact various 

people at DoD? 

Ms. WALTER. Well, we would either— 

Mr. GUTIERREZ. I mean, I guess—and I will just—I guess my 

point is because you do what you do, and you protect people by taking action and you’ve got a $12 million judgement, I just want to 

know how it is when you do your work, you communicate to DoD 

so that all the—so that then DoD can do its job and inform all the 

members of our armed forces that, you know, you found somebody 

corrupt, fined them $12 million. You said they’re still looking to 

distribute approximately $7 million of the $12 million to armed 

services personnel. 

So, I—it’s not about you, I assure you it’s not about you. I’m just 

trying to figure out, for future hearings, what kinds of things we 

might want to ask DoD to do to better do their job. 

Chairwoman KELLY. If the gentleman would yield, I would like 

to ask if anyone on the panel knows whether the DoJ—I’m sorry, 

DHS—the DHS, does anybody know if the Coast Guard is having 

a similar kind of problem as the DoD? 

Ms. MELVIN. I’m not aware of any problems in that area, but we 

have not looked at that. 

Chairwoman KELLY. Well, perhaps in addition to getting the 

DoD, we should perhaps bring in DHS to find out if both—if that 

service, as well, is affected. 

Mr. GUTIERREZ. Yes, I think that’s important. I wanted to—and 

I want to thank you, Vice Admiral, for all you do and the credit 

union does to help service our military with good financial products. Thank you very much. 

Chairwoman KELLY. Thank you. Mr. Davis? 

Mr. DAVIS. Thank you, Madam Chairwoman. I could speak as a 

multiple decades member of what’s now Pentagon Federal Credit 

Union, and also dealing with these issues. 

19

I hear a lot about, you know, these issues. Payday lending, for 

some reason, has come up repeatedly over and over again. And I 

think the fundamental issue that we’re dealing with, the command 

is dealing with the rule of law at State level. A business, a legitimate business that’s off post can do business—there are certain 

prescriptions—the reason that we tried to pass H.R. 458, dealing 

with insurance and mutual funds, is to make sure that we gave 

that ability to allow State enforcement on the Federal jurisdiction, 

and also to identify businesses for the command. 

But I hear these numbers of interest rates in the hundreds of 

percent. And I’m just curious, from having dealt with many, many 

organizations, what the basis of that is, what was the basis of that 

782 percent insurance rate that you quoted when you went into the 

payday lending operation? 

VADM DAWSON. It was simply the interest that was charged if 

someone were to borrow $500 cash advance for payday and have 

it for a week. That was the annual percentage rate that they were 

charged. 

Mr. DAVIS. So what you were doing was taking all of the fees 

that were associated— 

VADM DAWSON. I was just reading from their disclosure statement on their wall of what they did at the payday lender. And it 

was quite plain. It was well disclosed, that it would be 782 percent, 

with everything rolled in to what they charged for that $500. 

Mr. DAVIS. I would appreciate it if you would possibly submit 

that information for the record, so that we could see that. 

One of the reasons that I want to bring this up is a little bit 

deeper. When my family was hurt by a military financial services 

provider who became the subject of H.R. 458, what caused that 

hurt was not the practices that were disclosed, I want to make that 

very clear. What caused the problem was a perceived inter-relationship between retired military personnel who served as executives, 

as salespeople, as managers in that firm, and it—that was what 

breached the trust barrier in such a big way here. 

And you know, my question would come back, are you going to 

do away with ATM’s? Because under the proposed—you know, we 

hear this 36 percent interest rate that’s thrown around in so many 

of these dialogues around this, if you go to an out-of-network ATM 

and a soldier borrows $100 a week, which I used to do things like 

that, even though ATM’s were kind of a new concept before I was 

commissioned, and it was $2 a transaction for that out-of-network 

fee, you’re dealing with 100 percent interest, automatically, on that 

loan on an APR basis. 

But one would come back from a bank and say that’s a fee. And 

I think the thing that we need to clarify very much, because nobody with common sense is going to take a loan out at 500 or 1,000 

percent, or something, you know, like that. What they’re going to 

do is they’re going to be dealing with fees. 

And the reason that I bring this up is a question that I would 

like to ask Ms. Walter. You know, it seems that there is a little 

bit of a question on my mind. We’re talking about payday lending. 

But are you aware of DoD’s relationship with other financial services providers who have many, many fees that technically are not 

interest rates and aren’t talked about in a lot of competing legislaVerDate 0ct 09 2002 14:45 Dec 15, 2006 Jkt 031040 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 F:\DOCS\HBA138.090 HFIN PsN: TERRIE
20

tion, but actually if you lay that out side by side on the table, what 

you end up actually having is a higher fee from a firm that is allowed, publicly, to associate with the DoD organizations? 

Ms. WALTER. I’m not specifically aware of particular entities. But 

in general, as you know, we’re a securities regulator. One of the 

most important things to be disclosed to investors—and the same 

is true in consumer situations that do not involve securities—are 

not just interest rates in terms of payback for loans, but also the 

fees associated with it. 

Because, obviously, from the point of view of the consumer, the 

payment is the same. It is money that they have to pay in connection with the transaction. So all of that is really terribly important, 

and is something that people have to understand before they enter 

into a transaction. 

VADM DAWSON. And sir, I would like to add that Navy Federal 

has a little over 300 ATM’s that we own and provide a service to 

our members. And we charge no fee at all for any of our members 

that use those ATM’s. 

Mr. DAVIS. How about for out-of-network members that use it? 

VADM DAWSON. It’s $1.50 for out-of-network— 

Mr. DAVIS. So 75 percent APR? 

VADM DAWSON. It depends on how much they take out. But 

these are non-members. In other words, these are members that do 

not belong to our credit union. I think the industry standard for 

those charges is probably between $1.50 and $4. It is a fee to withdraw their own funds. It is not a loan. 

Mr. DAVIS. My point, Admiral, is not to challenge your ability to 

operate in the free market, it’s simply when we bring this issue up 

I think it’s important that we—you know, when we talk about 

these alleged high interest rates—and I am, again, intimately familiar with this issue, having dealt with a number of credit 

issues—that there is a difference between fees that are fully disclosed in a market environment, and then the true predatory lender—you know, like I can think of Victory Pawn and Gun, or whatever, on Victory Drive, outside of Fort Bragg, you know, other types 

of organizations. 

And the reason that I bring this question of breach of trust up, 

as a faithful credit union member—it has nothing to do with your 

organization, but the more pernicious aspect of this is what I am 

seeing right now in DoD is being drawn into a very dangerous aspect on this credit issue of true monopolistic competition between 

a very large financial services provider, which is, you know, seeking to avoid these types of protections we talk about putting in in 

order to gain market share. 

And that’s what concerns me with former military members on 

the board, disorganization showing up at the AUSA convention, 

when in fact, the Community Financial Services Association, which 

is the legitimate payday lending open market businesses have 

sought full cooperation with DoD, and yet those—that cooperation 

has been rejected. And I personally met with Dr. Chu on this issue 

to incorporate all changes and questions. 

And I would like to just make it a matter of the record that the 

deeper issue here in credit probably ought to be devoted to a separate hearing. And I would ask Chairwoman Kelly that perhaps we 

21

consider a separate hearing on that issue alone, so that we can 

focus on the more broad-based financial needs. 

I think, at the end of the day, what we’re dealing with here are 

issues of cash flow for families, learning to manage that, and often 

times, in the emotion of the media or those not connected with the 

service, we want an immediate scapegoat, somebody that we can 

hang something on, without necessarily solving the problem. And 

I think that what I don’t want to see is a set of laws passed that 

gives unfair market advantage to one firm over another that actually charges the same alleged high fees, but it’s just disclosed in 

a slightly different way. 

And if you would like to have some private discussion at a later 

time, we would be glad to share this information with you, that I 

think you would find particularly disturbing. I yield back my time. 

Chairwoman KELLY. I thank you, Mr. Davis. I agree. I think 

what we’re discovering here this morning indicates that we should 

be having follow-up hearings. I would like to bring in DHS and the 

DoD. And we should look at a much more broad picture here. I 

think it would serve us well, in trying to figure out what needs to 

be done to help and protect our service people. I turn now to Mr. 

Cleaver. 

Mr. CLEAVER. Thank you. My concerns are related to foreclosure; 

is there any tracking system in place whereby you would know the 

number of, or the percentage of, members of the military who end 

up in foreclosure? 

Ms. MELVIN. I don’t have any information that I could share with 

you, sir, regarding that. 

VADM DAWSON. At my credit union I have that information. I 

don’t have it with me today in that detail. But yes, we track delinquency. And in worst case, when it goes to foreclosure, our numbers are very small. Our membership—we have very few foreclosures. But we track it, and I would be happy to provide you that 

data from our credit union, if you would like, at any time. 

Mr. CLEAVER. I think I would like that information. The Civil Relief Act prohibits an increase in the interest rates and the foreclosures. And I’m wondering—I was looking through the—this is 

very good, incidentally. I was looking through here, but I couldn’t 

find any information related to either the interest rates issue or 

foreclosures. And I’m just wondering how many service men and 

women would even know that they are a victim if they don’t know 

that the Civil Relief Act exists. 

VADM DAWSON. I understand your question. It’s possible they 

would probably know, but foreclosures are not conducted if they fall 

under the Serviceman’s Civil Relief Act. I don’t think—we don’t do 

it, and I don’t know about other institutions, but that’s—members 

are protected under that, should they know that they’re protected. 

Chairwoman KELLY. We would be very happy—and I just made 

a note of this, and I think it’s a very good point—we will make sure 

that point gets picked up in our programs on a going forward basis, 

and so we can help to play a role in educating people about the 

rights that are available to them. 

Mr. CLEAVER. Yes. I don’t know if it’s anecdotal or not, but many 

Members of Congress, from time to time, hear from servicemen and 

22

women that, after they were called up to duty, after a certain period of time they ended up losing their homes. 

And if it’s happening because there is a lack of information going 

out—you know, it’s an injustice in the first place, but I think that 

the second level of injustice—and maybe the first—is that they 

don’t have the information. 

VADM DAWSON. Sir, maybe I can give you some information that 

might be helpful to you. Just to put it in perspective, I ran some 

numbers from my credit union on how many folks fell under the—

how many people that we have right now who have the protections 

of the Servicemen’s Civil Relief Act, and it’s about 980. And we 

track them very closely, and that number has gone down over the 

last couple of years. We have been running about an average of 

maybe 1,000 to 1,200. 

And we are very meticulous in following the tenets of the Act in 

regard to their rights. And we even go one step further. If they 

apply for relief, it’s granted unconditionally, without even an explanation if it’s a—if they’re under a hardship, which the Act calls for. 

So they send their documentation in of their orders that brought 

them to military service, which they all have, and then they fall 

under the tenets of the Act, and we would not foreclose anyone 

while they were under that relief. 

Chairwoman KELLY. Would the gentleman yield for a comment? 

Mr. CLEAVER. Yes. 

Chairwoman KELLY. If a service member is not in this country, 

and there is an action, a proceeding, if the family doesn’t know to 

notify the local sheriff, or whatever, that they are protected by the 

Act, then the proceeding could go on because they don’t know. And 

I think that’s part of your point, is it not? 

VADM DAWSON. Well, let’s take our case in point, I mean, just 

what we do, if you’re interested in that. Let’s say they fail to notify 

us, in the very worst case. As soon as we found out that they were 

eligible, we would tell them how to do it, we would make everything retroactive to the date that they entered the service, and—

or were called up, and take care of them. 

Mr. CLEAVER. I’m not sure it’s that simple, because people in Afghanistan and Iraq, and 122 other places around the globe, and I’m 

just not sure the information is reaching the people who need to 

know it, whether it’s the military person or the families. 

And as I said, maybe there has never been an incident, and I’m 

just going in the wrong direction. But you hear that, you know. It 

may be like the thing that, you know, everybody—there is something going around the Internet that Members of Congress receive 

their salaries for life, I think, or—and so maybe it’s one of those 

things. But it is out there, and it bears some attention. 

And if I could just close out with a question, I—before I was in 

Congress, I did a radio show on NPR, and I guess one of the things 

I kind of campaigned on the air against was the payday loans. One 

of the things I did eventually discover, and that is because of circumstances, people felt that was the only place they had to go to 

get financial help. And I’m wondering if the Navy has a payday 

loan program. I mean, they’re going to go somewhere if they’re in 

a crunch. 

VADM DAWSON. I can answer that from experience. 

23

Mr. CLEAVER. Yes. 

VADM DAWSON. I suppose that it is—all service members are offered the opportunity—and we refer to it in the Navy as, ‘‘to take 

a dead horse.’’ What that is, is you remember advance pay, when 

you make a PCS change of station, and then you pay it back over 

2 years, and it’s an interest-free loan of up to 3 months of your 

base pay. 

The reason it’s called a dead horse is back in the days of sailing 

ships, it was like sailing into horse latitudes where there was no 

wind, and it felt like it took forever to pay it back. That’s why it’s 

called a dead horse. But that’s—and that’s the expression, ‘‘beating 

a dead horse.’’ But that’s a form of a loan that I think you’re talking about. 

Mr. CLEAVER. Well, it’s not quite. I know my time is running out. 

Thank you, Madam Chairwoman. 

Chairwoman KELLY. Thank you. Mr. Barrett? 

Mr. BARRETT. Thank you, Madam Chairwoman. Ladies and Admiral, thank you for being here today. We greatly appreciate it. 

Ms. Melvin, let me address this first question to you. I was reading in your report about personal financial management, PFM—

love these acronyms, you Army guys, I’ll tell you—the Army requires about 12 hours of PFM; the Navy 16; Marines and Air 

Force, I think at their first duty station. 

If this is a problem—and obviously, it might be—does it make 

sense to have a standard throughout all the services, whether it’s 

at their first duty station, whether it’s every time they change duty 

stations, something that is similar across the board, so we know 

that each service member is getting adequate training on personal 

financial matters? 

Ms. MELVIN. Certainly it’s possible that, you know, having a 

standard form of training would provide that. I think the bigger 

issue, though, is in terms of DoD needing to make sure that it emphasizes what the services need to do and that it has the mechanism to make sure that, regardless of whether the training is 

standardized or whether it’s given at different points by different 

services, that it has an oversight, a means of knowing that that 

training is taking place. 

So, on the one hand, you could say that standardization would, 

in fact, provide at least an element of information that says it’s occurring at a certain point in time. But the reality is that, given the 

circumstances that are in play and the number of people involved, 

I think it would still be questionable as to whether, in fact, even 

with standardized training, unless there is a reporting mechanism 

and a tracking mechanism in place to ensure that—to see that that 

training is actually taking place, it may not necessarily solve the 

problem. 

Mr. BARRETT. But if you had some type of tracking mechanism 

where you followed up, I mean, I’m looking here. I was in the Army 

12 hours, the Navy 16. I’m probably not that much smarter than 

the Navy guys—I’d like to think maybe I am—but I mean, it 

doesn’t matter, I think, whether you’re in the Navy or Marines or 

Air Force. 

Ms. MELVIN. Exactly. 

24

Mr. BARRETT. Financial training is financial training. Wouldn’t 

you agree with that? 

Ms. MELVIN. Yes, I do. 

Mr. BARRETT. Okay, great. Thank you. Admiral, let’s talk a little 

bit about payday lending. And I know the interest can be high. 

Let’s look at a $200 loan for 2 weeks with a $30 fee. That’s about 

a 391 percent APR. 

But when you weigh that versus the cost of bounced checks, the 

problems it could have with your career and other things, what 

would these service men and women do, what alternatives do they 

have—and I know you mentioned one, and I don’t know if that is 

applicable in every situation, because I think you said when you 

change a duty station, and you certainly don’t change all the 

time—if payday lending is outlawed, what option do these service 

men and women have? I mean, where can they go for help from 

week to week if they get in a bind, or something like that? 

VADM DAWSON. A couple of things, sir. If they are really in distress, the answer to your question of where they can go, in the 

Navy and Marine Corps we have a wonderful organization called 

the Navy and Marine Corps Relief Society that is headquartered 

here in Washington, but has offices throughout where sailors and 

Marines serve. 

The head of that organization, ADM Abbot, would tell you that 

they’re probably the lender of last resort. And that’s a place that 

sailors and Marines and their families can turn to. And they can 

get a grant or a loan from them, if they’re in distress. That’s one 

place. 

I did a data—I asked my people recently to put together some 

information for me on how much could an E–4 borrow from a credit 

union, specifically, our credit union. And they ran some numbers 

for me. And essentially, let’s say that they—if they have a good 

credit rating, an E–4 can essentially borrow pretty much up to a 

year of his salary. 

Mr. BARRETT. Which is how much? 

VADM DAWSON. About $24,000. 

Mr. BARRETT. $24,000? 

VADM DAWSON. Yes. 

Mr. BARRETT. Okay. 

VADM DAWSON. And if he bought a home and had a mortgage, 

it could be up to much higher than that, $180,000 to $200,000. 

Mr. BARRETT. Sure. 

VADM DAWSON. That’s a lot of money. And—but what’s the safety net after that? That’s the question. And the safety net after that 

would be a payday lender, which as I mentioned earlier, is—I consider to be a spiral of doom, or the Navy Marine Corps Relief Society for, really, when they’re in distress. 

Mr. BARRETT. Well, and I’m not going to agree—I mean, I am 

going to agree with you that there probably are some payday lenders or some organizations out there that are not doing it like 

they’re supposed to be doing. I think that’s a given, and I think 

that’s one of the reasons why we’re here today. 

Would you agree, Admiral, that in any legislation that moves forward we need to make sure that we cover how to deal with, for lack 

25

of better words, unscrupulous payday lenders, or organizations that 

are trying to really take advantage of servicemen and women? 

VADM DAWSON. For sure. But 782 percent APR is pretty high. 

And I have no idea whether that office that I went into was scrupulous or unscrupulous. It’s just the way it was. 

I would like to make another point, though. I have made some 

discoveries over this year. I didn’t know anything about payday 

lenders before I started looking at it this year. We have 27 financial budget counselors. If our members are in trouble, they can call 

these folks, and they will work them through their difficulties. And 

they will help them work with other creditors and organize their 

affairs. And we do that at no charge to the member. 

I talked to my folks about payday lenders one day, and I said, 

‘‘How do you find them to deal with when you go to organize someone’s debts?’’ And they—very interesting observation. They said, 

‘‘We find that folks have multiple payday lenders that they use. 

And when we go to call them, we end up talking to a back shop 

that covers a whole network of different storefronts that have different names.’’ 

And also, we find that they very much know their members. 

They know who they’re dealing with. They know them by name, 

and they know them by situation. But it’s still a very high percentage that people have to pay when they go into that path. 

Mr. BARRETT. And— 

Chairwoman KELLY. Mr. Barrett? 

Mr. BARRETT. Yes, ma’am? 

Chairwoman KELLY. I’m sorry, but you’re out of time. 

Mr. BARRETT. Thank you. 

Chairwoman KELLY. You may submit that in writing, or if we 

have time, we will try to go back to it. Mr. McHenry? 

Mr. MCHENRY. Thank you, Madam Chairwoman. Thank you so 

much for having this committee hearing, and thank you for your 

leadership on this issue. 

And thank you for your testimony. I was able to listen to your 

testimony before I had to step out. And so I have missed some of 

the questions. So just nod and smile if I ask a similar one. That 

never happens on Capitol Hill, of course, asking similar questions. 

But I want to commend my colleague, Geoff Davis, for the legislation he has filed—and I am proud to be a co-sponsor of it—dealing with predatory lending of sorts against military personnel. 

You know, Ms. Walter described cracking down on a company 

that was putting into practice some unethical behavior that was 

really going beyond the bounds with military personnel, and I want 

to commend you for doing that. That’s a proper role that you play, 

and I appreciate you stepping up to do that. 

It’s also come to my attention that certain lending institutions, 

or certain financial institutions, are requiring service members to 

waive their rights under the Servicemembers’ Civil Relief Act. And 

I wanted to see if any of you three could address that as something 

that is ethical or legal. Any of you three? 

Ms. MELVIN. I am not aware of the circumstances of them 

waiving their rights. What I would say, though, is that my understanding of the Servicemembers’ Civil Relief Act is that there are 

specific rights that they do have, and I believe that the legislation 

26

that is being put forward to attempt to strengthen that hopefully 

would go a long way toward, in fact, preventing that type of situation from occurring. 

As I understand, the intent is to achieve more awareness, more 

information on the part of both the service member, as well as the 

actual lender. And in that case, hopefully that would lead to those 

kinds of circumstances not occurring. 

Mr. MCHENRY. Admiral? 

VADM DAWSON. I discussed this with my folks before I came 

here, and to the memory of everyone in the credit union, we have 

never had an issue with the SCRA. And I just don’t—I’m not aware 

of other instances where it’s occurred. I just don’t have any knowledge on that. But we meticulously follow the tenets. 

Mr. MCHENRY. Ms. Walter? 

Ms. WALTER. I don’t have any specific information about that, either. I will say that in the securities industry, which of course is 

of limited scope, we have a rule that requires people who operate 

in the securities industry to adhere to high standards of commercial honor and just and equitable principles of trade. 

And the advantage to having that kind of standard applied is 

that if people behave in a way that violates it, we have the ability 

to fine them, or in the extreme, to actually kick them out of the 

industry entirely. And I don’t think, in other industries, there are 

comparable protections, so you would be relying more on common 

law principles in those kinds of situations. 

Mr. MCHENRY. Okay. Ms. Melvin, actually, if I could come back 

to you about this, if this were occurring—how about I approach the 

subject this way—if this were occurring, where a financial institution is asking a service member to waive their rights under this 

Act, is that lawful? 

Ms. MELVIN. I would suspect not, but I would respectfully like 

to defer to our attorneys to make sure that I understood all of the 

requirements. My understanding is that there are specific rights 

that the service members have, and that the law protects them 

against violations of those rights. 

Mr. MCHENRY. And so it’s something that’s really protecting a 

class of people, and as an individual you can’t simply waive that 

right? 

Ms. MELVIN. I’m sorry, waive the right to be protected? 

Mr. MCHENRY. Yes. 

Ms. MELVIN. Again, I would want to consult with our legal attorneys on whether, in fact, they would. I’m not sure I would— 

Mr. MCHENRY. Perhaps I could send that to you in written form, 

and you and your staff could respond. 

Ms. MELVIN. Most certainly. We would be glad to. 

Mr. MCHENRY. I would appreciate that. You know, additionally, 

as the chairwoman said, this isn’t really about payday lending, this 

hearing, but you know, I do have concerns that some institutions, 

non-payday lenders, for instance, are able to get around the APR 

limits, or in order to get around disclosing what the APR is for a 

member of the military or the general public, but specifically the 

military, that by getting around that, they have all these hidden 

fees in there, such as insurance policies you have to purchase in 

order to gain lending. 

27

And I wanted to see if you could address that in any way, shape, 

or form. Admiral, you made a fatal error at testifying on Capitol 

Hill. You actually acknowledged my question. So I will direct it towards you. 

VADM DAWSON. I don’t really have any experience on that. I 

read some material the other day that said the average bank 

makes 50 percent of its income on fees. And—but as far as schemes 

to move around and manipulate people, I’m just not familiar with 

it. 

Mr. MCHENRY. Well, it’s probably a helpful thing, running your 

credit union. 

VADM DAWSON. Well, we don’t do it. And as Mr. Davis said, the 

biggest thing that we hold of value is our trust of our members. 

And if you violate that trust, it would be a terrible thing. So we 

work very hard at that. 

Mr. MCHENRY. Thank you, Congresswoman Kelly. 

Chairwoman KELLY. Thank you. Ms. Waters, would you like to 

ask some questions? 

Ms. WATERS. Yes. 

Chairwoman KELLY. We recognize you for 5 minutes. 

Ms. WATERS. I have a number of questions. Let me ask VADM 

Cutler Dawson whether or not credit unions are afforded space on 

every base. 

VADM DAWSON. I believe probably they are. There are a variety 

of credit unions that serve DoD, and there may be some exception 

to that, but I would say that on the majority of installations, a 

credit union is welcomed and has a relationship on the base. 

Ms. WATERS. And are the new service members given this information when they first come to the base, to let them know that 

there are credit unions on the base and financial services assistance to help them to understand lending and interest. Is something 

disseminated to them that would help them to know where to go 

to get help? 

VADM DAWSON. I don’t know for sure. I would say that it probably varies from base to base. We participate with many bases 

where we’re located. We’re on 22 Navy and Marine Corps bases, 

and we participate in financial seminars to answer those questions 

you just posed. 

Ms. WATERS. Well, let me just say this, Madam Chairwoman and 

Members, the payday loan operations and other sharks and predators that operate around bases usually have big, gaudy flashing 

signs. They are called green money stores, they are called, ‘‘Rapid 

Money,’’ I mean, all kind of names that attract attention. They 

have neon lights and sometimes they will offer a few other services 

to go along with it, to attract business. 

What I find is, oftentimes, people don’t know where the credit 

union is, but some bases have 50 payday loan operations surrounding the base. And they can’t miss them, even if they tried. 

And so, it becomes very attractive to someone who is making 

$24,000 a year, who runs out of money, to go to one. And when 

they find out how they operate, they may go to one, two, three, or 

four and pick up this $100 or this $200. And when they can’t pay 

it back, it gets rolled over, and it gets rolled over, and it gets rolled 

over again. 

28

And while our chairwoman made it quite clear we’re not here to 

criticize anybody—I, of course, appreciate the opportunity to be 

here, but I reserve the right to criticize anybody that I want to 

criticize. And I criticize payday loan operations and the way that 

they operate, and the amount of interest that they charge. 

Now, having said that, I am talking about any predatory lender. 

I don’t care what shape or form it comes in, whether it’s rent to 

own, or these people who allow, you know, people to pawn their 

automobile titles or these tax refund loan types. I think it’s the responsibility of the military to protect our servicemen and women, 

and I don’t think we’re doing a good enough job of it. 

We have young people who leave home at 18 or 19 years old. 

They’ve never had a checking account. They don’t know anything 

about borrowing money or managing money. And so, I think it’s the 

military’s responsibility to not only embrace credit unions and to—

these boards, disciplinary control boards have to get a little bit 

stronger. 

I think they should make it off limits some of these predatory operations, and I think they should be very aggressive in doing so. 

In addition to the disciplinary boards exercising their power and 

meeting and understanding what’s going on around them, I really 

do believe that the military can be more aggressive in helping to 

protect these young men and women from predators. 

I don’t care what shape or form they come in. I don’t care about 

limiting competition with these predators. If the credit unions are 

able to take over all of these financial services operations and literally close out these predators, I don’t care. I mean, you know, 

free market only goes so far. 

And to say that you have somebody who is exploiting and undermining the very people that we say we care so much about, who 

are preparing to go off to war, or who may be returning from war, 

or may be on active duty, to say, ‘‘Well, you know, let the market 

place work.’’ I think that’s irresponsible. 

So, I am pleased to be here today, and I am awfully appreciative 

for the opportunity, Madam Chairwoman, to be able to voice my 

opinion and to raise these questions. It’s an area that I am going 

to spend a little bit more time studying. 

And let me just close by saying we discovered that these predatory lenders come in all shapes, forms, fashion, and they’re more 

creative. One veteran, we read, received $80,000 in exchange for 10 

years of his benefits worth $300,000, according to the Law Center 

Study. Somebody found a way to buy the benefits of a veteran. 

So, you have people who don’t give a darn about the future of 

these people, they don’t give a darn about these young people who 

come with very little knowledge or understanding. 

And I’m not talking about young people from any one area of the 

country. We have young people from the urban areas, but God 

bless some of those who come from the rural area, I mean, who 

have never interacted with some of these operations. 

So, I just want my members to feel a little bit more passionate 

about it, as we talk about these things, and I want the military to 

feel more responsible and take stronger steps to do something 

about these issues. 

29

And having said that, Madam Chairwoman, I will thank you for 

the time, and I yield back the balance of my time. 

Chairwoman KELLY. We welcome your being here. When I 

opened this hearing, I spoke of the fact that we were focused on 

getting information. We need information from you about whether 

or not we should take a deeper look. I think that question has been 

answered. The needs of the service people are there. And the 

things we’re talking about are the needs for the very people who 

are at the margins of what—of being involved in a standardized financial service in this Nation. 

So, I believe we will probably be holding a second hearing on 

this. So right now, let me just note that some members have additional questions for this panel, and they may wish to resubmit 

them in writing. 

So, without objection, the hearing record will remain open for 30 

days for the members to submit their written questions to these 

witnesses, and to place the responses in the record. 

And with that, we thank you. We are very grateful for your presence here today. And thank you for being here. This hearing is adjourned. 

[Whereupon, at 4:35 p.m., the subcommittee was adjourned.] 

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A P P E N D I X

May 18, 2006

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