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[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

 
                         ALLEGED VIOLATIONS OF
                  THE SERVICEMEMBERS CIVIL RELIEF ACT

=======================================================================

                                HEARING

                               before the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            FEBRUARY 9, 2011

                               __________

                            Serial No. 112-1

                               __________

       Printed for the use of the Committee on Veterans' Affairs

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                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

GUS M. BILIRAKIS, Florida            BOB FILNER, California, Ranking
CLIFF STEARNS, Florida               CORRINE BROWN, Florida
DOUG LAMBORN, Colorado               SILVESTRE REYES, Texas
DAVID P. ROE, Tennessee              MICHAEL H. MICHAUD, Maine
DAN BENISHEK, Michigan               LINDA T. SANCHEZ, California
ANN MARIE BUERKLE, New York          BRUCE L. BRALEY, Iowa
JEFF DENHAM, California              JERRY McNERNEY, California
BILL FLORES, Texas                   JOE DONNELLY, Indiana
TIM HUELSKAMP, Kansas                TIMOTHY J. WALZ, Minnesota
BILL JOHNSON, Ohio                   JOHN BARROW, Georgia
JON RUNYAN, New Jersey               RUSS CARNAHAN, Missouri
MARLIN A. STUTZMAN, Indiana
Vacancy
Vacancy

            Helen W. Tolar, Staff Director and Chief Counsel

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                            February 9, 2011

                                                                   Page
Alleged Violations of the Servicemembers Civil Relief Act........     1

                           OPENING STATEMENTS

Chairman Jeff Miller.............................................     1
    Prepared statement of Chairman Miller........................    62
Hon. Bob Filner..................................................     2
    Prepared statement of Congressman Filner.....................    63
Hon. Gus M. Bilirakis, prepared statement of.....................    63
Hon. John Barrow, prepared statement of..........................    64
Hon. Marlin A. Stutzman, prepared statement of...................    64
Hon. Russ Carnahan, prepared statement of........................    65

                               WITNESSES

U.S. Department of the Treasury, Hollister K. Petraeus, Team 
  Lead, Office of Servicemember Affairs, Consumer Financial 
  Protection Bureau Implementation Team..........................    44
    Prepared statement of Mrs. Petraeus..........................    75
U.S. Department of Defense, Colonel Shawn Shumake, (USA), 
  Director, Office of Legal Policy, Office of the Deputy Under 
  Secretary of Defense...........................................    47
    Prepared statement of Colonel Shumake........................    78

                                 ______

Harvey & Battey, PA, Beaufort, SC, William B. Harvey III, Esq....    10
JPMorgan Chase & Co., New York, NY, Stephanie B. Mudick, 
  Executive Vice President, Office of Consumer Practices.........    27
    Prepared statement of Ms. Mudick.............................    71
Richard A. Harpootlian, P.A., Columbia, SC, Richard A. ``Dick'' 
  Harpootlian, Esq...............................................     4
    Prepared statement of Mr. Harpootlian........................    65
Rowles, Captain Jonathon, (USMC), and Mrs. Julia.................     5

                       SUBMISSIONS FOR THE RECORD

Jones & Odom, LLP, Shreveport, LA, Colonel John S. Odom, Jr., 
  USAF (Ret.) Esq., statement....................................    80
Reyes, Hon. Silvestre, a Representative in Congress from the 
  State of Texas, statement......................................    85

                   MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Questions and Responses for the Record:
    Hon. Bob Filner, Ranking Democratic Member, Committee on 
      Veterans' Affairs, to Naomi Gendler Camper, Managing 
      Director and Head of Federal Government Relations, JPMorgan 
      Chase, letter dated February 15, 2011, and JPMorgan Chase's 
      responses..................................................    86
    Hon. Bob Filner, Ranking Democratic Member, Committee on 
      Veterans' Affairs, to Hon. Robert M. Gates, Secretary, U.S. 
      Department of Defense, letter dated February 15, 2011, and 
      DoD responses..............................................    88
    Hon. Bob Filner, Ranking Democratic Member, Committee on 
      Veterans' Affairs, to Elizabeth Warren, Assistant to the 
      President and Special Advisor to the Secretary of the 
      Treasury, The Consumer Financial Protection Bureau, letter 
      dated February 15, 2011, and Treasury's responses..........    99

                         ALLEGED VIOLATIONS OF
                  THE SERVICEMEMBERS CIVIL RELIEF ACT

                              ----------                              

                      WEDNESDAY, FEBRUARY 9, 2011

                     U.S. House of Representatives,
                            Committee on Veterans' Affairs,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:36 a.m., in 
Room 334, Cannon House Office Building, Hon. Jeff Miller 
[Chairman of the Committee] presiding.

    Present: Representatives Miller, Bilirakis, Stearns, 
Lamborn, Benishek, Buerkle, Huelskamp, Johnson, Runyan, 
Stutzman, Filner, Michaud, McNerney, Donnelly, Walz, and 
Barrow.

    Also present: Representative Miller of North Carolina.

              OPENING STATEMENT OF CHAIRMAN MILLER

    The Chairman. Good morning everybody and welcome to the 
first oversight hearing of the House Committee on Veterans' 
Affairs for the 112th Congress and I appreciate everybody's 
attendance today. As we begin our important work on behalf of 
America's veterans and our servicemembers, I would like to 
point out that the veterans are well represented on this 
Committee, and while Members look after the interest of 23 
million U.S. veterans and their families, some 12.2 million, 
over half of America's veterans reside in the States that we 
represent. I am especially proud of 110,000 veterans that live 
in the first Congressional District of Florida, the Florida 
Panhandle.
    And that responsibility brings us to the subject of today's 
hearing. I know the Members on both sides of the aisle are 
concerned about today's topic, but consistent with past 
practice, I would like to limit opening remarks to myself and 
the Ranking Member so that we may have more time to hear from 
our witnesses, and of course any Member is able to submit their 
opening remarks for the record.
    The Servicemembers Civil Relief Act (SCRA) has existed in 
various forms since the War of 1812, and each version has 
shared a singular goal, to protect those who protect us.
    The 2003 revision, which I cosponsored and the amendments 
we have made since, continue that tradition. I am committed to 
ensuring SCRA remains a relevant and viable tool and I know the 
Ranking Member and the rest of this Committee share in my 
commitment.
    My goal for this oversight hearing is to determine whether 
or not the SCRA afforded our servicemembers and their families 
are meeting their needs. We are all aware of related matters 
pending before the court. This is not intended to be a trial of 
any sort. I am not seeking to prejudice that or any future 
action in any direction, at the same time it is important to 
recognize that this Committee has a duty to ensure that the law 
is working for active-duty servicemembers.
    I have said recently and I will say it again, our Nation's 
war fighters and their families should not have to fight to 
keep their piece of the American dream while fighting on 
foreign soil defending the fundamental right that each and 
every one of us has.
    I want to thank our witnesses for appearing before us. 
First I want to thank Captain Jonathan Rowles and his wife 
Julia for their persistence in exercising their rights.
    Second, I want to thank JPMorgan Chase for reaching out to 
us, and more importantly, for admitting its mistakes and then 
making efforts that it has made to rectify them.
    I hope our witnesses from the U.S. Department of Defense 
(DoD) will be able to assure us of the effectiveness of their 
program to educate servicemembers on their rights under SCRA, 
and I also look forward to hearing from the newly established 
Consumer Financial Protection Bureau about how it can 
contribute to preventing similar occurrences in the future.
    What we have here now is what some might call a teachable 
moment. For the finance services industry, the lesson is to 
understand the Servicemembers Civil Relief Act and to undertake 
the same sort of review as has Chase to ensure its compliance. 
For DoD, it is time to review whether the military services' 
SCRA training programs are getting the job done. Finally, 
servicemembers are ultimately responsible for understanding 
their rights and responsibility under SCRA and holding their 
financial institutions accountable. Today we will be asking and 
listening for ways to ensure that these goals are in fact being 
met.
    Before we begin I ask unanimous consent that all Members be 
allowed to sit at the dais and be permitted to ask questions. 
Hearing no objection so ordered.
    I want to extend a warm welcome to our colleague, Brad 
Miller, from North Carolina. Mr. Miller drafted legislation 
last Congress on SCRA and I am happy he is here with us today.
    I now recognize the Ranking Member, my good friend, Mr. 
Filner, for his opening remarks.
    [The prepared statement of Chairman Miller appears on p. 
62.]

                OPENING STATEMENT OF BOB FILNER

    Mr. Filner. Thank you, Mr. Chairman, I appreciate you 
holding this hearing today. I know you have a rigorous 
oversight schedule and I am glad we are undertaking this issue 
for our first hearing.
    I would like to ask unanimous consent that Mr. Reyes may 
introduce a statement for the record. Unfortunately his wife 
had an accident so he is with her this morning. He planned to 
be here today and has a statement to introduce into the record.
    The Chairman. Without objection.
    [The prepared statement of Congressman Silvestre Reyes 
appears on p. 85.]
    Mr. Filner. This is of course a very important issue as the 
Chairman stated and we have to monitor it, especially as our 
foreclosure crisis continues to unfold.
    I want to thank all of the panelists here and especially 
those who have traveled great distances.
    We want to find out why banks such as JPMorgan Chase have 
overcharged our military families who are actively engaged in 
defending our Nation.
    While we want to know how these charges happen, we also 
want to know what is being done to prevent them from occurring 
again.
    As foreclosure filings continue to rise, the effect on 
Americans has been acute, with my State of California having 
one of the most affected populations. According to RealtyTrac, 
California metro areas such as San Diego have been seriously 
affected by these foreclosures. Like many of our Nation's 
heroes, and most Americans, see homeownership as an integral 
part of the American dream. Unfortunately, for a number of our 
military families that part of the American dream has become a 
nightmare when JPMorgan foreclosed on their homes.
    It is my sincerest hope that JPMorgan Chase will be taking 
immediate corrective steps to restore these families to their 
homes as soon as possible. I have grave concerns for as you 
mentioned Captain Rowles and his wife who are here. They have 
been through a 5-year nightmare with this bank. It is 
unconscionable that any family would have to endure this kind 
of treatment, but especially a military family.
    For many of our returning servicemembers and veterans, the 
stress of what they have gone through by serving in a war may 
still affect them, that is why the protections under the 
Servicemembers Civil Relief Act are there to provide protection 
for all of our military families.
    So, Mr. Chairman, I thank you for your commitment to stand 
up for veterans and their families by making sure that we take 
all of the steps necessary today.
    I look forward to hearing the testimony and I want to thank 
those families who are here and have stood with our Nation. Now 
it is time for our Nation to stand with you.
    I yield back, Mr. Chairman.
    [The prepared statement of Congressman Filner appears on 
p. 63.]
    The Chairman. Thank you, Mr. Filner, and I will now ask the 
first panel if you would please approach the head table.
    With us today we have co-counsels representing Captain and 
Mrs. Rowles, Mr. Dick Harpootlian and Mr. William Harvey. They 
are accompanied by Captain and Mrs. Rowles. And Mr. 
Harpootlian, we appreciate you bringing the Rowleses and coming 
to testify before this Committee.
    Your complete written statement will in fact be entered 
into the record and you are recognized. If you could real quick 
right in front of you there should be a button to turn the 
microphone on.

STATEMENT OF RICHARD A. ``DICK'' HARPOOTLIAN, ESQ., RICHARD A. 
    HARPOOTLIAN, P.A., COLUMBIA, SC; ACCOMPANIED BY CAPTAIN 
   JONATHON ROWLES (USMC), AND JULIA ROWLES; AND WILLIAM B. 
      HARVEY, III, ESQ., HARVEY & BATTEY, PA, BEAUFORT, SC

              STATEMENT OF RICHARD A. HARPOOTLIAN

    Mr. Harpootlian. Thank you, Mr. Chairman. It is an honor to 
be here today with the Rowleses. It is an honor to have met 
them and Lieutenant Colonel Sarah Letts-Smith, and Marine 
Corporal Hupfl who Bill Harvey and I represent, all three of 
them.
    And since we have become involved in this case we have met 
and talked to numerous other members of our military services, 
fighting men and woman who have been through a living hell. 
While they have been trying to fight our enemies, they have had 
to fight a second front on the home front. They have been 
subjected to some of the most degrading, intimidating conduct 
that anybody--anybody that in my 40 years of practicing law 
have been subjected to.
    My written statement details what the Rowleses went 
through, 5 years of it.
    If you watched The Today Show on NBC this morning you saw 
Lieutenant Colonel Letts-Smith describe what she went through. 
And what they went through was not--and I have read the 
statement of Chase--human error, whoops, we found out we were 
taking money we shouldn't have taken, we subjected these people 
to illegal conduct, we made a mistake, we are going to correct 
it.
    I was a State prosecutor for 12 years in South Carolina, 
every person we ever caught breaking the law, taking something 
that wasn't theirs was more than willing to give it back, give 
a mea culpa and go the other way--beyond their way.
    I made some suggestions in terms of making this law tougher 
so that this isn't a debit on a balance sheet for a big bank so 
that they are deterred in the future from treating our American 
heroes the way they treated these folks.
    Now one of those is to make it a felony rather than a 
misdemeanor. The second thing is to make the sanction stiffer. 
And third to give attorneys' fees. And attorneys' fees in many 
of these cases--we are in a class action--many of them are 
individual cases much like a 1983 case where the damages may 
only be--the financial damages may only be $1,000, but you want 
to incentivize lawyers to get involved in representing our men 
and women in the military who have been wronged.
    It is amazing to me--and I know Bill Harvey who has a son 
that is a helicopter pilot for the Navy, that anybody, let 
alone these folks, are treated in this fashion.
    Now I talked to probably 100 military personnel that called 
me or e-mailed me that have been treated much the same way, and 
came to the conclusion that as you talk to corporate 
representatives, as you talk to these banks--not just Chase, 
but all of them--they treat our American fighting men and women 
as if they are insects. I mean that may be too strong a word, 
but you have seen the written statement and you can hear from 
those folks in a moment, they went through hell. This guy is 
deployed defending us. Sarah Letts-Smith is in Iraq, two tours. 
They took her house. Put her kids and husband out on the 
street.
    This is like a bad movie, except they are living it. While 
they are trying to defend us they are catching friendly fire, 
so to speak, from this country.
    Now philosophically--we talked about this at dinner last 
night--and the Captain is far more gentle about this than I am. 
He does believe the criminal penalty should be increased, and 
he wants Chase prosecuted, and he has spoken to our U.S. 
Attorney in South Carolina, Bill Nettles, and obviously I am 
not privy to what the U.S. Attorney's Office and U.S. 
Department of Justice (DOJ) is doing, but I can tell you that 
that conversation went very well, and Bill Nettles has also 
spoken to Sarah Letts-Smith.
    And so there is perhaps some criminal prosecution going 
forward, but the penalties need to be stiffer, the banks need 
to understand that they are not going to have their way with 
our American fighting men and women.
    The last thing I would say is this. The United States 
Supreme Court, within the last 24 months in a case called 
Citizens United, decided that corporations have civil rights, 
the constitutional right to free speech. Well, with the 
constitutional right to free speech goes the constitutional 
responsibility that every citizen has. Patriotism is defined by 
the dictionary as loyalty to the country and a willing to 
sacrifice.
    These corporate citizens have lost--if they ever had it--
the willingness to sacrifice a penny for our fighting men and 
women and to do what these folks do every day for a hell of a 
lot less money than the bonuses they are getting on Wall Street 
on the banks.
    Thank you.
    [The prepared statement of Mr. Harpootlian appears on p. 
65.]
    The Chairman. Thank you, Mr. Harpootlian. And Captain and 
Mrs. Rowles, again, thank you for your persistence without 
which really several thousands servicemembers may not have 
benefited from SCRA.
    In addition to questions that we are going to have for your 
counsel, I may have a couple questions for you and you may 
answer them if you want to. If you don't feel comfortable 
answering, you are welcome to refer them to your counsel, that 
would be entirely appropriate.
    And I would like to ask, do you have a statement that you 
would like to give us or a few words before we begin 
questioning Mr. Harpootlian? Captain.
    Captain Jonathan Rowles. I do not, sir. Mr. Harpootlian 
said everything.
    The Chairman. Mrs. Rowles.
    Mrs. Julia Rowles. I am fine. Mr. Harpootlian has covered 
pretty much our battle thus far.
    The Chairman. Thank you.
    I will ask if I can the first question of both of you, and 
again, you can answer the question or Mr. Harpootlian can 
answer it for you.
    When did you first realize that Chase had violated SCRA? 
Did you notify the Marine Corps legal staff? And if you did, 
what action did they take on your behalf?
    Captain Jonathan Rowles. Yes, sir. I first learned about 
SCRA while I was at Officer Candidate School (OCS) and my 
rights thereof.
    Afterward in 2008, after lengthy letters and calls and 
whatnot, I did go to the legal staff at Naval Air Station 
Pensacola where I was a flight student at the time. They looked 
over the case, but they were unsure of how to proceed, and due 
to the volume of other cases that they had at the time they 
just did not have the resources to pursue it, at which time we 
were told that we were doing pretty much everything we could, 
sir.
    The Chairman. And you say you were first educated about it 
at OCS?
    Captain Jonathan Rowles. Yes, sir. We got a class while we 
were at OCS there in Quantico, Virginia, on our rights to SCRA.
    The Chairman. Can you give us some idea of the reaction 
when you contacted JPMorgan Chase, and how they handled the 
situation? And I am sure you both had conversations with them, 
so feel free to elaborate.
    Captain Jonathan Rowles. Yes, sir. I would characterize it 
as delayed and confused. I was asked to fax my orders several 
times back and forth. And being in the field you would have 
to--you would fax your orders, you would go away for a week or 
2, you would come back to find they would ask for it again. You 
get a statement that is not correct so you call to recognize 
it. They say they need your orders again. At that point, I got 
a letter from my commander as well just to emphasize the point 
that I was active duty and sent my orders along with that as 
well, sir.
    Mr. Harpootlian. Mr. Chairman, I think if Mrs. Rowles could 
speak. She was pregnant with their second child, he is 
deployed, the child was born prematurely. She was having to 
deal with the birth of a child alone and Chase at the same 
time, and she is a little more emotional about it than he is.
    Mrs. Julia Rowles. Yes, sir. Chase always had a problem 
with acknowledging any of our evidence or our homework I guess 
you would say in our SCRA benefits.
    We would instruct them that we are doing everything we 
could. We did make our payments every month on time in the full 
amount that they were supposed to be for, but however every 
month our statements were different.
    While Jonathan is away either in training, flight school, 
or any of his Marine Corps duties, I was left at home to deal 
with Chase and their problems.
    We have two children, one of them was born prematurely and 
had to have a lengthy stay in the hospital, but yet at the same 
time I am dealing with Chase and getting their phone calls, 
getting their harassment around the clock.
    Jonathan missed 2 hours of our daughter's birthday party 
because Chase simply would not hang up the phone until he made 
a payment in which we had already paid our mortgage.
    This constant harassment and constant ignorance for the 
SCRA benefits to servicemembers is ridiculous and it is 
actually--it is very upsetting that for 5 years we have had to 
educate Chase as to the benefits that we are--we were privy to.
    The Chairman. Entitled to.
    Mrs. Julia Rowles. Entitled to, I am sorry.
    The Chairman. Did they ever acknowledge the fact--I mean 
obviously if they kept asking for orders they must have known 
that there was something that they had to abide by?
    Mrs. Julia Rowles. We were--sir, we were sending them 
orders quarterly, which we later found out we did not have to 
do. Once you send in orders and verify that you are indeed 
active-duty military, we were acknowledged, we were granted the 
permissions under the SCRA, that should have been it until his 
contract expired and had he continued military service.
    We had done that time and time again. And it is very--we 
didn't have to do this. It was harassment even without 
collection calls constantly sending them, I guess his orders 
and all other paperwork, was harassment.
    The Chairman. I have some other questions that I want to 
ask, but I want to go ahead and turn the microphone over to the 
Ranking Member, Mr. Filner.
    Mr. Filner. Again, thank you for being here. I know it is 
not easy sometimes to do this and talk about your personal 
situation, but I think you are going to improve the lives of 
tens of thousands of people, so we really do appreciate it and 
we are sorry you are going through all of this.
    The fact that we have some publicity for what you are going 
through means we will have some changes. There are literally 
tens of thousands of other people, many on active duty, who the 
banks are putting through hell.
    The so-called loan modification programs don't work, people 
are having to provide this kind of information over and over 
and over and over again.
    I have been on the phone with my constituents trying to 
call the major banks and they put you on hold for almost an 
hour at a time and switch you around to different people. After 
you think you got to right person, they take your information 
and then say they are the wrong person. Or, the next time you 
call, you get a different person who says, ``I don't know what 
that person said, it is not in the computer so tell me your 
story again.'' I mean it goes on and on and on. People get so 
sick of fighting it that they just put their keys on the 
kitchen counter and leave. You have fought hard and that is 
important so we thank you for that.
    But what is going on around the country is just tragic, it 
is immoral, I think it is illegal not only for those who are 
covered by SCRA, but for everyone.
    The banks have packaged, repackaged, and resold so much 
that nobody knows who the owner of the note is. I don't think 
any court has really approved any of the foreclosures that have 
come before them, but it is impossible, to know who really owns 
the loan. I think people should just stay in their house, 
frankly.
    I know the Chairman will be very surprised that I led a 
little demonstration around a house in my district that was 
going to be foreclosed on--we believed illegally. The sheriff 
was going to show up at 6:00 in the morning, so we had a couple 
hundred people surround the house at 5:00 in the morning. I was 
on the front steps just waiting to be taken away, because I 
thought a ``sit in'' at a house like that would spread across 
America like the ``sit ins'' during the '60s for racial 
justice. But one of the biggest banks in the world and the 
sheriff just backed down from all the publicity they were going 
to get if they foreclosed on this woman who had two kids who 
were very sick. It was a tragic story.
    I think what is going on all around America is wrong, 
tragic, and I am glad that you can be here to highlight some of 
that.
    The Chairman. Would the gentleman yield just a minute?
    Mr. Filner. Yes, sir.
    The Chairman. I just want to ask you a question. This may 
be a question you are going to ask because you just----
    Mr. Filner. Please.
    The Chairman. Was JPMorgan Chase the company that you 
actually got your loan through or was your loan sold to them?
    Captain Jonathan Rowles. My loan was sold to them, sir.
    The Chairman. Okay, thank you.
    Mr. Filner. And we don't know if they sold that to somebody 
else, right?
    Captain Jonathan Rowles. No, sir.
    Mr. Filner. I doubt if they owned it, but we will see when 
they come here.
    I just want to again thank the counsel. You have made some 
very important and specific recommendations for us.
    Mr. Harpootlian. Thank you.
    Mr. Filner. I think you gave us a lot of guidance. It is 
some of the best testimony I have ever heard here because you 
told us what we need to do.
    By the way, if we increase the penalties, and I agree with 
you, can they refuse to handle loans in such a situation so 
they will never be subject to punishment. Do we have to do 
something about that too?
    Mr. Harpootlian. Well, I mean I think obviously they don't 
have to as we know now they don't loan to people they don't 
want to loan to, they don't modify if they don't want to.
    You know, I believe there are honest, well meaning, good 
people. Many of the small banks are modifying loans.
    Mr. Filner. Right, the small banks.
    Mr. Harpootlian. The small banks are doing it. I mean they 
are not driven by the $100 million bonuses, so the marketplace 
is a wonderful place, and I think it will be--if they don't 
want to loan money because they think they may be violating a 
Federal law and go the jail for it then they shouldn't be in 
the banking business.
    Mr. Filner. But we may have to say something for an active-
duty application to be creditworthy with a lender.
    Mr. Harpootlian. Well, that is certainly within your 
purview.
    Mr. Filner. I just am afraid that they will just take the 
path of least resistance and not give loans at all.
    Mr. Harpootlian. Well, remember these folks under the law 
buy these houses before they go in.
    Mr. Filner. I see.
    Mr. Harpootlian. So they are not active duty at that time.
    Mr. Filner. Okay. That's good.
    I really do appreciate your recommendations and I 
appreciate your persistence and your courage for the Rowleses.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much. We will take questions 
from Members who were here as the gavel went down. So Mr. 
Lamborn, you are first.
    Mr. Lamborn. Thank you, Mr. Chairman, and thank you for 
your service to our country, Captain Rowles and to Ms. Rowles, 
thank you for your sacrifices. You make sometimes just as many 
sacrifices as a spouse and mother and wife that your husband 
does, so we appreciate that.
    I guess for Mr. Harpootlian, to make sure that this kind of 
thing doesn't happen again you said on the SCRA that you think 
the criminal penalty should be increased. Should there be 
anything else on the civil side that should be done as well?
    Mr. Harpootlian. Sure. Right, I mean the criminal penalties 
need to be increased and Congress all the time passes mandatory 
minimums for somebody that makes $100 off some crack. I suggest 
that you need to look at the criminal penalties here as if they 
were selling crack.
    As to civil penalties I think they need to be increased, 
and I have said that if they voluntarily report that they may 
get some credit for that so they are not under a--I mean this 
thing has been going on at Chase for 5 or 6 years at least, and 
we submit--we haven't done any discovery in our case, it is 
stayed pending the Fourth Circuit's decision on private cause 
of action--but we submit that obviously somebody with the kind 
of calls they were getting and dozens of other people were 
getting and the complaints they were making had to work its way 
up to somewhere, and those folks need to understand they have 
an exposure to going to jail.
    I was a State prosecutor for 12 years. Let me tell you 
something, anybody wearing a white collar thinks about that 
before they violate the law, and if you have a sanction that 
sends that message I think the banking industry will look at 
what they do or are doing when they get a complaint and try to 
correct it immediately rather than sitting on it for 5 or 6 
years.
    As to civil, again, I think they need to be increased to 
half a million dollars, and you need to give--if this were not 
a class action, an incentive for somebody to represent the 
Captain or people like him on an individual case by awarding 
attorney--or allowing a court to award attorneys' fees if they 
find it to be appropriate.
    Mr. Lamborn. And I am not wanting to make any comment on 
the ongoing action, you know, the courts will sort that out as 
this action goes forward, I am just talking about 
prospectively.
    Mr. Harpootlian. Absolutely.
    Mr. Lamborn. Yeah.
    Mr. Harpootlian. Absolutely. And Bill Harvey and I have 
talked about this at great length that prospectively there are 
a lot of things that can be done and where we are in a case 
that is pending in court waiting for the Fourth Circuit to 
decide whether the amendments you all made last year indicating 
there is a private cause of action are only prospective or just 
a clarification. That is pending in the Fourth Circuit right 
now.
    Mr. Lamborn. And Mr. Harvey, would you have anything else 
to add before I close on the civil side of things? You have 
spoken eloquently about what you think should be happening on 
the criminal side of the statute.
    Mr. Harvey. Well, the penalties on the civil side we 
believe need to be increased. So many people--you read JPMorgan 
Chase's statement where the average damage is $70 that they are 
sending back. Seventy dollars really doesn't incentivize many 
attorneys to handle a private cause of action case such as us.
    If you increase the civil penalties, you increase the 
attorneys' fees, I think it would help people like the Rowleses 
be able to prosecute their own rights.
    Mr. Lamborn. Now and for either one of you, my 
understanding from practicing law years ago is that the Fair 
Debt Collection Practices Act doesn't allow creditors to call 
in the middle of the night or keep calling when someone says 
please don't call me again. There are remedies already in law 
right there, including Colorado. Prospectively does this 
statute need work on that front as well?
    Mr. Harpootlian. Well, of course we brought a class action 
and Congress for whatever reason limited class actions to a 
gross of $500,000 per class. Now individually you could do that 
and you can get attorneys' fees for that if they violate the 
Fair Debt Collection Act. But in this context if there are 
5,000 of them out there it would be, you know, $100 a piece in 
damages under the Fair Debt Collection Act. And we are looking 
at that, but our case is stayed and we need to see what the 
Fourth Circuit says about the private cause of action under 
this Act.
    Mr. Lamborn. Okay. Thank you gentlemen. Once again thank 
you for your service.
    Mr. Chairman, I yield back.
    The Chairman. Thank you. Mr. Michaud.
    Mr. Michaud. Thank you very much, Mr. Chairman, Mr. Ranking 
Member for having this hearing today.
    I have a couple of questions. Mrs. Rowles, you mentioned 
that you have had several conversations with JPMorgan. After 
your several conversations, have you ever talked to anyone in 
management, and if so what was their response?
    Mrs. Julia Rowles. Thank you, sir, that is a wonderful 
question. And yes, we have tried numerous times to speak with 
anybody in management. There were occasions where we were told 
we were speaking with management, and to our surprise, 
management did not know how to fix our problem either.
    Jonathan and I traveled to Colorado from South Carolina 
briefly right before he deployed in July because we thought we 
found a mortgage branch manager that said he could help us. And 
after sitting with him for hours on two different dates, he 
threw up his hand in the air and said I have no clue how to fix 
your situation, there is nothing I can do, sorry. And that was 
pretty much the consensus of every manager we spoke with.
    I would spend hours trying to find people that actually 
would talk to us and that would not just write down our name 
and number and say that they would call us back. We have spoken 
with managers in South Carolina to Texas to California, nobody 
knew how to fix our problem.
    Mr. Michaud. Okay, thank you.
    For the attorney, it seems hard to believe that JPMorgan is 
the only bank that is doing this. Are you aware of any other 
institutions that are doing this?
    Mr. Harpootlian. Well, there have been news reports of, I 
think, other institutions. And your last witness today from 
Louisiana will explain. He is suing a whole lot of banks on a 
whole lot of these violations.
    So we have been focused on our case which is Chase, 
because, you know, I am a three-man law firm, Bill is a small 
law firm, we are taking on a behemoth so we are keeping our eye 
on the ball.
    But again, your last witness today a gentleman from 
Louisiana is suing a bunch of them and I think he can tell you 
in chapter and verse who is doing what. But it seems to be an 
industrywide--and that is why I talk about this corporate 
citizenship--there is no sense of them having any patriotism. I 
mean these folks don't care about, or at least they exhibit no 
care about, our fighting men and women, and I deem that to be 
unpatriotic.
    So if you are going to get the rights of free speech, which 
they were given by the Supreme Court, you should have the 
responsibility of supporting this country when it is in need.
    And by the way, when the banks needed help, everybody here 
helped them, everybody here helped them, and now these folks 
need them. They have enough to give them the help and now our 
fighting men and women need help and they are saying we are 
sorry we are going to give you back the money plus seven and a 
half percent interest, no harm, no foul, and that ain't enough.
    Mr. Michaud. Another question, and I don't know if it is 
hard to prove, but when you look at the fact that suicide rates 
among our active military personnel have increased dramatically 
because of what is happening in Iraq and Afghanistan, and also 
if you look at some of the concerns that those who have 
committed suicide a lot of it actually deals with financial 
issues and problems at home.
    My question to you is since Citizens United gave, you know, 
their rights to, you know, corporations, and since I am 
pretty--well, I don't know for sure--but you probably could 
assume that some of those suicides have been because of 
financial problems that could ultimately have led to banks such 
as JPMorgan and others doing what they have done to our fine 
men and women who are wearing the uniform, is there any--is 
this--can you comment on that as far as suicides?
    Mr. Harpootlian. Well, I know this from talking to dozens 
of military men and women that called me and Bill after The 
Today Show ran the initial spot. Everyone of them had a story. 
I know I talked to one guy who was in Afghanistan calling the 
bank because his wife couldn't get any answers. Using--and they 
get--I mean I am not in the military, but they get a card with 
so many minutes that they can call home on. Sarah Letts-Smith, 
one of the plaintiffs here, in Iraq having to use the time she 
ought to be talking to her husband and four kids to call home. 
Now Sarah is a tough cookie, but she even was brought to tears 
when she talked about this.
    So does it have an emotional impact? No question about it. 
Is that what you want somebody that is in an F-18 over 
Afghanistan or over Iraq, is that--you want them worried about 
that, that kind of pressure or is it patrolling Afghanistan or 
one of the other spots that we are in is? Is that what you want 
them focused on?
    I am not a psychiatrist, but I will tell you every one of 
these folks, and I mean Sarah and Jon are very stoic here this 
morning, but when you talk to them about what they went 
through, and these are tough people and it brings them to 
tears.
    So I think it has an emotional impact, I think it is 
deleterious to our ability to win. I mean if you get it down to 
brass tacks. You don't want these folks worried about is the 
wife and kids going to be on the street as Sarah Letts-Smith 
found out. They evicted and threw her family on the street, 
foreclosed her house. The Act is clear they could not do that. 
They violated. Chase did that. And they have said they have 
given or rectified it with 12 people; 12. We know now there is 
maybe 15 to 20. All these folks went through hell.
    And again, whether it caused suicides or not I don't know, 
what I do know is when you are a weapons officer on an F-18 and 
you are flying in dangerous situations you want to be focused 
on that and not about whether your pregnant wife at home who is 
having a baby and getting calls at 3 o'clock in the morning 
from collection people is going to be thrown out on the street.
    I mean it is simple. And that is what the Act is about and 
this Committee has spoken clearly about that last year and 
every year. I mean as I have said in my statement historically 
going back to the 1919, 1918, this Congress has made it clear 
they don't want that to happen, it is happening, and there is 
only one reason for it, greed.
    So I encourage you to take the action to make sure that 
there is a consequence for that kind of conduct.
    Mr. Harvey. And Congressman, if I may add, Congressman 
Filner spoke about modifications, loan modifications. A lot of 
times these servicemen and women, they are on their second and 
third tour, the value of the house has gone down, they need a 
modification. They go to these banks, you know, they are 
getting paid fighting wages instead of their wages that they 
can earn at home and yet the banks turn them down almost 
categorically for modifications.
    This Committee might consider something to do with loan 
modifications for active servicemen and women.
    The Chairman. Dr. Benishek, do you have a question?
    Mr. Benishek. Yes, I do. I understand you went to the court 
or the legal assistance that you had through the Marines?
    Captain Jonathan Rowles. Yes, sir, every Marine is afforded 
the opportunity to meet and talk with lawyers about various 
legal situations at the base they are at.
    Mr. Benishek. Did they seem to understand this bill here 
that afforded you this protection, and do they offer the 
services of contacting the banks for you? I mean it seems to me 
you started with these people and they didn't help you, then 
you had to contract your own lawyers to work it out.
    Captain Jonathan Rowles. Yes, sir. We presented all the 
evidence that we had there in 2008 to the lawyers at my duty 
station, and I just don't think it was in their lane, sir, and 
they didn't know a lot about the intricacies of it. And I had 
explained what I had been doing with letters and phone calls 
and searching for various people, and at that time they 
believed that was about all I could do. And so for a good while 
I continued to believe that that was all I could do, but I 
continued to make the phone calls and letters anyway until 
they--Chase threatened to affect my credit at which point--
which is a big deal when you hold a security clearance--and 
that is when I took action to seek private counsel.
    Mr. Benishek. All right. It just seems to me that there 
should be some method through the military in order to obtain 
your rights through their counsel. I am just a little bit 
chagrined that you had to, you know, suffer through this 
prolonged process on your own basically.
    Mr. Harpootlian. Well, sir, the problem is the military 
counsel, they are not really in the business of suing people 
or--I mean that is what you--I mean ultimately the only way you 
are going to make them do the right thing is sue them.
    In the Marine Corps, Judge Advocate General (JAG) folks, 
that is not what they do, and the Justice Department now is 
somebody that could do that, but are they going to do that over 
a, how much was it Bill, average?
    Mr. Harvey. Seventy dollars.
    Mr. Harpootlian. Seventy dollars, no. So, I mean these 
things fall through the cracks. And I can tell you these are 
very educated, very sophisticated, as is Sarah Letts-Smith, 
they knew their rights and they pursued them. There is a bunch 
of folks out there that never claimed it because they didn't 
understand it.
    So I would suggest that what could happen, I mean a simple 
thing like a Web site, and Sarah and I talked about it the 
other night, where you could go on and say I am getting 
deployed, this is what I have, what can I do? And have a--you 
don't need it at a base, you need a national--somebody that is 
up to speed on it that can answer questions on a help line. I 
mean if my Apple computer breaks, I get help real quick. I 
don't know why our military folks can't get that same kind of 
help. And this Committee would do something about that.
    Mr. Benishek. Thank you.
    The Chairman. Thank you, Doctor. Mr. McNerney.
    And also I would like to add that we will have testimony 
from the U.S. Department of Defense (DoD) in a couple of 
minutes. One with a brand new program that I hope will shed 
some light on what DoD is doing now to help provide this 
information to our servicemen and women.
    Mr. McNerney.
    Mr. McNerney. Thank you, Mr. Miller. First I want to 
congratulate you on your elevation to Chairman.
    The Chairman. Thank you.
    Mr. McNerney. I look forward to working with you on these 
issues in the next few years.
    I want to thank Captain and Mrs. Rowles for your service to 
our country. You volunteered, you didn't get drafted, and that 
just speaks a lot about what your intentions are for our 
country.
    My first question has to do with when did these banks know 
that they were violating law? I mean did they know or is there 
a difference between what the large banks know and what the 
small banks know? Or were they just ignorant and wanted to 
remain ignorant or where was this coming from?
    Mr. Harpootlian. Well, I think you can get a chance in just 
a few minutes to ask Chase about that, and perhaps they will 
tell you. They are not under oath so they will tell you what 
they think happened.
    I have read their statement, which is oh, you know, stuff 
happens. So I don't know.
    If this lawsuit is allowed to go forward, I can guarantee 
you we are going to find out.
    Mr. McNerney. Well, I mean they were informed----
    Mr. Harpootlian. Five years ago in this case.
    Mr. McNerney. They were informed repeatedly.
    Mr. Harvey. Constantly.
    Mr. McNerney. So you really can't claim ignorance after 
being informed year after year, phone call after phone call. 
Well, right, we have to see what happens in the lawsuit.
    Were there any of your clients that are facing 
repercussions in their crediting rates and their careers with 
regard to this?
    Mr. Harpootlian. All of them. Sarah Letts-Smith has a 
security clearance, she is a lieutenant colonel in military 
intelligence. She cannot get a car loan now. She cannot get any 
credit whatsoever. She has a terrible credit report and that 
poses serious threats to her security clearance. So--and you 
just heard from the Captain the same thing.
    Mr. McNerney. So I mean this is affecting the whole 
spectrum of your life. Your ratings, your career, the whole 
bit.
    Mr. Harvey. And I spoke with Martin Hupfl who is one of the 
named plaintiffs about his auto loan. He went to buy a car last 
week and could not get an auto loan and they cited Chase's 
closing down of his--and reporting his prior auto loan which 
they closed down while he was in basic training at Parris 
Island.
    Mr. McNerney. Is Chase able to take back this damage in any 
way or are you stuck with it?
    Mr. Harpootlian. Oh, we hope so. We hope so. We hope both 
of the criminal side and on the civil side. But again, we are 
pretty early in this process.
    Mr. McNerney. So the lawsuit may be the sort of tool to 
educate these lenders that there are laws that they need to 
comply with.
    Mr. Harvey. Unfortunately lawsuits tend to be that way. The 
only thing that gets their attention.
    Mr. Harpootlian. Well, I will say this, and that is why I 
talk about these criminal penalties, you know, if you are on 
the wrong side of that razor wire that is a lesson you never 
forget, and I would suggest increasing the penalties and 
encouraging the Department of Justice to be aggressive and 
prosecuting.
    Under the current law, it is a misdemeanor and you can go 
to jail for a year. Put somebody in jail, then banks will stop 
doing it. As long as it is a debit or a credit on a balance 
sheet it is a risk whether you are buying securitized loans or 
whether you are risking getting caught doing this, it is just a 
risk as long as it is a financial problem, a financial risk.
    Mr. McNerney. I mean there is bound to be a lot of 
servicemembers that are facing this and not bringing----
    Mr. Harpootlian. Absolutely.
    Mr. McNerney [continuing]. I mean there is bound to be.
    Mr. Harpootlian. Absolutely.
    Mr. McNerney [continuing]. Thousands.
    Mr. Harpootlian. Yes, sir.
    Mr. McNerney. Tens of thousands, there is bound to be.
    Mr. Harpootlian [continuing]. We believe so.
    Mr. McNerney. Well, especially people from the National 
Guard that have jobs and expect to have a certain pay and then 
get pulled into service.
    Mr. Harpootlian. Again, Sarah Letts-Smith was in the 
Reserves, she had a great job, her husband had a great job, she 
gets activated, goes to Iraq, her firm that she worked for had 
less than 50 employees, they fired her, her husband lost his 
job, and then, you know, she is over there trying to fight to 
keep them in their home, and you know, winning the military 
battle, but losing the fight at home.
    Mr. McNerney. So I mean I was going to ask what took so 
long for Chase to recognize this problem? But it seems to me 
like----
    Mr. Harpootlian. We brought a lawsuit, that is what got 
them--this complaint we understand is what started the process. 
Captain Rowles came forward, a complaint went to the Justice 
Department, and we filed a lawsuit.
    Captain Rowles is responsible for everything that has 
happened as a result of the attention that has been given.
    Mr. McNerney. Well, and of course Chase is the only one 
that is stepping forward at this point in time; is that 
correct?
    Mr. Harpootlian. We pushed them. They are not stepping 
anywhere. They had a big nudge.
    Mr. McNerney. They are being pulled forward. So all the 
other lenders are out there in this bliss that they have and 
not being made to pay the price yet.
    Mr. Harvey. Well, we hope that they are listening to you 
all and what we are doing here.
    Mr. McNerney. Okay. Well, our line has been drawn. Thank 
you.
    The Chairman. Thank you very much.
    And so the Committee knows we have reached out to the 
American Bankers Association (ABA) and will help in educating 
as best we can, but that doesn't change the fact that we are 
here because of what has happened in the past and your line of 
questioning is right on target and I thank you.
    We have a Member who would like to speak out of order 
because they need to go to another hearing. Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman, and let me commend 
you and the Ranking Member for this hearing. This is very good.
    I guess we should clear the air here and point out that 
JPMorgan Chase got $25 billion in Troubled Asset Relief Program 
(TARP) funds, so for them to settle for a mere pittance of $2 
million based upon, you know, not even providing economic 
damages to these people, not providing pain and suffering 
damages, not to mention what they did was illegal, I guess my 
question for the counsel is, under the Servicemembers Civil 
Relief Act, which maybe it has already been asked, were these 
military people aware of this Act? Was Chase aware of this Act?
    Mr. Harpootlian. Well, all these folks had to send the 
orders, the ones that are members of the class, the 4,000 or 
5,000, whatever today's number is--we heard several different 
numbers--in our class action had to send in the orders, had to 
ask for protection to be a member of the class. So they were 
aware.
    Mr. Stearns. Okay.
    Mr. Harpootlian. And Chase got their orders and got to 
documents, so they were aware.
    Mr. Stearns. In your estimation just off the record, do you 
think there are other institutions, financial institutions 
besides Chase that are doing this?
    Mr. Harpootlian. Well, in a moment you are going to hear 
again from this gentleman from Louisiana, an attorney down 
there that is suing, we talked this morning, Bank of America, a 
number of other financial institutions, he has individual cases 
and may very well have class action cases, so it is based on 
what he tells me rampant.
    Mr. Stearns. Is Goldman Sachs included in that list?
    Mr. Harpootlian. You will have to ask him.
    Mr. Stearns. Okay, okay.
    Mr. Chairman, I think at some point it would probably be 
useful for you and the Ranking Member, and I would be glad 
obviously to sign on for a U.S. Government Accountability 
Office (GAO) audit of this problem or bring some kind of 
Inspector General here, which I think would corroborate all 
this information, but also give it an official overlay which 
the counsel could use based upon that information. I think that 
would be helpful for you wouldn't it?
    Mr. Harpootlian. Oh, absolutely.
    Mr. Stearns. Yeah, so I would recommend at your earliest 
convenience we send that letter out and get this investigation 
started.
    I will just conclude and thank you, Mr. Chairman, for 
allowing me to speak. I have to go to another meeting.
    Obviously, everybody in this room is appalled and outraged 
by what happened to these military people. I think that is why 
many of use serve on the Veterans' Affairs Committee because we 
care so much for our servicemen and women and know the 
sacrifice they are making, and so I am very glad to lend my 
support to this investigation and just express my outrage of 
what happened.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Stearns. Mr. Walz.
    Mr. Walz. Well, thank you, Mr. Chairman, and I too would 
like to congratulate you on assuming the chair. Your commitment 
to veterans has been unquestioned and unwavering and your 
ability to work with everyone on both sides of the aisle is 
well known also, so thank you for holding this hearing.
    To the Rowleses, you are not going to get enough 
``sorries'' in this, and that doesn't cut it. What you have 
gone through, and I think Ms. Rowles you brought up a very good 
point on this is, the harassment that comes on birthdays and 
things like that, this is your life.
    And Mr. Harpootlian brought up, I think, the key issue on 
this is this Act wasn't passed to give some type of bonus or a 
lottery to servicemembers, it was meant to make sure you could 
focus on your job while defending this Nation without the 
worries back home.
    I have been waiting years for something like this to happen 
because I have been screaming about it. As a senior enlisted 
soldier with a deployed unit who spent weeks dealing with these 
things and it is not just houses, it started out with cars, it 
moved to leases, and I will tell you the hardest one was cell 
phone contracts. No, I don't need that contract anymore I am in 
Iraq so I would like to cancel it early without the penalty. 
Oh, no, oh, no, you are going to pay the full amount for that.
    I, too, have expressed great outrage on this because of the 
hardship it puts on the family. If the spouse at home is 
unhappy, our National defense is degraded from it. I have seen 
it every time it happens and it is absolutely unacceptable. So 
thank you for bringing this up.
    A couple things I want to focus on and I want to avoid the 
gross generalization, but I think the Chairman brought up a 
good point, there are some great learning opportunities here, 
there is also a lot of learning opportunity on tort reform that 
we are talking about and I hope we start thinking about that in 
terms of what tort reform of stopping this individual's right 
to get just compensation when they are wronged needs to be 
toned down, and gross generalization of tort reform needs to 
happen, it is out of control. Well, you have a constitutional 
right to be here and we need to get this right.
    My question to you, and it was brought up by Mr. McNerney, 
I am very, very concerned for your military career because I 
know as a senior enlisted person how bad this can damage you. 
Have you felt the repercussions?
    Captain Jonathan Rowles. No, sir, my command has been very 
supportive of this. The most--the scariest part of this entire 
thing was when I received the letter that this could go to 
collections.
    Mr. Walz. Yes.
    Captain Jonathan Rowles. And as everyone knows in this room 
collections effect a security clearance.
    Mr. Walz. That is right.
    Captain Jonathan Rowles. And my job requires a security is 
clearance. If I don't have that, I can't fly and my career is 
wasted.
    Mr. Walz. I have seen careers ended because of the issue.
    Captain Jonathan Rowles. Yes, sir.
    Mr. Walz. And it happens all the time unfortunately.
    My next question went with that chain of command and we 
heard about it and I think Mr. Harpootlian brought up a great 
point on where the JAG office can help in all those things.
    I, as a senior enlisted soldier, was well versed on this as 
early as 2004 after the Soldiers and Sailor's Civil Relief Act 
was modified to servicemembers. We were well versed on this so 
I was on the phone a lot. The frustration I had that you had 
was that I was far more well versed than the lenders on the 
other end. But I got to the point after a while was that 
claiming ignorance wasn't good enough, that there was knowledge 
on the other side.
    My question to you is, is your chain of command well versed 
in this? Do you think they did everything they could? And I am 
not sure as a captain who did you go to? Did the sergeant major 
do anything or is it through the JAG office?
    Captain Jonathan Rowles. Well, sir, I went through several 
different commands during this 5-year period. Quantico, 
Pensacola, San Diego, and I visited with the JAG officer in 
Pensacola just to get a feel of what my rights would be, and 
every chain of command that I have expressed this with has been 
supportive. I have asked them for letters of proof and so I 
could further what the banks were asking for at the time, and 
every chain of command has been supportive of that. Although I 
don't think they are all well versed as we are now.
    Mr. Walz. Well, I am going to ask a question, Mrs. Rowles 
this might be you. Did you ever talk to someone on the phone 
who was a veteran?
    Mrs. Julia Rowles. No, sir.
    Mr. Walz. It would be a lot easier wouldn't it if they 
understood what an order looks like, if they understood what a 
new station of duty meant and all of those things? Has there 
been any efforts on the bank to maybe hire some people like an 
ombudsman that was actually a veteran that would understand 
what you are talking about? Have you ever had----
    Mrs. Julia Rowles. I sure would hope so. It would make it, 
sir, on our behalf, a lot easier talking with these people 
knowing we move all the time. We have in the past 5 years, we 
have been at four duty stations. Every time we have had to send 
different orders in, and half the time they have lost them.
    Mr. Walz. Yeah.
    Mrs. Julia Rowles. So it is a problem that they don't even 
know what SCRA is.
    Mr. Walz. Well, I appreciate it, and I am going to leave 
this for the next one because I know the Chairman is very 
responsive to this. There is a whole other can of worms here as 
Mr. McNerney mentioned with the National Guard, because it gets 
into the sticky point of when you established the loan, when 
you got deployed were you already in the service? Yes, but I 
was National Guard, now I am on Title 10, now it changes my 
status, and the banks are going by a strict letter of the law 
denying some of those things instead of the spirit of the law.
    A National Guardsman deployed for 22 months is on active 
duty for 22 months, but they are getting out of this by saying 
you established the loan when you were only part-time, you 
weren't on Title 10, and that is something the attorneys--a 
whole other can of worms.
    I yield back.
    The Chairman. Thank you. Colonel Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. First of all as a 26-
plus year veteran myself, I echo what my colleague Mr. Michaud 
and Mr. McNerney said, few people can relate to the sacrifices 
emotionally, physically, otherwise that military members go 
through and their father and mother families, and on behalf of 
the grateful Nation, I want to apologize to you for what you 
have gone through.
    Just a couple of quick questions. What was the over all 
time frame? Maybe I missed it earlier. From when this first 
started till now. How long has this been going on?
    Captain Jonathan Rowles. This has been going on since 2006, 
sir. I was a commissioned officer on March 31st of 2006, I 
first stepped on the yellow footprints January 22nd there in 
Quantico. Shortly after I completed OCS after March, I sent in 
my orders, at which time I was at the Basic School (TBS) in 
Quantico. That took about 4 months because I kept getting 
letters saying please re-verify or I would get a statement that 
had an outrageous amount that I knew from experience as a 
financial manager before I joined the Marine Corps was not 
right, and I would call to question about it and I would get 
the run around, but then I couldn't continue to pursue it 
because then I would have to go to the field for a week and 
then I would have to come back and start the entire process 
over again of re-verifying or calling somebody and I would get 
somebody else, and that has pretty much been the story since 
2006, sir.
    Mr. Johnson. Earlier you indicated, ma'am, that you had 
talked to people in management. What level of management? And 
were any of these conversations in person or were they over the 
phone?
    Mrs. Julia Rowles. Sir, yes. Most of them were over the 
phone; however, I do not know the level of management, but we 
did fly to Colorado to visit with one mortgage branch manager 
that would actually sit down and schedule a meeting with us.
    Mr. Johnson. So did anyone ever give you a business card 
that identified them as a vice president or a director or 
anyone like that?
    Mrs. Julia Rowles. No, manager was all we got.
    Mr. Johnson. Okay. Are you getting any help with your legal 
fees now from the Act itself? I confess that I don't know what 
the Act provides, but are you getting any help at this point?
    Mr. Harpootlian. There is no provision for attorneys' fees 
in the Act. Mr. Harvey and I are doing this on a contingency 
fee. If there is a private cause of action we will be able to 
recover something for the class and take a percentage of that, 
which would have to be approved by a court. Judge Margaret 
Seymour in South Carolina is handling this case, a district 
court judge, so she would have to approve a fee.
    Mr. Johnson. Yeah.
    Mr. Harpootlian. But there is no provision. That is one of 
the things we talk about under 18 U.S.C. 1983--or 21 U.S.C. 
1983 cause of action. You can get attorneys' fees in addition 
to recovering your damages. The idea being if the damages are 
so small, and in these cases they may very well be, you want to 
incentivize an attorney to get involved you give them the 
opportunity to get attorneys' fees.
    Mr. Johnson. Sure. Well, I want to applaud what the 
Chairman said earlier, we are going to get an opportunity to 
question the Department of Defense.
    I would like to just clarify as a veteran, and I am sure 
you know this too, Captain Rowles, that the legal department 
within the military, they are not permitted by law to represent 
us in civil cases, and so it is not maybe that they didn't want 
to, it is that they are prohibited from doing so. They can 
advise and I am glad to see that you did get advice. Are there 
ways to improve that, perhaps.
    I would just like to point out that, you know, Mr. McNerney 
asked, you know, do small banks know more or less than the big 
banks do? JPMorgan Chase is not a small bank. They have big 
money as was pointed out in TARP. They posted a 47 percent 
profit surge on January 15th, a $4.3 billion profit surge. I 
think you pointed out the need for increased criminal 
penalties. Obviously these folks don't understand dollars and 
cents very well, so maybe criminal penalties would help in that 
regard.
    And Captain Rowles, I want to tell you, if your security 
clearance is impacted by this I want to know because you will 
get a letter of reference from me to somebody.
    Captain Jonathan Rowles. Thank you, sir.
    Mr. Johnson. I yield back, sir.
    The Chairman. Mr. Barrow.
    Mr. Barrow. I thank the Chairman, and with my thanks to 
Captain and Mrs. Rowles I will yield my time for questioning 
and thereby I waive opportunity and to let the other Members of 
the Committee have the time. Thank you.
    The Chairman. Thank you very much. Mr. Miller.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman. I 
think all of us have thanked Captain Rowles and Mrs. Rowles 
already and I want to as well, but I also want to do something 
unusual and thank the lawyers. I was able to eke out a living 
for about 20 years as a lawyer before fortunately enough I was 
elected to Congress and got a city paycheck.
    But I can imagine when the Rowleses were first sitting in 
your office this case did not look like a moneymaker, and I 
from time to time took cases with very uncertain damages, very 
uncertain law, economically bad decisions to take the case 
because the facts that presented themselves just offended my 
sense of justice, and I think lawyers taking cases like that 
are a service to the profession and a service to the public, so 
I appreciate your pursuing this claim on behalf of the Rowleses 
and so many others
    Mr. Harpootlian. Thank you.
    Mr. Miller of North Carolina. I did handle or introduce 
legislation a couple years ago to ensure a private cause of 
action because there were at that point a variety of cases 
around the country that went different ways on whether there 
was a private cause or action or not, and the compensatory 
damages seem to be unclear, the availability of punitive 
damages seem to be unclear. There was no provision for 
attorneys' fees as you have pointed out.
    I think there is a pretty good argument under ordinary 
statutory construction principals that there should be 
compensatory damages, there should be punitive damages.
    Mr. Harpootlian. Right.
    Mr. Miller of North Carolina. But remedies matter. What you 
can do about it if you have been wronged really does matter, 
and my clear impression at the time is that some of the banks 
knew full well that they were pursuing legal proceedings 
against people who were deployed, that that was in clear 
violation of the law, and they looked at what the servicemember 
could do about it and thought--made a calculation and decided 
to go forward, and punitive damages is supposed to get at that 
kind of conduct. And good luck with continuing this litigation.
    Mr. Harpootlian. Thank you.
    Mr. Miller of North Carolina. Remedies are frequently an 
issue in any kind of legislation. You can fight and fight and 
fight over what the law requires and then you have to have a 
second fight about what you can do about it when they have been 
wronged, if their rights under that statute have been violated.
    Frequently the interest groups that are likely to end up as 
defendants in those suits fight any kind of or a provision that 
says there can be no class actions.
    Would this lawsuit--would any lawyer have brought this 
lawsuit if there was a prohibitional class action?
    Mr. Harpootlian. Absolutely not. I mean it is one thing to 
make the calculation you may not get anything because courts 
are deciding it, it is another thing to try to recover $700 
from a big bank and litigate that. You wouldn't even be in 
Federal court, you wouldn't have the discovery mechanisms that 
you have in Federal court, it would be a--it is a no brainer. 
You wouldn't--I mean you could try it, but you wouldn't get 
anywhere with it.
    Mr. Miller of North Carolina. Well, my quick calculation is 
that either you have a 40 percent contingency fee that would be 
$280, that wouldn't take you real far.
    And second, attorneys' fees, what role do you think 
attorneys' fees will have as a deterrent? It is not just about 
compensating people who have been wronged, it is about 
deterring the conduct in the first place.
    Mr. Harpootlian. Well, let me let Mr. Harvey answer that, 
because you talked about how small these claims are.
    Mr. Harvey. Well, the claims are very small. Captain Rowles 
came into my office, I looked at it and the first thing I did 
was contact the U.S. Attorney's Office because I went and did 
some research and I found that the Department of Justice had 
made this a priority, and the U.S. Attorney's Office in South 
Carolina has been very helpful with regard to pursuing this on 
their behalf from their standpoint.
    But from the standpoint of attorneys' fees it would have 
been very difficult--very difficult for me to bring a private 
cause of action for Captain Rowles alone in Federal court had 
it not been for the ability to pursue this as a class action. 
It would have been very difficult to bring it as a single 
claim.
    Mr. Miller of North Carolina. Okay. You had said that you 
really focused your attention on Chase, not all of the banks, 
but there had been litigation, there has been litigation, there 
have been news reports, this is in fact a common problem and 
not just with Chase. And other banks I know that you have said 
that Chase didn't jump to do the right thing, they got pushed, 
and you were the one doing the pushing. Again thank you. But 
there have been some other banks that have just brazened it 
out.
    What can we do to distinguish between the kind of remedies 
that are available for a bank that maybe makes an innocent 
mistake but then fixes it when it is called to their attention 
and those who just brazen it out as has been the case with 
Georgia Bank in other litigations?
    Mr. Harpootlian. Well, we suggest in the statement that 
folks that self-report be dealt with in a different way, and 
that is very common in virtually every other kind of civil or 
even criminal. To determine whether there is criminal conduct 
there has to be willfulness.
    So if they find it, they catch it, and they do something 
about it quickly they shouldn't be subjected to criminal or any 
significant civil penalties; however, Mr. Odom, who you are 
going to hear from in just a little while who practices in 
Shreveport has dealt with five or six banks and he will be I 
think your last witness today, you need to ask him about the 
other banks.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman for 
the time and for being able to speak.
    The Chairman. Thank you very much, Mr. Miller. Mr. Runyan.
    Mr. Runyan. Thank you, Mr. Chairman, for the opportunity to 
serve with you. We know it is going to be a challenge, but we 
have to fight for these men and women that fight so hard for 
us.
    And with that Captain Rowles, thank you for your dedication 
and your service to this country and I sincerely apologize to 
you, your wife, and the rest of your family for having to go 
through this, because it is not something--it is not a pressure 
you need on you or your family especially in the high intensity 
situations you volunteered to put yourself through.
    I think we all share the same concerns with SCRA and quite 
frankly the reason you are here.
    I really want to ask a question that really says I know we 
talked about, you know, maybe starting a Web site or you know 
having a veteran around that can actually answer these 
questions.
    Going through your experience what do you think is the best 
way to really get this out there and make this aware? Because 
you said you obviously said you were told in Officer Candidate 
School that it was there, but obviously there is not a lot of 
people aware of it.
    Captain Jonathan Rowles. Sir, I believe that education 
first right, when they reach the schools, you know, the 
recruits or the candidates that is a great place to start 
because you reach everyone right then. You are not going miss a 
single one who doesn't go through the military, who is not 
going to go through some sort of basic training.
    But I also believe that there should be a sustainment to 
that because you are hose fed through basic training, you do 
get a lot of classes and a lot of times, you know, you are 
sleep deprived because that is how they break you down and 
build you up to make you a Marine or a sailor or a soldier.
    The sustainment should come from what I believe, sir, is 
the sustainment should come from within the commands and from 
within the representatives themselves, the family readiness 
officers. Each command has one from my experience in the Marine 
Corps and I just believe that it is an education mind set where 
we push more information to the family readiness officers 
because they are the ones who can contact the wives, the 
families when we are in the field, when we are in the air, when 
we are deployed, and to make them more aware of this, because 
every soldier, sailor, Marine doesn't want to worry about 
finances, but they worry about back home, and the Family 
Readiness Counselor (FRO) has that kind of contact, the family 
readiness officers.
    So if we can educate them more about these benefits then I 
believe that that will trigger not only the memory from basic 
training, but it will also create that sustainment to continue 
those benefits throughout your military career.
    Mr. Runyan. Well, from your personal experience does that 
conversation to that family readiness counselor continually 
happen or is it just something that, you know, obviously in 
your situation you will have other servicemembers that are 
colleagues of yours that you can direct toward that, but was 
that pathway open for you at all?
    Captain Jonathan Rowles. The pathway to the family 
readiness officer is quite open. They all have offices within 
the commands, which is why I think it should maintain within 
the command because you are a tight knit group, and as we all 
know, information passes through a tight knit group very 
easily. So if one person contacts the FRO and she gets in that 
6 percent before they deploy I guarantee you that ever single 
other lance corporal or sergeant or whatever will be talking 
about that within 24 hours around their commands.
    Mr. Runyan. And kind of down that same line of questioning 
now moving to the family aspect, you know, is there anything 
you can say to other families facing similar situations on how 
to, you know, you have the family readiness counselor there, 
but how to tackle it even further if nothing is happening?
    Captain Jonathan Rowles. I believe it would be tough for 
every single person to run to the bank and say these are my 
rights, because everyone is so busy and everybody wants to keep 
their personal finances close because we are strong and 
prideful and we don't want to admit we need help.
    But to go further I think if--it could be easier to go to 
the banks and simply say I am a servicemember and I am being 
deployed next month and for the banks to know the SCRA so well 
that they can say, okay, great, we are going do this, this, 
this, and this for you, thank you very much for your service, 
have a great day, and then for that to happen it would make 
things so much easier for the servicemembers instead of this 
piece of paperwork here and this piece of paperwork here and 
this procedure here and oh, please re-verify this, and you need 
a letter from your command.
    If the banks were so aware of SCRA protections that you 
could just walk in and say here are my deployment orders and 
for everything to be settled I think that would be best, sir.
    Mr. Harvey. And as we have seen the only way to do that is 
to have an enforcement arm that gets their attention. That is 
the only way they are going to do what Captain Rowles has 
suggested.
    Mr. Runyan. Well, I thank you guys for your time and I 
yield back, Mr. Chairman.
    The Chairman. Mr. Donnelly.
    Mr. Donnelly. Thank you, Mr. Chairman, and I too want to 
say what a pleasure it is to have you as our Chairman. I have 
had the honor to serve with you for a number of years and your 
only focus has been what can we do to help our veterans, so I 
think you are going to do a great job and I am honored to have 
the chance to serve on this Committee with you.
    I want to start off by saying thank you so much Captain and 
Mrs. Rowles for your service to this country, to the fellows 
who are with you for helping them out with these changes. The 
last thing you need Captain or you need Mrs. Rowles when you 
are fighting for our country and you are trying to hold 
everything together back home is to have to deal with these 
things.
    And so one of the questions I have for you Mrs. Rowles is 
your support group when these calls would come in and when you 
would have them badger you, did you have any list or idea of 
who to contact to try to get some help from? You know there are 
folks on the base, but when you have to fly out to Colorado to 
try to get this straightened out, you are raising a family, you 
are trying to hold a house together, you are trying to take 
care of your husband's phone calls and dealings, and then you 
have to go to Colorado, it is how much can you put in a bushel 
basket before it all pours over?
    Mrs. Julia Rowles. Sir, there has been a lot of stressful 
times with this, and the funny thing is, is that Chase has 
admitted to us that we have done nothing wrong, but still from 
years and years of harassment there is still not even small 
problems they have not rectified.
    It has been almost a year since we have received a mortgage 
statement from Chase, even though we continuously pay our 
mortgage. They still have not cashed our January mortgage 
payment. We are here talking about the problem, but yet it 
doesn't seem like even for us that they want to fix small 
things.
    But myself there is no--besides family there is not a large 
support system, because everybody's finances in the military, 
everybody has different mortgage companies, everybody has 
different credit cards, there is no avenue for--to fix any of 
these problems.
    Mr. Donnelly. For you to go to an office there and say----
    Mrs. Julia Rowles. There is no--no.
    Mr. Donnelly [continuing]. Here is what they are doing to 
me. Here are the hassles they are giving me. I don't know how 
much longer I can try to keep holding everything together. 
There wasn't an office or a place to go to on base?
    Mrs. Julia Rowles. No, no.
    Mr. Donnelly. Okay.
    Mrs. Julia Rowles. No, sir.
    Mr. Donnelly. Okay. And Captain, I know you have mentioned 
it before, but I would think there is almost nothing worse than 
sitting there in Iraq and knowing that your family is dealing 
with this and you are being told you may lose your house and 
you may lose everything you worked for. The things you are 
fighting for and protecting are the things they are telling you 
you may lose in the process of fighting for and protecting your 
country. How did you deal with that on a regular basis?
    Captain Jonathan Rowles. To tell you the truth, sir, it was 
difficult. It is definitely a point of friction. Everybody 
wants to be strong and upright and say nothing is wrong, but 
when you call your wife at 2:00 in the morning just to see how 
things are going and you spend 20 minutes talking about how we 
can send another letter or how we can make another phone call 
or--instead of honey, I love you, how was the day, how are the 
babies, it is rough.
    So you know, you spend your time trying to not worry about 
home, but it is still in the back of your mind when you are 
fighting, yes, sir.
    Mr. Donnelly. You probably can't even sleep at night when 
you were dealing with that.
    Did you have anybody in particular at Chase like here is 
your contact, here is the Chase veterans team at any point?
    Mrs. Julia Rowles. Sir, actually the number that we were 
given to SCRA was an answering machine. We would leave our name 
and number and they promised to get back with us within 24 
hours; however, as many people know the military is a 24-hour 
job and there would be times where Jon or myself were not 
around to answer a phone call and then the process began over 
again. Funny you try to call that same SCRA number now and it 
has been disconnected.
    So no, there is no person to call, there is no special 
servicing department where we can say hey, we are SCRA, help us 
and funnel us to a correct department. We would have to go 
through the same computer prompts that everybody with any Chase 
mortgage went through.
    Some days we actually found somebody who said they were 
going to help us. Apparently there is probably hundreds of 
pages of Chase notes on our account that they said that they 
have reviewed, but Chase did not and to the best of my 
knowledge currently does not have an SCRA mortgage facilitator 
to handle these problems.
    Mr. Donnelly. Well, I also have the privilege of serving on 
the Financial Services Committee, and we promise you this will 
change.
    Mrs. Julia Rowles. Thank you, sir.
    Mr. Donnelly. Thank you.
    The Chairman. Mr. Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    Captain and Mrs. Rowles, I wanted to give you an 
opportunity to elaborate a little bit on Mr. Runyan's good 
question with regard to what advise would you give to other 
military families that are facing this situation, and then 
approximately how many other families would you say are facing 
this situation?
    Captain Jonathan Rowles. Sir, I would say every single 
servicemember that deploys or has a loan before they join has 
this situation. Every single one of us who knows those rights 
fills out that paperwork, and from my experience there has 
never been a standard form for SCRA.
    The starting point for every single time that I have dealt 
with different banks in my personal experience has been simply 
to call them and say I am an active-duty servicemember about to 
deploy, and each bank has their own way of dealing with it.
    With Chase it was a fax machine only. There was no one to 
call, no one to talk to, it was here is the fax number that you 
can send your things to. I never in my 6--my 5 years dealing 
with this never did I ever speak to an SCRA department member. 
There was a fax machine number that I had written on several 
statements and that was it.
    But when I dealt with other banks I would call them and say 
I am a servicemember and they would say, great, when are you 
getting back? And on the next statement there was my 
reductions.
    So each individual bank has their own, in my experience, 
their own way of dealing with it, but with Chase and every 
single servicemember that deserves these privileges I would say 
right now the process is try and call and find someone, but 
there is no single point to get to.
    Mr. Filner. Mr. Bilirakis, could you yield for 1 second? I 
think that line of questioning is good, but it seems to me 
there are two responsibilities here.
    One is our military and the other is the banks. I mean is 
there a SCRA representative at the military that you can call? 
Why shouldn't they also be fighting for you? There is a class 
here called our fighting men and women. I guess we are going to 
have someone from the DoD on the panel, but it seems to me you 
can't fight this as an individual and the banks know that, why 
aren't the Marines or DoD fighting for you?
    Is there any SCRA office that we could call? Why shouldn't 
they be calling the banks? Why should you be dealing with any 
of this? I will leave that in the air because I think 
legislation would require that.
    The Chairman. DoD will be up in just a minute and we will 
be able to ask them that question.
    Mr. Filner. Thank you.
    Mr. Bilirakis. I will yield back, but I also want to 
apologize and I want to thank you for your service.
    Captain Jonathan Rowles. Thank you, sir.
    The Chairman. Mr. Huelskamp.
    Mr. Huelskamp. I will yield my time. I have questions for 
Chase.
    The Chairman. Thank you very much.
    Mr. Filner, do you want me to go? We will start the round. 
I will go ahead and allow any other Member. Mr. Michaud, any 
other questions? Any questions on the minority side? Majority 
side?
    Mr. Filner. I am looking forward to the next panel. I thank 
you very much for being here. Mr. Harpootlian, are you on Fox 
by the way?
    Mr. Harpootlian. You guys don't watch Fox.
    Mr. Filner. I never watch Fox so I didn't know how good you 
were.
    Mr. Harpootlian. I actually do Megan Kelly's show every 
Monday at 1:30.
    Mr. Filner. Well jeez, you are ruining my preconceptions. 
Mr. Chairman, fair and balanced.
    Mr. Walz. If I could for just 1 minute. This is a question 
I know I sound like a broken record on this, but once again it 
seems to me that Armed Service Committee and the collaboration 
with the VA Committee, that seamless transition might be 
appropriate on this issue, and I know I continue to push that 
and I know we have talked and you share my concerns.
    The Chairman. I concur. As a Member of the Armed Services 
Committee rest assured this will be brought to their attention 
as well.
    I was going to say, if there are no other questions----
    Mr. Filner. I just wanted to finish my thought.
    Again, I think the banks are a disgrace in all this. They 
are just looking--it is not that they aren't concerned with the 
figures--they have taken a risk and said, hey, nobody is going 
to bother us with this and it is worth it.
    Again, I think our military goes beyond the base family 
responsibility officer. This is a national issue and this is a 
national law and these are our fighting men and women. The 
military needs to have an office and the military needs to--if 
the JAGs can't do it as someone pointed out by law, then 
somebody else need to. They have a $500, $600, $700 billion 
budget?
    Mr. Harpootlian. Well, sir, that is a legislative issue and 
I want to make sure that Captain Rowles takes no position on 
that.
    Mr. Filner. No, I understand that. I am just saying from 
our perspective----
    Mr. Harpootlian. Right.
    Mr. Filner [continuing]. That--I mean the military should 
be fighting for this and make it clear to the banks. Why are we 
giving them this TARP money? They should be certifying as part 
of it that they understand what SCRA is and that they are going 
to abide by it and take responsibility for it.
    So, I think there are two things here. We need to do what I 
think you recommend about the banks, but I think we have to 
have the military fight for our servicemembers--and not just on 
this issue.
    Mr. Harpootlian. Right.
    Mr. Filner. You are facing enormous pressures and we have a 
Pentagon that should be taking this stuff off of your 
shoulders.
    Captain Jonathan Rowles. Thank you, sir.
    The Chairman. Thank you, Mr. Filner, and I appreciate the 
line of questioning. We thank the Rowleses for being here. Mr. 
Harpootlian and Mr. Harvey thank you for being here.
    And we would like to now ask the second panel if they would 
to make their way to the desk.
    Mr. Harvey. Thank you, Mr. Chairman.
    Mr. Harpootlian. Thank you, Mr. Chairman.
    The Chairman. Our second panel will be one person, Ms. 
Stephanie Mudick, Executive Vice President of the Office of 
Consumer Practices with JPMorgan Chase, and I appreciate your 
willingness to be here with us today, and without objection 
your statement will also be entered into the record, and you 
are now recognized for 5 minutes.

  STATEMENT OF STEPHANIE B. MUDICK, EXECUTIVE VICE PRESIDENT, 
 OFFICE OF CONSUMER PRACTICES, JPMORGAN CHASE & CO., NEW YORK, 
                               NY

    Ms. Mudick. Thank you, Chairman Miller.
    Chairman Miller, Ranking Member Filner, and Members of the 
Committee, thank you for inviting me to appear before you 
today.
    My name is Stephanie Mudick, and I am the head of the 
Office of Consumer Practices at JPMorgan Chase & Co. I am here 
today to discuss errors that Chase discovered in our compliance 
with the Servicemembers Civil Relief Act and what we are doing 
about them.
    The SCRA provides vitally important financial protections 
to the men and women of our armed forces during active duty, a 
period of personal sacrifice for them and their families.
    Before I go further I would like to express to the men and 
women serving our country, and to the Members of this 
Committee, Chase's deepest regret over the mistakes we made in 
applying these protections. I commit to you that we will get 
this right.
    We have identified two problems in our home lending 
business with respect to certain mortgages held by active-duty 
servicemembers.
    First, in many instances, Chase charged SCRA eligible 
borrowers interest and fees that raised their effective 
interest rate above the 6-percent cap. We have begun paying 
back $2.4 million in overcharges to approximately 4,500 
customers.
    Second, to date we have identified 18 servicemembers whom 
we improperly foreclosed upon. In 12 of these cases we have 
either rescinded the sale or entered into a settlement with the 
borrower. We will attempt to make the remaining borrowers whole 
as soon as possible. Because our review is ongoing, these 
numbers could change.
    With regard to the case of Captain Rowles, we have reviewed 
the history of his account and we clearly made mistakes. The 
customer service that we provided to him and to his wife was 
unacceptable, and the fact that this was a servicemember makes 
our mistakes all the more inexcusable. We deeply regret any 
hardship we caused the Rowles family.
    We have communicated to Captain Rowles through his 
attorney, and actually this morning I met with Captain Rowles 
and his wife briefly, and communicated our commitment to 
resolve this matter and our genuine desire to make him and his 
family whole as soon as possible.
    We have made significant enhancements to our processes to 
ensure that we comply fully with the SCRA going forward. We 
have centralized SCRA loan set-up in a single unit located in 
Florence, South Carolina, whose members received enhanced SCRA 
training.
    We have a daily review and reconciliation of the entire 
list of SCRA protected borrowers to ensure they are properly 
identified in our systems.
    The calculation of the 6-percent interest rate cap now is 
subject to 100 percent quality control review every billing 
cycle, and we have implemented enhanced controls on foreclosure 
referrals and sales through repeated checks on military status 
at different points in the process.
    In addition to these enhancements to our controls, we are 
taking steps to better support our servicemember customers.
    We are enhancing our communications with military personnel 
about their SCRA rights.
    Chase currently has a Web page dedicated to military 
personnel, and we plan to provide a prominent link to a Web 
site recommended by the Department of Defense. We will also 
send a letter to borrowers whom we believe may be military 
personnel advising them of the existence of SCRA protections. 
We would welcome the opportunity to work with the government to 
provide better information to servicemembers about their 
rights.
    We are following the suggestion of Holly Petraeus of the 
Consumer Financial Protection Bureau that we reach out to 
servicemembers who have Army Post Office or Fleet Post Office 
addresses to ensure that they are aware of their SCRA rights.
    We have created a hotline staffed by 30 Chase employees in 
Monroe, Louisiana, who are trained on SCRA coverage to make 
sure that servicemember customers can work with customer 
service representatives who do understand their unique issues.
    Two people in each of our 51 Chase homeownership centers 
are being trained in SCRA matters so that servicemembers and 
their families can have local access when they wish to speak to 
a Chase representative face to face. By this summer, we will 
have 76 such centers located in 27 States and the District of 
Columbia, serving the vast majority of Chase customers.
    I should note that the SCRA also applies to other types of 
consumer loans. We are actively reviewing our other businesses 
to ensure that they too, comply with SCRA.
    Mr. Chairman, Members of the Committee, we are deeply 
disappointed that we have let down the men and woman of our 
military. We will work very, very hard to earn back their trust 
and yours, and we are committed to doing so.
    I would be happy to answer questions from the Committee.
    [The prepared statement of Ms. Mudick appears on p. 71.]
    The Chairman. Thank you for your testimony.
    You talked about Chase's deepest regret over the mistakes 
that were made. In those mistakes that were made do you 
consider how it was handled a mistake, the phone calls that 
were made, the harassment that took place? Does Chase 
understand with a servicemember how critical a security 
clearance is and the negative effect of not just their credit 
rating but their employment opportunities and opportunities to 
advance? Does Chase understand these?
    Ms. Mudick. Mr. Chairman, I think we do understand these 
issues, and we are working very hard to be more and more 
sensitive to the issues and concerns that our servicemember 
customers have.
    Our focus is really on making sure that we have effective 
compliance with the Act and we are really trying to make sure 
that we have the proper safeguards.
    The Rowleses' situation is a situation that we are not 
proud of, and we think that there will be lots of opportunities 
both to deal with the Rowleses and provide them with redress 
and also to ensure that the enhancements that we have already 
started to make on SCRA compliance really reflect best 
practices going forward.
    The Chairman. You were here for the testimony of the 
Rowleses. There was a comment about a hotline that had been set 
up for SCRA compliance and the fact that they have called it 
and now it has been disconnected. Do you know anything about 
that or is that the Louisiana hotline up or what happened?
    Ms. Mudick. I am afraid I don't know the hotline number 
that they are referring to specifically, but we have recently 
set up a hotline that is staffed by 30 employees in Monroe who 
are trained and specifically trained in SCRA. We actually do 
have some former members of the military who are part of that 
staff, and the goal is to make sure that there is one place 
that servicemembers can call so that they can explain their 
concerns and they can get clear answers.
    The Rowleses, I think, made very clear today that one of 
their issues was that they felt like they were talking to 
different service people all the time and had to repeat their 
story and that is something that we are really trying to fix.
    The Chairman. What caused your audit and is the audit 
complete? It has been represented to this Committee that you 
did not begin this self-audit until legal action was 
threatened. Could you expound upon that a little bit?
    Ms. Mudick. Yes, sir. In the ordinary course of our 
business we routinely audit all elements of our operations and 
controls across all of our businesses, and we do that with SCRA 
as well as other regulations that we are required to comply 
with.
    We actually did do an audit of our home lending business in 
2008, and during that audit there were some specific issues 
identified. The business worked on those issues. They tended to 
be around the coding, the correct coding of SCRA accounts, and 
it was not really until the period following the audit that we 
began to understand that there were other elements of SCRA 
compliance that we needed to look at.
    We actually have made various changes over the last several 
years in terms of our review of SCRA.
    In 2009 we sent out an attorney alert to all of our 
attorneys to make sure they were checking the DoD Web site, 
because one of the things that we recognized was that we were 
not checking that Web site with sufficient consistency or 
regularity. We started with external advisors doing an internal 
review in 2010. This all predated actually the Rowleses' 
lawsuit.
    So I would take exception to Mr. Harpootlian's comment 
earlier that the only reason why we are looking at this is 
because we have been sued.
    The Chairman. Can you tell me what the results are so far 
within your audit and give us some ideas of some of the things 
that Chase is now doing to make families whole?
    Ms. Mudick. Yes, sir. Our review is ongoing, but I will say 
that we have identified several things that it is very clear we 
were not doing as well as we should have.
    First, we were misreading orders. We were misreading orders 
and not necessarily calculating the period of eligibility 
correctly, and as a result, we were not correctly ascertaining 
when and how the interest rate adjustment should be made, and 
we were not calculating the aggregate of interest charges and 
fees below the cap.
    So that was one set of problems that I think reflected the 
fact that we did not have the right people looking at the 
orders and we didn't have sufficient training.
    So that is one reason why we now have a set up unit that is 
located in Florence, South Carolina, where we are having a 
group of employees look at every single SCRA request and make 
sure that it is set up correctly.
    We also identified problems with coding. And part of the 
issue here is that much of our execution around making sure we 
were complying with SCRA is manual. So we have employees who 
are making decisions about what the orders say, about what the 
eligibility period is, about what the right calculations are, 
and we didn't have a really strong quality control process 
around that. These are human beings. The orders can be very 
difficult to read; every service has different orders.
    Again, we take full responsibility for misreading them, but 
we really needed to have some checks and balances and we did 
not have sufficient checks and balances in the past. We do have 
those today.
    As a result of incorrect coding--and by coding I mean an 
account is coded SCRA--sometimes the coding fell off the 
account, and as a result of which, we did not get the benefits 
correct for the servicemembers.
    So again, we now have not only 100 percent quality control, 
we have a daily reconciliation. If any single account falls out 
of our group of SCRA coded accounts, we have several people 
reviewing to understand why and how that fell off and whether 
it needs to be reinstated.
    So you know, we are doing a number of things now to really 
try and ensure that we have full SCRA compliance.
    One of the issues that I know you all are aware of is that 
we have had some improper foreclosures. We now check the DoD 
Web site at least three times, and often a number of other 
times, before there is either a foreclosure referral or before 
subsequent action is taken with respect to a foreclosure.
    So from our standpoint this is very much about having a 
system in which there are multiple check points and different 
employees reviewing specific accounts and particular moments in 
the life of an account to make sure that we get it right.
    The Chairman. One quick question and then I will turn it 
over to the Ranking Member for questions.
    I come from a home building background, a real estate 
background--how many people contact you as a lending 
institution and say ``you are charging me the wrong interest'' 
yet continue to pay you at the rate they believe that they 
legally are required to pay? And if you have people doing that 
why in the world wouldn't you figure out a way to work with 
them to solve their problem instead of going to foreclosure?
    Ms. Mudick. Mr. Chairman, I think actually the way this was 
handled was that when an individual called, an employee who was 
trying to provide customer service dealt with that individual's 
situation and said either, ``I will try and get back to you,'' 
or ``let me see if I can understand it better'' or the employee 
might not have even dealt with it that way. You know, if we are 
to listen to the Rowleses, they had a number of conversations 
in which they didn't even get the benefit of that kind of 
service, and frankly, not only do we deeply regret that, but we 
are very embarrassed by that, and that is clearly an 
opportunity for us.
    So for us I think it is making sure that a call that raises 
that kind of question for a servicemember really gets channeled 
to the right place. And there is no question that somebody who 
is dealing with that kind of an issue needs to have specific 
training so that they know where to look and how to look and 
who to go to within our organization to see whether the 
interest is being charged correctly.
    The Chairman. Mr. Filner.
    Mr. Filner. Thank you, Mr. Chairman.
    How many executive vice presidents are there at Chase? Or 
let me put it another way. How high are you in the hierarchy 
there?
    Ms. Mudick. I am a member of Chase's Executive Committee, 
which is fewer than 100 employees at JPMorgan Chase.
    Mr. Filner. And what do the 100 people do? I mean, is that 
the highest policy office in Chase?
    Ms. Mudick. There is an Operating Committee, which is a 
group of approximately 20 people.
    Mr. Filner. So how many executive vice presidents are 
there?
    Ms. Mudick. I don't have the answer to that question, sir, 
I am sorry.
    Mr. Filner. But you will find out for me, right?
    Ms. Mudick. I will indeed.
    [Ms. Mudick subsequently provided the following:]

          JPMorgan Chase has 20 Executive Vice Presidents at the 
        corporate level. Stephanie Mudick is one of these Executive 
        Vice Presidents, and is a member of JPMorgan Chase's Executive 
        Committee, which comprises 55 senior officers who lead our 
        businesses and functions.

    Mr. Filner. Could you fix things if we needed to? You are 
here on behalf of Chase, so I assume that means you can fix 
things. Can you fix things? I mean you said you weren't aware 
of that hotline number. Can you call somebody and find out what 
is going on there?
    Ms. Mudick. Together with my colleagues there is----
    Mr. Filner. Okay, so you can't fix things.
    Ms. Mudick. I would say that we try and fix whatever we 
can.
    Mr. Filner. Okay. The Rowleses testified that they didn't 
have any statements for a year, you haven't cashed their last 
mortgage check. Can you fix that today? You said you were going 
to make them whole. I mean they have brought up several 
questions. Can you fix those problems?
    Ms. Mudick. We are trying to fix----
    Mr. Filner. I don't want a we. You, can you fix that?
    Ms. Mudick. I can, together with my colleagues, cause 
changes to be made in our organization.
    And with respect to the Rowleses, you know, we are trying 
to figure out how we can come to an agreement. We have agreed 
to mediate.
    Mr. Filner. Come to an agreement because of a lawsuit? But 
you said you were going to make them whole. As I read your 
statement your average payment to make people whole is $70. 
Does that make people whole who have gone through this stuff?
    Ms. Mudick. The median payment is $70, and let me explain 
to you how we get to that number.
    Mr. Filner. Because you are just dealing with the amount of 
interest that you overpaid, plus some fees. That is all you are 
dealing with. You have not dealt with any human costs or any 
emotional costs--pain and suffering. You are just dealing with 
the amount of interest and fees that you overcharged, right? I 
mean that is what it says here anyway.
    Ms. Mudick. Congressman, most of the servicemembers who 
were impacted by this are not even aware that they overpaid, 
and in part that is because the amount they overpaid was not 
material to them.
    Mr. Filner. I can't believe that there is nobody else going 
through what the Rowleses are going through.
    But you know, you can't make the changes so you are not 
making them whole. You know, you broke the law. Your bank broke 
the law. Shouldn't someone go to jail for that? And who should? 
Who is responsible? Are you, as the executive VP who was given 
us from the bank to answer for this stuff, should you go to 
jail?
    Ms. Mudick. We are doing a review internally in order to 
figure out----
    Mr. Filner. Who is responsible?
    Ms. Mudick [continuing]. Who is responsible for what 
happened.
    Mr. Filner. Are you going to tell us who, are you going to 
give us a person or people that are responsible?
    Ms. Mudick. Well, we will certainly hold those folks who 
are responsible for this account----
    Mr. Filner. I know, but you broke the law. How are we going 
to hold someone accountable? Are we going to know who did what 
when?
    Ms. Mudick. As a result of our review, we will be happy to 
share more information with the Committee.
    [Ms. Mudick subsequently provided the following 
information:]

          Chase deeply regrets the mistakes we made in applying the 
        protections of the Servicemembers Civil Relief Act. The errors 
        here were not made intentionally, but our processes were not 
        what they needed to be. We are devoting all possible resources 
        to correcting past mistakes and to improving our processes and 
        controls to ensure that we are in full compliance with the 
        SCRA. Of course, if we learn that any Chase employees 
        intentionally engaged in wrongdoing in connection with the 
        application of SCRA protections, Chase will discipline them 
        accordingly.

    Mr. Filner. I am sure you will. I think you are probably 
going to have to discover all the problems before you are going 
to give them to us.
    It just seems to me that you all--you are not alone in 
this. You all have no responsibility, everything you said was 
impersonal, nobody is responsible. You know, you said the SCRA 
coding fell off the statement. Nobody took it off, nobody was 
responsible, it fell off? Oh, wow.
    So you look at your testimony, everything is impersonal, 
nobody is ever responsible, and yet these people's lives have 
been turned upside down. Somebody, or some group of people, 
should be held responsible. Maybe then, as the attorney said, 
maybe you will take this seriously. Maybe if somebody went to 
jail with a white collar. There is no more Mr. Morgan and Mr. 
Chase, I take it, but somebody should take responsibility for 
what is going on.
    You just cannot hide, as the Supreme Court tells us now, 
you are an individual, you are not just a corporation. Somebody 
has to come forward and take responsibility for this. You just 
cannot apologize and give people $70 and think this is over. 
This is not over for them. You heard what they are still going 
though and now you can't fix it anyway.
    So when are they going get their mortgage statement? Just 
take one thing at a time. You should be able to call somebody 
right now and say get them their mortgage statements, but 
apparently you can't.
    I appreciate your apology, but you have broken the law, you 
have ruined people's lives, and people ought to take 
responsibility for that.
    The Chairman. What actions has Chase taken to make the 
affected homeowners whole? And are the homeowners satisfied 
generally with the actions that JPMorgan Chase has taken?
    Ms. Mudick. Mr. Chairman, we are in the process of sending 
out checks, and in certain cases----
    The Chairman. You are currently sending out checks. Have 
affected homeowners been notified the checks are forthcoming? I 
guess if they don't know they are coming they don't know if 
they are satisfied yet, correct?
    Ms. Mudick. That is correct. We have credited a number of 
accounts for our home equity borrowers and we have done that 
and I don't believe that we have heard any complaints, 
certainly not that I am aware of, for the folks whose accounts 
we credited.
    And obviously in the context of the foreclosures, I 
mentioned that currently the number that we have identified is 
18 improper foreclosures. For ten of those, we were able to 
actually unwind the sale and give the home back to the 
borrower. Two of those----
    The Chairman. When you say unwind the sale, had they gone 
all the way through the foreclosure proceedings to the 
courthouse sale or was it prior to that? I mean at what point 
were they in the foreclosure process?
    Ms. Mudick. Well, for those whom we foreclosed upon the 
foreclosure process had been completed. Whether there was a 
courtroom involved depended on the geography of course, but 
since we still owned those homes we were able to return those 
homes to the borrowers. In two of those situations, we settled. 
And there are still six cases outstanding where we are trying 
to figure out how to work with the borrowers to come to the 
right resolution.
    Obviously because there is a lawsuit, you know, we can't 
necessarily directly engage with them, but we want to make sure 
that we are able to make them whole.
    The Chairman. You talked about the number that you had 
totally gone through, but how many people were in the process 
then, of foreclosure? Is it above the number that you have 
already talked about?
    Ms. Mudick. The SCRA does provide certain limitations on 
what a lender can do, and that limitation really extends to 
foreclosure sales. So when a borrower becomes delinquent we may 
take certain actions, but we cannot go to judgment or sale.
    So I can't answer your question as to how many borrowers 
are currently in a delinquency process.
    The Chairman. So as long as you don't foreclose you can 
harass them?
    Ms. Mudick. The law prevents us from foreclosing, the law 
does not prevent us from engaging in what we would call loss 
mitigation, which is trying to reach out to a borrower who is 
not paying and engage in conversation with them. We do our best 
to make sure that if we are making calls or receiving calls, 
there is no harassing language in those calls.
    The Chairman. How many SCRA eligible individuals are there 
involved in your loss mitigation process right now?
    Ms. Mudick. I can only tell you that I know we currently 
have SCRA protected borrowers. I don't know the answer; I am 
happy to get back to you with that information.
    The Chairman. I wish you would for the record.
    [Ms. Mudick subsequently provided the following 
information:]

          There are currently 643 SCRA-protected home lending borrowers 
        who are at some stage of the loss mitigation process.

    The Chairman. Mr. Huelskamp.
    Mr. Huelskamp. Thank you, Mr. Chairman, and I appreciate 
the opportunity to ask a few questions.
    Per the SCRA, on your application forms does Chase actually 
have a box to check to indicate the applicant is a military 
member?
    Ms. Mudick. I don't know the answer to that question. I 
will have to get back to you on that.
    [Ms. Mudick subsequently provided the following 
information:]

          Chase does not ask borrowers about their military status on 
        our standard mortgage application form. The protections of the 
        SCRA apply only to debt obligations that originated before a 
        servicemember's active duty military service and for which the 
        servicemember is still obligated. Chase's policy is not to 
        foreclose on any active duty servicemember, regardless of when 
        his or her loan was originated.

    Mr. Huelskamp. Okay. Do you think it would be a good idea 
to have that on the application if you do not currently?
    Ms. Mudick. Yes, I do.
    Mr. Huelskamp. And as far as unwinding foreclosure, I find 
that rather interesting, as far as how that might be done, but 
more importantly, repairing the credit rating. What is Chase 
doing for those situations where you have admitted or will 
admit failure to follow the law? Obviously making them whole 
financially doesn't necessarily change their credit rating. Can 
you describe what you all do or have done in order to repair 
them in terms of the credit bureaus?
    Ms. Mudick. Yes, sir. Congressman, the SCRA does not 
prevent any kind of credit reporting other than credit 
reporting solely because somebody is asking for SCRA benefits.
    As a practice, we have not engaged in negative credit 
reporting in connection with our SCRA borrowers. What that 
means is that in cases in which we may have made a mistake or 
not treated somebody as an SCRA protected borrower--we may have 
taken actions and done some credit reporting--we will reverse 
all of those to the extent that the borrower is SCRA protected.
    Mr. Huelskamp. So on those that you refunded about $2 
million, the 4,500 families that you indicate in some testimony 
here, they will be made whole on their credit reports?
    Ms. Mudick. The lion's share of those borrowers will not 
have had any credit reporting on them at all. And to the extent 
that others have, we will definitely take action with respect 
to that and reverse the reporting.
    Mr. Huelskamp. And how do you reverse the reporting? Can 
you strip that off there, do you admit an error on the report? 
How exactly would you go about that?
    Ms. Mudick. I believe we can ask the credit bureaus to 
remove the reference.
    Mr. Huelskamp. And are they required to do so?
    Ms. Mudick. I believe that is the terms of our agreement 
with them, yes.
    Mr. Huelskamp. Okay. And you would do that with all the 
credit bureaus in reference to these individuals?
    Ms. Mudick. Yes, sir.
    Mr. Huelskamp. Thank you, Mr. Chairman.
    The Chairman. Mr. Michaud.
    Mr. Michaud. Thank you very much, Mr. Chairman, and thank 
you for coming as well.
    You had mentioned earlier that there are errors and you 
regretfully are sorry for the errors and you are going to pay 
back what you owe these individuals. What is the interest rate 
you are paying--giving the money back?
    Ms. Mudick. The interest rate, sir, is seven and a quarter 
percent.
    Mr. Michaud. Seven and a quarter percent.
    Ms. Mudick. Yes, sir.
    Mr. Michaud. You heard the Rowleses went through a lot, and 
you mentioned errors, and originally when I heard about--so 
yeah, it is possible for people to make errors, but what the 
Rowleses went through, 5 years, harassing phone calls at 3:00 
or 4:00 in the morning, it is just--is beyond errors.
    And you heard some of my colleagues talk about arrogance, 
greed within JPMorgan, and actually Mr. Stearns mentioned the 
fact that JPMorgan received, I know they paid it back, $25 
billion on the TARP funding. 
Mr. Diamond, the Chief Executive Officer (CEO) for JPMorgan 
received an additional bonus in 2007 of $28 million, last year 
almost $16 million, and you are paying these individuals seven 
and a half percent interest.
    I think there is a disconnect when you look at the bonuses 
received by the CEOs and what you have done to individuals who 
serve this country very well.
    I am sure that the chief executive officer for JPMorgan has 
a very nice home, he probably can cater Christmas parties, 
Thanksgiving parties at his very elegant home, and he can 
probably sleep very well at night, and the reason why he and 
others can sleep very well at night is because there are men 
and women in this country that are protecting this country so 
individuals such as Mr. Diamond can sleep well at night very 
easily.
    However, my big concern is the fact that when you look at 
the suicide rate among our active military men and women, it 
has increased substantially, and part of the reason is 
financial reasons where these men and women cannot support 
their family. And what JPMorgan and I am sure other companies 
have done is added that burden to these men and women. In some 
cases, I am not saying in any cases the suicide is directly 
caused by JPMorgan, but it is because of financial problems 
that they are facing.
    And when I hear the Rowleses' story of 5 years having to go 
through this and the harassment, it is just beyond me that it 
has taken this long. And the fact that it is seven and a half 
percent is disgraceful. It is un-American, unpatriotic.
    We heard the attorney in the first panel talk about 
increasing penalties for companies such as JPMorgan. My 
question is, first of all would you support increase in 
penalties, number one, changing the law? And if you don't 
support changing the law do you think that we should or 
attorneys around the country, because of the Citizens United 
cases where corporations have many rights that individuals are 
now accorded, should corporations be held liable under wrongful 
death if it could demonstrate that financial stress was because 
of banks putting that stress on individuals because they are 
not following the law?
    Ms. Mudick. Congressman, we take full responsibility for 
our failures here both with respect to the Rowles family and 
for the other servicemembers who are impacted by this, and we 
are deeply disappointed in ourselves.
    I personally have a very high level of confidence that the 
errors that we made were not a function of any intention to 
mischarge any of these servicemembers. And to say that we 
regret it is really an understatement, but I am certain that 
this was not done with any intent.
    With respect to whether the law should be changed, that is 
certainly within the Congressional purview, and you all need to 
do what you think makes the most sense and will work.
    Mr. Michaud. Well, I can say as one individual and I know 
my time is running out, the regret that you say that you deeply 
feel does not show in your actions with seven and a half 
percent for these individuals, especially when you look at a 
$28 million bonus for the chief executive officer of JPMorgan 
and almost $16 million last year.
    Words are cheap, action is what is important. And I would 
encourage you to look at your actions versus saying a seven and 
a half percent so that Mr. Diamond can go home tonight and 
sleep comfortably, because men and women put their lives on the 
line for us each and every day, and they do not need this added 
stress because of errors, especially when those errors have 
been brought to light over and over again by the Rowleses, and 
I am sure others as well.
    So with that I yield back the balance of my time.
    The Chairman. Mr. Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman. I appreciate the 
opportunity to ask a few questions and appreciate your 
testimony and being here today.
    Obviously this is one that is a situation that nobody ever 
wants to see happen and I am sure you don't and I know I can't 
imagine what the families have had to deal with, and especially 
circumstances that we are facing with the economy and also with 
the difficulties in financing today and the marketplace and 
housing.
    Do you feel that Chase has gone above and beyond in 
correcting these errors with the families?
    Ms. Mudick. What we are doing is really focusing on making 
sure that we have the right processes now to ensure that there 
aren't any other families who could be impacted, so that has 
really been what we have been thinking about and we are trying 
to ensure that we do it correctly and fully and completely.
    We think with respect to a remediation to the families we 
are doing what is right and what is appropriate, and obviously 
in the context of the litigation, you know, which we have 
agreed we will go to mediation and we hope we are going to be 
able to figure out what, you know, an agreement between the 
parties so that we can move forward, we can make sure that the 
servicemembers and their families can move forward.
    Mr. Stutzman. Do you have or does Chase have an idea of 
what that might look like?
    Ms. Mudick. No, I can't really speak to current discussions 
around settlement or mediation. Obviously we have come up with 
an approach to remediation that we think covers the losses or 
the mischarges that the servicemembers have experienced.
    Mr. Stutzman. Do you know if there are other entities that 
may also--the same situation may arise out of other 
organizations, other entities that do make the same sort of 
loans that may pop their heads up that we find other problems 
like this in other entities? Do you have a trade organization 
that you work together with? Have you been having any 
discussions with other entities so far?
    Ms. Mudick. We obviously have been trying to really pay 
most of our attention to making sure we get this right going 
forward and to making sure that we take care of the 
servicemembers who we overcharged.
    That being said, we have found that the problems that we 
have experienced come from both the Heritage Chase organization 
and the Heritage organizations we have acquired in the last 
couple of years, Washington Mutual and EMC, which was part of 
Bear Stearns. Given the fact that there have been problems in 
each of those organizations, it suggests that there may be 
issues out there amongst other lenders.
    Mr. Stutzman. I am sure others are probably watching this 
situation and watching how you all are responding and handling 
this situation. Is there anything that Chase feels that they 
cannot only exhibit but share with other organizations for 
making sure this doesn't happen anywhere else?
    Ms. Mudick. I think that each organization has to do its 
own internal review to figure out whether they have any issues 
and what kinds of issues those are.
    With respect to making this better and easier for 
servicemembers, we would be happy to both work with the 
Committee and with the Department of Defense to figure out how 
to make the process a smoother one.
    Mr. Stutzman. I mean is it possible that this happens 
outside of just loans to servicemen and servicewomen? In the 
other loans that you make, is there a possiblility of this 
happening anywhere else?
    Ms. Mudick. I think that the issues that we are talking 
about today are really specifically focused on ensuring that we 
are satisfying the rules of the Servicemembers Civil Relief 
Act.
    To the extent that the issues that have been raised 
suggests that there are customer service questions or customer 
experience elements, we are very much looking closely at those 
and trying to make sure that we have a very positive experience 
for all of our customers, including our servicemember 
customers.
    Mr. Stutzman. Thank you, Mr. Chairman.
    The Chairman. Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman. Thank you for being 
here, Ms. Mudick.
    I have to tell you I am a high school teacher by profession 
so I am optimistic and forgiving, but I am also up for a dog 
ate my homework line and I am very disappointed especially when 
you talked about--you said we take full responsibility, but the 
problem was orders.
    I want to show you, this is my Chase credit card agreement. 
I don't have time to scroll through it all, if you take a look 
at that. You seem to know that. That is a military deployment 
order. Let me be very clear it says, you are deployed on 
temporary change of station assigned to the 10th Military 
Police, number of days in determinant with proceed on the 15th 
of February, security clearance secret, and that is it.
    How difficult is that? I, as a 17-year-old E-1, got orders, 
knew I had to be in Omaha to get on the plane and end up in 
Fort Benning. You can provide me a 63-page document to 
calculate interest to the exact penny, but you come in front of 
this Committee--I am not an attorney, but I have to give you 
some good advice, don't go to court and give that answer, that 
that is the reason that these people got in trouble because you 
couldn't calculate the orders, you didn't know when they went 
on the service.
    I came here looking for answers, I appreciate you sitting 
in front of us, but I am highly, highly disappointed that that 
is the reason you didn't get it right?
    I suspect everything after that now to be how much you are 
going to do. The question that Mr. Stutzman asked is very good, 
what about your affiliates? How can we guarantee the affiliates 
that fall under JPMorgan and all those other names that I can't 
track down are going to follow through with this?
    You told us, well, you didn't need Mr. Harpootlian and you 
didn't need these folks, Mr. Harvey, you were going to do it on 
your own. So we should just tell them to go away and wait and 
you are going to fix that?
    Are you going to stick to this that you couldn't read this? 
That is a standard military order that everybody sitting behind 
you has been in the military knows. Any 17-year-old kid can 
read that. You deal in complex documents. My mortgage is 230 
pages long. So now you come in front of us and tell us that.
    I am just sorry, I am not buying the full responsibility 
line. And I certainly give you the chance to respond.
    Ms. Mudick. I think that we have identified a number of 
problems with respect to how we handled this, and we 
acknowledge that we failed here, and we acknowledge that there 
were a number of different ways in which we made mistakes.
    So we are trying to figure out how to fix them. We are 
trying to figure out how to have effective safeguards going 
forward. We are trying to make sure we have the right checks 
and balances. We are trying to make sure we have the right 
employees associated with making sure that we have this right. 
We are trying to make sure that there is the right management 
focus. There are no resources that we are not prepared to 
assign to this.
    Mr. Walz. Where was the original call center? That wasn't 
your one in the Philippines was it? Would they have handled 
that originally the one in Makati City outside Manila?
    Ms. Mudick. We have service centers across the United 
States and a few outside the United States.
    Mr. Walz. Is there a chance that this servicemember's call 
could have gone outside the United States to a non-citizen?
    Ms. Mudick. There is a chance, yes, sir.
    Mr. Walz. Then that is a problem, right, in your mind?
    Ms. Mudick. In my mind, sir, all servicemembers would be 
better off making sure that they were speaking to somebody who 
had a deep knowledge of SCRA and what their rights are and that 
is the way we are handling these----
    Mr. Walz. Do you have a veterans hiring preference in 
Chase?
    Ms. Mudick. I believe the answer to that is, yes, sir.
    Mr. Walz. So human resources would if I am a veteran they 
have a preference on hiring veterans?
    Ms. Mudick. I will have to double check on that, but I 
believe the answer the yes, sir.
    [Ms. Mudick subsequently provided the following 
information:]

          JPMorgan Chase is taking significant measurable steps to 
        offer jobs to veterans. Chase has partnered with 10 other large 
        companies to commit to collectively hire 100,000 military 
        members leaving active duty service and other veterans by the 
        end of 2020. The program, called the ``100,000 Jobs Mission,'' 
        expects to add more partners and increase the target number 
        of jobs as it grows. The partnership for the 100,000 Jobs 
        Mission has committed to hiring 20,000 veterans by the end of 
        2012. To apply for a 
        position at JPMorgan Chase or to post a resume, veterans can go 
        to www.chasemilitary.com.
          In addition, Chase will require all of our vendors to 
        disclose their military hiring practices and will make contract 
        decisions in part based on the strength of those programs.

    Mr. Walz. Okay. And the last thing I would leave you with, 
and I just can't stress it enough, I watched my friend from 
Maine and they are not known for being very emotional but I 
know how this touches Mr. Michaud.
    I think about this as a deployed soldier, my wife has a 2-
year old, a crisis is the car won't start to get to work, and 
those things upset my day in a non-combat area to the point 
where you are trying to deal with them. I cannot imagine, and I 
have seen it on soldiers, of what they go through. The level of 
stress and what Mr. Michaud was starting to hit on on the 
suicide rates, I don't think we should underestimate that and 
we are certainly not drawing that there is a cause and effect 
to this, but anything that is adding stress to a servicemember, 
especially in a combat zone, is incredibly risky type of 
behavior, and so no stone should go unturned, no lack of trying 
to fix this.
    And I cannot stress enough going back to this, that is the 
weakest answer I have ever heard given in front of this 
Committee that we couldn't read the military orders coming from 
one of the largest financial institutions in the world. There 
are thousands of lawyers that work for you, give it to them or 
go get a 17-year-old recruit and they will interpret it for 
you.
    I yield back.
    The Chairman. I thank the gentleman for his question, and I 
think it is important that we still continue to frame this. 
JPMorgan Chase keeps representing that they made mistakes. The 
fact is the law was broken.
    Ms. Mudick. We failed to comply with all aspects of the 
law, yes, sir.
    The Chairman. Mr. Miller.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman. 
Well, I know we have all been hard on you for breaking the law 
and I appreciate your expressions of contrition and I 
appreciate them more because there are other banks who have 
done the same thing who have not been at all contrite and have 
continued to brazen it out and fight every lawsuit in every 
jurisdiction over--using every procedural defense that is 
available to them. But this is not an obscure provision of the 
law that you really, you know, there are a lot of laws out 
there, I guess we can't know all of them until--and how they 
might apply to our conduct, but the 6-percent cap of mortgage 
payments may be relatively new, but the stay on legal 
proceedings has been in law off and on at least since the Civil 
War and continuously since the first World War, and the 
thinking behind it is that if you are in the service of our 
country, if you are serving our Nation's military you should be 
able to give your entire energy, your entire attention to the 
defense of our country and not have to worry about what may be 
going on in a courthouse back home, how your lives may be 
affected when you are not there to defend yourself. That if you 
have a claim against someone who is serving the country in the 
military it can wait until they can come home and defend 
themselves, and that is not an obscure law.
    Now one of the Members asked the last panel if someone else 
had made the mortgage and Chase had bought it, and the Rowleses 
said yes, that they had got it from an independent company and 
sold it to Chase. Now am I correct in assuming that it is now 
in a securitized pool and that there are now investors who 
really own it, it has now disappeared into the mortgage backed 
securities so that you don't really own it, you service it; is 
that correct?
    Ms. Mudick. We do not own the loan, that is correct.
    Mr. Miller of North Carolina. It is owned by a securitized 
pool and you service that; is that right?
    Ms. Mudick. I don't know whether it is owned by a 
securitized pool or whether it is just owned by another 
institution, but I know that we----
    Mr. Miller of North Carolina. But you are servicing it.
    Ms. Mudick. But we do service it, yes.
    Mr. Miller of North Carolina. Okay. And I understand also 
that the four biggest banks, you all, Wells Fargo, Bank of 
America, Citibank, secured service two-thirds of mortgages in 
the country; is that correct?
    Ms. Mudick. I believe that is correct, yes, sir.
    Mr. Miller of North Carolina. Okay, so this is not a small 
business for you.
    Ms. Mudick. It is not.
    Mr. Miller of North Carolina. And I understand also that 
your servicing unit is a separate corporation, it is an 
affiliated corporation; is that correct? It is certainly a 
separate unit.
    Ms. Mudick. I believe it is a separate unit, yes.
    Mr. Miller of North Carolina. So it is all they do. I mean 
that is all they do is service mortgages, collect payments, 
calculate how much people owe, give payout to people who are 
selling their house or whatever, foreclose, modify, that is all 
they do, right?
    Ms. Mudick. Well, they are part of our home lending 
business, but yes, it is a unit of our home lending.
    Mr. Miller of North Carolina. Okay. So there are not that 
many laws they have to keep up with; isn't that right? This is 
a big deal.
    Ms. Mudick. Well, there are a lot of laws that they have to 
make sure that they respect and adhere to, but you are 
absolutely correct, this is a very big deal.
    Mr. Miller of North Carolina. Okay. This is not something 
that should have escaped your notice.
    Who is training your people and who is training the people 
who are training them if they miss this?
    Ms. Mudick. We have fairly extensive training programs, 
which we have enhanced recently and will continue to look at 
and enhance to make sure that they are clear and simple and 
specific. And we have compliance review those programs. We have 
internal auditors review those programs. And now in the context 
of us looking at all this, we are having outside counsel look 
at these programs also.
    Mr. Miller of North Carolina. Okay. Mr. Harpootlian made 
several suggestions on how the law might change. Well, first of 
all, I am not clear of the status of his litigation against the 
Rowleses' class representatives action against Chase. Are you--
that is still in litigation, right? There are some issues still 
in litigation?
    Ms. Mudick. It is still in litigation. We have just agreed 
to go to mediation.
    Mr. Miller of North Carolina. Okay. But you have contested 
whether there is any private right of action before the law 
changed; isn't that right? That is still a position that you 
are taking, right? That the Rowleses and others who may have 
had their houses foreclosed upon before the law changed a year 
ago, they can't do anything about it.
    Ms. Mudick. Congressman, I have not reviewed our papers, so 
I don't know the answer to that.
    Mr. Miller of North Carolina. Okay. Mr. Harpootlian 
suggested that the banks might take this law more seriously and 
be more careful about complying if there were attorneys' fees. 
Do you think attorneys' fees would help? For attorneys' fees 
for plaintiffs.
    Ms. Mudick. I think that we, as a bank subject to these 
rules take them very seriously, and I think our problem was----
    Mr. Miller of North Carolina. Okay. Your conduct suggests 
otherwise, but I understand you are saying now that you are 
taking it seriously.
    Ms. Mudick. Well, I think we did a bad job at satisfying 
the rules, but we understood our obligations and tried to do 
the right thing and to make sure that we were in full 
compliance. We did a terrible job.
    Mr. Miller of North Carolina. Okay. If someone has had 
their rights under the SCRA violated, first of all, why should 
they not be compensated for that, and why should there not be a 
provision to pay their attorneys by the defendant if the 
defendant violates the law, at least with respect to what are 
obviously knowing violations?
    Ms. Mudick. We want to make sure that we compensate the 
people whose rights we didn't enforce to the fullest extent. It 
is not for me to say whether and how you should amend the law 
to provide for attorneys' fees.
    Mr. Miller of North Carolina. My time is expired, Mr. 
Chairman. Thank you for your indulgence.
    The Chairman. To follow up that question, Mr. Harpootlian 
said that basically they were doing it on a contingency basis. 
Your answer to me would assume that if Mr. Harpootlian were 
billing the Rowleses that would be something that JPMorgan 
Chase should pay, but if they are not billing them then that 
would not be your responsibility; is that a correct assumption?
    Ms. Mudick. Sir, I don't recall saying or suggesting that. 
You know, I am not a litigator so I can't tell you when we have 
to pay attorneys' fees and when you don't have to.
    The Chairman. And I understand, but the answer to Mr. 
Miller's question just his last question----
    Mr. Miller of North Carolina. Well, that is not--I mean, 
Mr. Chairman, I appreciate your question, but that actually is 
not the way attorneys' fees provisions work.
    The Chairman. Oh, I understand.
    Mr. Miller of North Carolina. Okay.
    The Chairman. I understand. But her answer led me to 
believe that she was concerned about making sure that the 
Rowleses were made whole and we certainly expect that to be the 
case, but you know, the attorneys' fees I think are part of the 
discussion and in making sure that, you know, if the claim is 
that the Rowleses aren't damaged because they haven't paid 
attorneys' fees, if that is their position, I think that they 
are making a mistake. Any other questions?
    Mr. Filner. Just one last question, if I may. Ms. Mudick, a 
corporation is set up to avoid personal liability and 
accountability. I think the Supreme Court may have 
unintentionally shattered that with its Citizens United ruling 
and said that you are an individual, so it seems to me you have 
responsibilities and your people have responsibilities and 
accountability.
    Mr. Walz said, to put Mr. Michaud's point in context, that 
he wasn't suggesting cause and effect. I would go further, and 
I think there is a cause and effect. People who are under 
pressure we know commit suicide, and I would call it homicide 
frankly because you are putting them under pressure and you are 
responsible for that. You have errors and you have caused 
tremendous, tremendous harm.
    You are never going to make them whole with $70 I will tell 
you that. You need to take responsibility, and your whole 
corporation needs to understand when you are dealing with these 
issues, and I don't care if they are servicemembers or not, 
although that is more clear in the law, that you are putting 
millions of people under incredible pressure. They have 
committed suicide. Veterans and non-veterans and you are 
responsible.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, and if there are no 
further questions, thank you, Ms. Mudick, for being here today.
    Ms. Mudick. Thank you, sir.
    The Chairman. And with that I would call our third panel to 
the table, and we would like to welcome back Colonel Shawn 
Shumake, Director of the Office of Legal Policy for the 
Secretary of Defense, and I extend a warm welcome to Ms. Holly 
Petraeus in her first appearance before this Committee. Ms. 
Petraeus is the Team Leader for the Office of Servicemember 
Affairs of Consumer Financial Protection Bureau's (CFPB) 
Implementation Team at the Department of the Treasury.
    Ms. Petraeus, I have had the honor of working with your 
husband and his dedication to this Nation and our troops is 
beyond reproach. I am confident that you will serve America's 
military families with equal distinction in your new capacity, 
and without objection both of your written statements will be 
entered into the record, and you are each recognized to 5 
minutes.

   STATEMENTS OF HOLLISTER K. PETRAEUS, TEAM LEAD, OFFICE OF 
  SERVICEMEMBER AFFAIRS, CONSUMER FINANCIAL PROTECTION BUREAU 
   IMPLEMENTATION TEAM, U.S. DEPARTMENT OF THE TREASURY; AND 
COLONEL SHAWN SHUMAKE (USA), DIRECTOR, OFFICE OF LEGAL POLICY, 
     OFFICE OF THE DEPUTY UNDER SECRETARY OF DEFENSE, U.S. 
                     DEPARTMENT OF DEFENSE

               STATEMENT OF HOLLISTER K. PETRAEUS

    Mrs. Petraeus. Thank you, Mr. Chairman, Ranking Member, 
distinguished Members of the Committee, I appreciate the 
opportunity to speak with you today about the Servicemembers 
Civil Relief Act as well as the Consumer Financial Protection 
Bureau Implementation Team's work to establish the Office of 
Servicemember Affairs.
    First of all, I would like to thank this Committee for its 
continuing efforts to protect servicemembers, veterans, and 
their families from predatory financial practices.
    I have been a member of the military community my entire 
life and I feel that it is very important that our military has 
strong advocates working on its behalf. And it is my intent 
that the Office of Servicemember Affairs be one of those strong 
advocates, educating and looking out for military personnel and 
their families.
    I come from a military family, one that has a tradition of 
service going back to the Revolutionary War. My father served 
in the Army for over 36 years, fighting in both World War II 
and Vietnam. Two of my brothers also served in Vietnam, and of 
course, my husband is currently serving, and I am a military 
mom, as well. The military is in many ways a separate community 
in our Nation, and it is one that I have the privilege to know 
very well.
    The last time I testified before Congress was over 6 years 
ago, when I spoke about deployment-related issues at a joint 
hearing of two Senate Subcommittees. At that time my husband 
had just begun the second of three deployments to Iraq and I 
was a longtime volunteer in the military community.
    As a volunteer, I had the opportunity to serve as a senior 
Family Readiness Group advisor during deployment and to work 
with local, State, and national legislators on issues affecting 
Army families.
    Five months after that testimony, I became the Director of 
BBB Military Line, a program of the Council of Better Business 
Bureaus providing consumer education and advocacy for 
servicemembers and their families, a position that I held for 6 
years.
    In that role, I oversaw a national program that worked with 
the Department of Defense as a partner in the DoD Financial 
Readiness Campaign, and fostered outreach from the 120 local 
Better Business Bureaus to military communities across the 
United States.
    While with the BBB, I made on-site visits to many military 
installations--learning about the consumer issues that impacted 
them, giving presentations on consumer scams, and working to 
establish local BBB-military relationships. I guided 
development of teen and adult financial curricula, taught to 
over 10,000 individuals in military communities around the 
United States and wrote a monthly consumer newsletter 
addressing issues of interest to the military.
    Professor Warren asked me to join the Implementation Team 
at the end of last year, I started a little less than a month 
ago, and we are hard at work building the Office of 
Servicemember Affairs.
    The Dodd-Frank Act, which was signed into law on July 21, 
2010, established the Consumer Financial Protection Bureau and 
charged it with ensuring that consumers have the information 
they need to make financial decisions that are best for them 
and their families.
    The CFPB will work to promote fairness, transparency, and 
competition in the markets for mortgages, credit cards, and 
other consumer financial products and services. The CFPB will 
set and enforce clear, consistent rules that allow banks and 
other consumer financial service providers to compete on a 
level playing field and that allow consumers to see clearly the 
costs and features of financial products and services.
    On July 21st of this year, many consumer financial 
protection functions that are currently with other agencies 
will transfer to the CFPB. I have to point out, however, that 
responsibilities relating to the Servicemembers Civil Relief 
Act, the focus of this hearing, will remain with the prudential 
regulators and the Justice Department.
    Eventually the CFPB will grow into a fully operational 
financial regulator and supervisor, and it will be the primary 
place where members of the public, including servicemembers, 
can come with questions and complaints about consumer financial 
products and services.
    The Dodd-Frank Act authorizes the Office of Servicemember 
Affairs to work in partnership with the Pentagon to see that 
military personnel and their families receive strong financial 
education, to monitor their complaints about consumer financial 
products and services and responses to those complaints, and to 
coordinate efforts by Federal and State agencies to improve 
consumer financial protection measures for military families.
    We are authorized to enter into agreements with the 
Department of Defense to carry out OSA's work and to make sure 
that we achieve those goals.
    Within the CFPB our job is to make sure that every division 
understands the unique military community and the financial 
issues that impact it. I plan to work with our examiners to 
ensure they are current on military-specific issues, to 
encourage our enforcement team to take action against financial 
providers who break the law to harm servicemembers, and to work 
with the consumer response unit to be sure that it is attuned 
to the military community and responsive to its concerns. We 
also plan to work closely with the CFPB's financial education 
team.
    Right now we are focused on planning and scheduling visits 
to military bases and other meetings that will help us identify 
problems and determine where we can make the biggest 
difference. I have already met with senior DoD officials, and 
it is clear to me that the people at the Pentagon are very 
supportive of our mission.
    In addition, I have met with senior staff from the 
Department of Justice's Civil Rights Division. The Justice 
Department is eager to work with the CFPB to protect the rights 
of servicemembers.
    I was pleased to hear about the scope of DOJ's enforcement 
activities on behalf of servicemembers, which include 
authorized lawsuits against three nationwide lenders and 
several other active investigations involving both foreclosure 
issues and failure to lower the interest rate to 6 percent.
    We are planning to coordinate closely with DOJ in light of 
its enforcement responsibilities under the SCRA.
    This past Tuesday I sent a letter to the chief executive 
officers of the 25 largest banks that provide mortgage 
servicing. This was prompted by the recent news reports 
alleging that major financial institutions had violated the 
SCRA, which provides financial protections for our military. I 
urged the chief executive officers to take steps to ensure that 
their institutions are in compliance with the law.
    We have already started a conversation with the military 
community. Professor Warren and I have been to Joint Base San 
Antonio where we had two roundtable discussions. The first was 
with military service providers, as well as the base's 
leadership. We asked questions about what scams and other 
financial problems these providers were seeing, and how they 
thought those financial problems might be dealt with.
    The second roundtable was with military personnel and 
spouses from the Air Force, Army, and Navy. They felt strongly 
about the need for mandatory financial training, not just in 
basic training, but on a continuing basis.
    The military spouses in the room also brought up the 
difficulties and temporary loss of income when moving a 
spouse's civilian career job, as well as the basic financial 
strains of frequent moves. I could certainly relate to that as 
I have moved 23 times in 36 years of marriage. We plan to do 
more roundtables in the coming months.
    Protecting our servicemembers from suffering devastating 
financial repercussions for answering the call to service is 
not only the right thing to do--it is also important to our 
National security. Military personnel who are distracted by 
financial problems cannot do their jobs to the best of their 
abilities. In fact, hundreds of people in the military have 
their essential security clearances revoked each year due to 
financial problems, which then means they can't do the job they 
were trained for.
    A recent Department of Defense survey found that 
servicemembers consider their finances to be the second largest 
source of stress in their lives, ahead of deployments, health, 
family, and war.
    I was dismayed to learn about the recent allegations of 
mortgage-related violations of the SCRA. I hope that the recent 
attention to this issue will cause all lenders to take steps to 
educate their employees about the financial protections that 
the SCRA provides and to take appropriate proactive steps to 
ensure compliance. This law was put in place to enable our 
soldiers to focus on their jobs, and it is important that it be 
adhered to. Servicemembers should not have to struggle to get 
the protections that are due to them under law.
    A National Guard wife once told me that her husband had 
been activated three times, and each time she had to fight with 
their bank for months to get the SCRA applied.
    As you know a foreclosure is devastating for any American 
family to experience, but it can be especially painful for 
military families. Both the family back home and the 
servicemember abroad, who feels helpless to take action to 
prevent the foreclosure, are put in a terrible situation. That 
is why it is so important that servicemembers receive all the 
protections afforded to them under the SCRA.
    Last month, I attended the White House announcement of the 
Strengthening Our Military Families initiative. The President, 
First Lady, and Dr. Biden all spoke at that event, affirming 
their commitment to military families, and almost the entire 
cabinet was in attendance as well. There is currently a very 
positive feeling in this country toward the service and 
sacrifice of military families, and a desire to support them. 
One way is to help to enforce the laws that are already on the 
books to protect them and to hold to account those who ignore 
them. Another is to write new rules when needed. It is also 
important to educate the military about their financial 
protections and about best financial practices. That will all 
be a big part of the mission of the CFPB and the Office of 
Servicemember Affairs.
    Thank you.
    [The prepared statement of Mrs. Petraeus appears on p. 75.]
    The Chairman. Colonel.

               STATEMENT OF COLONEL SHAWN SHUMAKE

    Colonel Shumake. Chairman Miller and distinguished Members 
of the Committee, thank you for allowing the Department of 
Defense to comment on the Servicemembers Civil Relief Act and 
to explain how we educate our servicemembers about it.
    The Department recognizes the fundamental importance of the 
SCRA, which has as its lofty goal providing servicemembers 
peace of mind, knowing that while they put their lives on the 
line that their personal affairs and economic interests will be 
protected.
    The SCRA's protections are broad and diverse. The Act 
protects servicemembers from evictions, default judgments, and 
foreclosure. It allows them to delay judicial proceedings and 
in some cases to cap their interest rates. It provides some tax 
relief.
    Congress continues to play a pivotal role in protecting our 
servicemembers. To ensure that the SCRA could be aggressively 
enforced by those for whom it is designed to protect, Congress 
passed the Veterans' Benefit Act of 2010, which clarified that 
servicemembers could seek civil enforcement of the SCRA through 
the courts and be awarded damages and attorneys' fees.
    Although many courts had found that such a private right of 
action has been implied, others have rejected that 
interpretation, leading to the unconscionable conclusion that 
servicemembers had benefits and protections that could not be 
enforced. This is now resolved.
    For the last several years, Congress has relieved may of 
the burdens of military service through a number of substantive 
changes to the SCRA. In 2008, Congress extended the 6-percent 
interest rate cap for pre-service mortgage obligations beyond 
the last day of active duty for a full year thereafter. At the 
same time, Congress also amended the SCRA to extend protections 
from foreclosure on pre-service mortgages from 90 days to 9 
months after the servicemember leaves active duty. Under these 
conditions and during this time, no servicemember can be 
foreclosed on absent a court order.
    In addition to amendments to the SCRA, Congress has 
provided other important protections through other laws as 
well.
    Beginning in February 2009, it provided $855 million as 
part of the stimulus package to expand pre-existing Homeowner's 
Assistance Program benefits. This addresses the unique economic 
pressures faced by military personnel who are required to 
relocate under military orders during the adverse housing 
market conditions.
    Later in 2009, Congress recognized that because most 
servicemembers rent and are not homeowners, they faced 
particular difficulties when their landlords are foreclosed 
upon. The Helping Families Save Their Homes Act of 2009 
provides significant protections when such servicemembers face 
possible displacement.
    Although these two statutes do not amend the SCRA, they 
recognize that servicemembers face challenges with their 
housing that in some ways puts them at greater risk than those 
not in service.
    These amendments to the SCRA and the other powerful 
statutory provisions discussed earlier mean little if our 
servicemembers do not know about them.
    The Service secretaries are directed to ensure that their 
members know about the benefits and the protections of the 
SCRA. This educational process involves coordinated and 
overlapping efforts.
    The Military Legal Assistance Program provides the first 
line of defense for servicemembers; however, if they are unable 
to resolve the matter, the servicemember may be referred to 
civilian counsel or be directed to seek representation through 
several different State and other pro bono programs.
    The Department's efforts to educate servicemembers and 
their families centers around the installation and around 
various reserve component mobilization and demobilization 
processing centers. These reserve component processing centers 
are particularly critical because two of the most important 
economic protections and benefits, the 6-percent interest rate 
cap and the protections against foreclosure only apply to pre-
service obligations. Accordingly, those most likely to benefit 
from these protections are in fact Reservists and National 
Guardsmen called to active duty.
    Because each of the services have the authority to best 
determine how to provide the necessary training and counseling, 
the Department has asked the services to set out how they 
educate their members about the SCRA.
    The timing of the request did not allow time to gather this 
data from the services and then organize it in a way to show 
how this information is presented to the servicemember; 
therefore, that information will be submitted separately as 
soon as possible.
    I look forward to answering your questions, sir.
    [The prepared statement of Colonel Shumake appears on p. 
78.]
    The Chairman. Thank you, Colonel, you just mentioned the 
fact that each individual service was ensuring that their 
members understand their rights under SCRA. I would like to 
have those responses by the 28th of this month, and again 
remembering that the letter to the secretary asks that the 
Department's efforts to educate the servicemember and their 
families in private industry about the protections afforded in 
affirmative responsibilities placed upon servicemembers under 
SCRA.
    Colonel Shumake. Yes, sir.
    [The DoD subsequently provided the following information:]

1. General Responsibilities and Overview

      The Servicemembers Civil Relief Act (SCRA) states that the 
Secretaries concerned are responsible for educating their members about 
its benefits and protections.\1\ Their efforts are supplemented by 
programs, personnel, and resources at the Department of Defense (``the 
Department'') level and through close contacts between the Office of 
the Under Secretary of Defense for Personnel and Readiness and the 
legal and financial readiness communities for the Services.
---------------------------------------------------------------------------
    \1\ Section 105, Codified at 50 USC App.  515.
---------------------------------------------------------------------------
    Through these combined efforts our servicemembers receive multiple 
opportunities to gain enough information about the SCRA and know when 
to seek more in-depth information from those legal and financial 
advisors who have more specialized knowledge. The main educational 
effort, as a practical matter, falls to the legal community, although 
the commander has ultimate responsibility for the mission readiness of 
the troops.
    Accordingly, much of this document focuses on the judge advocate 
communities and their efforts and responsibilities not only to brief 
the troops and make educational materials readily available online to 
the force, but also to train the trainers in the school house 
environment.
    In addition, the Department's network of Personal Financial 
Managers (PFMs) plays a significant role in the SCRA educational 
process, given that many of the SCRA's provisions directly impact 
finances, such as the interest rate cap of 50 USC App.  527 and the 
mortgage protections of 50 USC App.  533 (hereinafter ``sections 
527,'' and ``section 533''). These PFMs are trained to alert the 
servicemembers about the general protections available and to refer 
them to the free, confidential legal assistance services available 
under 10 USC  1044. Because of the relationship between general 
financial well-being and mission readiness, a general overview of the 
Department's efforts to ensure the financial readiness of our 
servicemembers will be addressed in paragraph 7, below.

2. SCRA Focus: Mobilization, De-Mobilization and Deployment

    The provisions that are the primary focus on this hearing are found 
in section 527 (interest rate cap) and section 533 (no foreclosure 
without a court order for certain obligations). Both of these sections 
apply only to obligations incurred before active duty (i.e., ``pre-
service''). The interest rate cap has its greatest protections with 
respect to mortgages. The interest rate cap for pre-service mortgage 
obligations extends during active duty and for 1 year after leaving 
active duty. Because of this pre-service condition, those who most 
stand to benefit from this protection are those members of the Reserve 
Component--Reservists and National Guardsmen--entering active duty. The 
majority of those currently involved in the ongoing war efforts are 
members of the Army. Accordingly, the focus of SCRA training for these 
members is at the Reserve Component processing centers.
    The Army's Readiness and Deployment Checklist for members of the 
Reserve Component lists SCRA training as one of the required blocks of 
instructions. Every Reserve Component unit that goes through a 
mobilization center run by First Army receives a briefing about the 
SCRA. First Army processes virtually all Army Reserve and Army National 
Guard units.
    The opposite side of the coin from mobilizations and deployments is 
demobilizations. This offers another important opportunity to inform 
members of the force about their rights under the SCRA. Given that the 
protections of both section 527 and 533 extend for a period after 
active duty, these briefings are particularly important for members of 
the Reserve Component.
    The Army Vice Chief of Staff has directed that the Reserve 
Component's mandatory demobilization briefings be standardized. Such 
training will include SCRA instruction. It appears that similar efforts 
are underway in the Army to standardize the mobilization briefings as 
well.
    Representatives from the National Guard Bureau indicate that when 
considering pre-mobilization and mobilization training, both at home 
station and at the reserve processing centers, that Army National Guard 
units receive multiple SCRA briefings during the deployment cycle.
    For the Army, both regular (Active Component) and Reserve Component 
Soldiers deploying individually (as opposed to mobilizing and deploying 
with a unit) will process though a Continental United States 
Replacement Center (CRC). The SCRA is specifically covered in the CRC 
briefings.
    In all cases, deploying Soldiers must complete a DA Form 7631, 
Deployment Cycle Support checklist. This form has a specific block to 
indicate the Soldier has been briefed on the availability of legal 
assistance and that ``counseling on civil matters'' was received.

3. Accessions (Initial Entry Training)

    The military Services are tasked with providing SCRA information to 
initial accessions.
    The Marines provide enlistees with a copy of NAVMC 11494, a form 
that explains basic SCRA benefits and protections.
    The Navy provides enlistees information about the SCRA in their 
Recruit Training Guides. Although there are no formal lessons covering 
it, the material is testable and ensures the material is in the same 
location as all formal lessons.
    The Army provides SCRA training to some in basic training, although 
it is not standardized. The U.S. Army Recruiting Command, however, has 
indicated that it will update its training annexes to include SCRA 
material. The annexes are part of the recruiting packet.
    Airmen receive standardized SCRA training during basic training.
    Although all opportunities to familiarize servicemembers with the 
basics of the SCRA are important, the Department recognizes that the 
tremendous amount of other information provided new accessions may 
limit their ability to process and retain SCRA information. Therefore, 
the Services also rely on additional installation and deployment 
readiness training.

4. Reaching the Force: Installation/Headquarters Training

    The bulk of the education of servicemembers and their families 
concerning the SCRA is handled at the installation. The installation 
focuses more on the regular members of the force than on the Reserve 
Component, but as noted, Army Reserve Component units are well covered 
during the mobilization process. Still, a number of provisions of the 
SCRA and the other Congressional legislative initiatives provide 
important benefits and protections for all servicemembers and are the 
subject of significant educational efforts at the installation level.
    SCRA education at the installation level is considered an essential 
part of the command's preventive law responsibilities. Each of the 
Services has the responsibility to ensure that preventive law services 
are provided within their command. Realistically, this program is 
implemented by judge advocates. It can take many forms.
    Perhaps the most important preventive law effort is accomplished 
during installation readiness exercises at which servicemembers process 
through various stations, including legal assistance. Some services 
provided at these stations include the preparation of wills and powers 
of attorneys. Sometimes information papers will be provided, including 
basic information on the SCRA. Some installation readiness exercises 
involve actual SCRA briefings.
    Other installation preventive law efforts include articles in the 
installation newspapers on hot topics or new legal developments, 
including refreshers on the benefits and protections of the SCRA. 
Another example of preventive law includes ``newcomers' briefings,'' 
which provide basic legal information for those new to an installation. 
These briefings are open to servicemembers and often their families. It 
is not likely that all of these briefings address SCRA issues, but they 
at a minimum alert potential clients to the availability of the local 
legal resources.

  Online and Service Headquarters Resources/Efforts

    Local Web sites are another method of providing information to an 
evolving and increasingly technologically savvy force. Many major 
installations have legal assistance Web sites with some general SCRA 
information. These local Web sites are supplemented by headquarters-
level Web sites and other online resources.
    The Headquarters-level Air Force legal assistance policy office Web 
site has been robustly pitched to its members. In 2010 alone, the Web 
site had more than 133,000 visitors. This Web site contains updated 
SCRA information. The Air Force legal assistance policy office also 
contributed to a live blog that had almost 10,000 visitors and 219, 294 
Twitter impressions. The Headquarters-level Departments of the Army and 
Navy legal assistance policy offices also have online resources with 
specific SCRA information available to all their members.
    The Navy legal assistance policy office has developed an on-line 
pre-deployment briefing that is being formatted by the Navy distance 
learning staff for complete access by all Sailors from any location. 
The Army is developing a similar resource and has been field testing it 
at one installation with good success.
    This Navy legal assistance policy office has also developed a 
``legal readiness check-up'' that will direct Sailors to their nearest 
legal assistance office based on a number of deployment-related legal 
issues, including many that involve SCRA protections.
    In addition, the Navy and Marine Corps legal assistance policy 
offices provide legal assistance practice advisories to the field to 
alert it of changes in law. These go to all Naval Judge Advocates and 
have included recent advisories on the Helping Heroes Keep Their Homes 
Act of 2009 and the Veteran's Benefit Act of 2010.
    The Army legal assistance policy office publishes periodic 
electronic newsletters and conducts video training conferences with the 
field. Those have addressed SCRA and mortgage foreclosure issues. All 
the Services' legal assistance policy offices regularly push new 
developments to their installation-level legal offices.

  Department of Defense Office of Legal Policy

    This office meets regularly with Chiefs of Legal Assistance for the 
Services and shares new developments to ensure consistent, across-the-
Services awareness of all types of legal assistance issues. The Office 
of Legal Policy meets informally with staffers from the House and 
Senate to share information and respond to requests for comments on 
legislative proposals, many involving the SCRA. These proposals are 
staffed with the Chiefs of Legal Assistance for the Services for expert 
advice and dissemination.
    In 2009, this office drafted and submitted the private right of 
action language as part of the Department's proposed draft 
authorization bill for FY 2010. In only slightly modified form, that 
proposal became the Veterans' Benefit Act of 2010.\2\ This provision 
ensures that those whose protections and benefits under the SCRA have 
been violated or denied can actually bring legal action and recover 
monetary damages and attorneys' fees. This is likely the most important 
change to the SCRA since the sweeping changes in 2003.
---------------------------------------------------------------------------
    \2\ Section 303, Public Law 111-275, October 13, 2010, amended the 
Servicemembers Civil Relief Act (50 USC App.  501 et seq.) by adding 
at the end new title VIII, Civil Liability.
---------------------------------------------------------------------------
    In January 2011, the Office of Legal Policy worked with experts on 
the SCRA from the private sector who had written an article addressing 
the new private right of action language enacted as part of the 
Veterans' Benefit Act of 2010. The Office of Legal Policy was able to 
obtain a commitment from the editors of the Army's Judge Advocate 
General's Legal Center and School to publish a scholarly article in The 
Army Lawyer. The article was drafted by Professor Gregory M. Huckabee, 
a former Army judge advocate who teaches at the University of South 
Dakota, and who served as the Army representative and Chair of the 
1991-1992 Department of Defense Task Force responsible for revamping 
the Soldiers' and Sailors Civil Relief Act, the precursor to the 
current SCRA; and by Colonel (Retired) John Odom, U.S. Air Force 
Reserve, a nationally recognized expert on the SCRA who currently is in 
private practice in Shreveport, Louisiana.
    As part of its general outreach responsibilities, the Office of 
Legal Policy has participated in a number of print, blog, and televised 
interviews on various legal topics such the SCRA, the Homeowner's 
Assistance Program,\3\ the Military Spouses Residency Relief Act,\4\ 
and the Helping Families Save Their Homes Act of 2009.\5\ These efforts 
focused on getting the information to the individual servicemembers and 
alerting them to the availability of help from the military legal 
assistance offices across the country and the world.
---------------------------------------------------------------------------
    \3\ Section 1001, Public Law 111-5, February 17, 2009, codified at 
42 USC  3374.
    \4\ Public Law 119-97, November 11, 2009, amended section 511 of 
the Servicemembers Civil Relief Act (50 USC App.  571).
    \5\ Sections 701, Public Law 111-22, May 20, 2009.
---------------------------------------------------------------------------
    The Department of Defense, though the Office of Legal Policy, has 
reached out directly to the force through direct e-mails to alert them 
to new developments in the law impacting their financial and legal 
well-being.
    In September 2008, as the mortgage crisis worsened and before the 
Homeowner's Assistance Program became law as part of the February 2009 
stimulus package, over one million servicemembers were informed by e-
mail drafted by the Office of Legal Policy of a change to the Joint 
Federal Travel Regulations that allowed servicemembers to be relocated 
at government expense if their landlord was foreclosed on. That 
protection preceded the Helping Families Save Their Homes Act of 2009, 
which provided protections applicable to everyone--not just 
servicemembers--whose landlord was foreclosed on.
    This e-mail assures them that protections and resources for dealing 
with the financial difficulties that were sweeping the country in late 
2008 were available. It mentioned general SCRA protections against 
evictions and that legal proceedings could be delayed. It referred the 
servicemember to installation family readiness and support centers, to 
Military OneSource counselors, and to the local legal assistance 
offices.
    This across-the-force-message was supplemented by a series of 
postings on every servicemember's pay statement (the Leave and Earnings 
Statement) throughout 2009. These messages were concise and to the 
point:

     ``RENT, MORTGAGE, EVICTION, OR FORECLOSURE DIFFICULTIES? GET FREE, 
CONFIDENTIAL HELP. VISIT YOUR MILITARY LEGAL ASSISTANCE OFFICE OR CALL 
MILITARY ONESOURCE AT 1-800-342-9647.''

    An alternative message said:

     HOUSING DIFFICULTIES? SEE YOUR MILITARY LEGAL ASSISTANCE OFFICE OR 
CALL MILITARY ONESOURCE AT 1-800-342-9647.

    The Chairman. Ms. Petraeus, the press release that Treasury 
sent out announcing the Bureau talked about a hotline that was 
going to be set up for consumers, and I guess the question is 
has the hotline been established? And if it is, is there an 
option for servicemembers to ask questions about SCRA?
    Mrs. Petraeus. We have taken the first step, which is to 
get our Web site up and running, so you can contact us that 
way, and I have just been in discussions to make sure that we 
do ask that question, are you military, so we can be sure to 
address their particular issues. That is as far as we have 
gotten so far. We are just still in the process of building the 
organization.
    The Chairman. How many people will staff the hotline or do 
you even know at this point?
    Mrs. Petraeus. Don't know at this point. We are just--we 
are still figuring out a lot of these things.
    The Chairman. Since the SCRA statute doesn't provide for 
enforcement authority to the Bureau, what role would you find 
yourself playing with SCRA?
    Mrs. Petraeus. I think our role is definitely going to be 
an educational one. Although we don't enforce it, we can 
certainly educate about it and that is a big part of our 
mission, really, to educate the military, to provide them the 
best possible financial education, and obviously one part of 
that can be to talk about the SCRA.
    So we will be working with the Department of Defense to see 
if we can find ways to get that information out there so it is 
retained.
    You heard Captain Rowles mention that sometimes the basic 
training is not the best time to get all this financial 
information because you are stressed, you are tired, you are 
worried about the next chow call and your next formation and 
you just don't absorb it, so we have to work with them and see 
if we can find a way to teach it so people do retain it and 
really understand it.
    The Chairman. Colonel, how does DoD measure the level of 
knowledge of its servicemembers of their rights and 
responsibilities under SCRA?
    Colonel Shumake. Sir, it is difficult to tell how any one 
person understands it or in fact at those pre-deployment 
briefings whether it is sinking in. You really don't know until 
they kind of show up in your office as a legal assistance 
attorney and you start going through it.
    Certainly there are provisions that I think people don't 
grasp. I think there is a lot of misunderstanding about even 
the main topics today with respect to the interest rate cap, 
for instance that it only applies to pre-service obligations. 
Many times folks don't know that.
    Likewise, I would say that with some of the latest changes, 
you know, you have to keep pushing it out, you have to be sure 
that those changes such as I mentioned where we have extended 
it from 90 days to 9 months on the foreclosure protections that 
prevent a foreclosure, again on a pre-service mortgage 
obligation only, that cannot happen without a court order.
    So we are always--we have to stay on top of that because 
even that was extended in the last--about the last act of the 
last Congress where that sunset provision that would have taken 
that 9 months back down to 90 days was changed.
    And so it is a constant effort in part on my office working 
closely with the chiefs of legal assistance for the services to 
make sure everyone understands it and we push that information 
out to the field through a number of different ways.
    But again, sir, it is hard to measure what any one person 
understands or how they perceive it, we just have to keep 
training on it.
    The Chairman. If a servicemember notified a base legal 
officer that they thought there were potential violations of 
SCRA, what actions would you expect the legal staff to take?
    Colonel Shumake. Well, sir, I would. You know, a lawyer is 
always going to be hesitant unless perhaps they are sitting 
across the table in litigation from saying bad things about 
what another lawyer has done, but in listening to Captain 
Rowles' testimony, I have to say that I was very disappointed 
if our legal assistance attorneys says, ``Jeez, I just don't 
know this or I don't think I can help you.''
    You know, I don't know everything about the law and no one 
does, but I know how to pick up the phone, and I would expect 
that our folks would pick up the phone and take some of that 
pressure off these folks, particularly if the client happened 
to be Captain Rowles' wife while he is deployed, I would hope 
that we would fight for her. And sometimes that is just wading 
through the bureaucracy and it is just getting them to the 
point where, you know, you can get somebody to listen by 
saying, ``No, I need to talk to somebody who understands the 
SCRA, I need to talk to your boss.'' That is what I would 
expect.
    You know, hard again to say what happened and what 
information was passed, but I know that is how I would do 
business if I was a legal assistance attorney and they came to 
me.
    The Chairman. I appreciate you bringing up the fact that 
the base legal officer in Pensacola or the JAG that he went to, 
basically said it was out of his lane, and I don't think that 
is an appropriate response.
    Colonel Shumake. Sir, it is not, this is their lane, this 
is what we do, and we have--we don't need to set up a SCRA 
office specifically, we have legal assistance offices, we need 
to train, we need to make sure they are trained. We have to 
take care of our folks and represent them zealously, that is 
what our responsibility is. It is not any different when we put 
on this suit.
    The Chairman. Mr. Filner.
    Mr. Filner. Like the Chairman I appreciate that strong 
statement of what you should be doing.
    I would take it a bit further. For example, when this story 
broke and it was clear there were problems did you talk about 
sending letters to the banks about SCRA laws? As we heard there 
are only four banks that do 70 percent of the mortgage 
business, did you talk about that?
    Colonel Shumake. Sir, what we did was I made sure that the 
information got out and I had talked to JPMorgan Chase and I 
had their hotline, I made sure that that got down through all 
the chiefs of legal assistants down to the lowest level.
    Mr. Filner. Yes, but did you tell JPMorgan Chase or 
Citibank or Bank of America or Wells Fargo what SCRA required?
    Colonel Shumake. Sir, not in this case.
    Mr. Filner. Okay, you didn't. Did Secretary Gates think 
about calling in the presidents of those 20 institutions or 10 
institutions or 4 and say, hey, is what occurred ridiculous. 
This was a major story and it still is?
    Colonel Shumake. Yes, sir.
    Mr. Filner. Did Secretary Gates say we have to protect our 
people and make sure the banks know? Did that happen?
    Colonel Shumake. Sir, I can't really comment on what 
Secretary Gates thought about that, sir. I don't know.
    Mr. Filner. It didn't happen.
    I just would go beyond the pure legal matter because the 
fact that this is not known, and that this is your 
responsibility. As you said, to take the pressure off these 
military families. That means going further. I heard from this 
hearing several things that we should be doing, but you should 
have recommended these actions.
    Look, the simple fact of having on a bank application a box 
to check that you are protected by SCRA--I don't know how you 
phrase that, but you could figure it out--it should be on every 
mortgage application. So everybody has a check mark to make.
    Why shouldn't banks have to certify their awareness of this 
when they get these $25 billion checks from the government? I 
think the banks ought to contribute to a fund to set up the 
SCRA office or an ombudsman. You are taking a very bureaucratic 
approach, the banks are taking an ultra bureaucratic because 
nobody is responsibility in a bureaucracy.
    Instead of taking what I will call a political stance, get 
the damned presidents of JPMorganChase and the Bank of America 
into a room and say you have responsibility here. Don't send us 
the 150th ranking executive vice president, but take 
responsibility for this. Bring them into the room. Tell 
Secretary Gates I said that.
    I won't ask you how high you are up in the chain of command 
because there are probably thousands between you and the 
Secretary.
    We have to protect these people. The banks aren't doing 
their job, we can expect that, but we could pass laws that make 
them do their job. We are their protectors, we should be doing 
our job, and if that means that you--I mean I don't know how 
you are going to relate to Justice or DoD, Mrs. Petraeus, but I 
mean the enforcement has to be done, and these banks will not 
respond as we have heard unless there is some legal consequence 
to their action. Nobody is responsible.
    You know, the SCRA code fell from the applications. All 
these codes are sitting around waiting to fall down? This is 
ridiculous.
    I think we have to pinpoint responsibility--I mean you have 
to talk to these guys directly. Put them on the spot, have them 
take responsibility for what is going on in their own bank.
    I suspect that the President of JPMorgan Chase still 
doesn't even know what SCRA means, because somehow it is going 
to be taken care of and they are going to send out their $70 
checks and make people whole.
    So I think you said a very strong statement, Colonel, but 
you have to expand that into the existing way we learn things 
and the way we do things.
    I don't know but I assume the military could have 
everybody's e-mail address. Send out an e-mail that says do you 
know what SCRA is? Here it is in writing. If you don't 
understand it call us at this number. We could do that to the 
vast majority of our troops. We have the Rowleses, the tip of 
the spear for tens of thousands of others, so let us notify the 
tens of thousands of others. They don't know what is going on.
    I can't believe from the testimony that there are only 18 
soldiers who have been foreclosed on by Chase mortgage. That is 
inconceivable to me with their millions of loans.
    Talk to Secretary Gates and tell him to bring in these 
presidents and do something.
    Colonel Shumake. Sir, if I might point out we have sent out 
e-mails to every single servicemember active and reserve on the 
foreclosure issues.
    Mr. Filner. Could you give me a copy of that?
    Colonel Shumake. Yes, sir, absolutely.
    [The DoD subsequently provided the following information:]

    Below is the email that was sent out in September 2008 to every 
Active and Reserve member. It deals with financial problems in general 
and evictions related to foreclosure of landlords specifically.
                  ----------Original Message----------
    From: AFLA2008
    Sent: Tuesday, September 16, 2008 11:49 PM
    To:
    Subject: Information about Armed Forces legal assistance for 
financial matters (00317711 32)

    If you are struggling financially, you are not alone. You can get 
help.
    Recently the economic news across the country has not been good. 
Consumer prices are rising. Real estate prices are falling.
    Foreclosures are up. Often this impacts renters too, who are forced 
to relocate when their landlords are forced into foreclosure.
    Military members face many of these same challenges.
    A new law allows the government to pay for some local moves when 
military members or their dependents are forced to move because their 
landlord is facing foreclosure. There are also a number of laws 
specifically designed to help military members when they face economic 
or legal difficulties.
    Legal proceedings can be delayed. Military members generally cannot 
be evicted unless a court orders it. Mortgages can be renegotiated. 
Grants or low cost loans may be available.
    If you are having problems making ends meet or are being forced to 
move from your rented home, you can get free, confidential help from a 
number of sources:

        -- Your Installation Family Readiness/Support Center can 
        provide financial counselors.
        -- Your military legal assistance office can provide a licensed 
        attorney. This Web site will identify the military legal 
        assistance office closest to you: http://
        legalassistance.law.af.mil/content/locator.php
        -- Military OneSource can provide financial counselors--24/7--
        by calling, toll-free, 1-800-342-9647.

    P.S. Responses to this email will not be answered. Please direct 
your ques- 
tions to your legal assistance office or the Military OneSource Web 
site at www.MilitaryOneSource.com

    Mr. Filner. Okay.
    Colonel Shumake. We have also put it on their LES's. 
Everybody gets that, everybody looks at that.
    Mr. Filner. Tell me what an LES is.
    Colonel Shumake. I am sorry, leave and earning statement. 
Your paycheck or basically your pay receipt. We have put the 
information on that. And so you have to be careful on how much 
you can----
    Mr. Filner. All right, I would like to see what you are 
doing, because----
    Colonel Shumake. Yes, sir.
    Mr. Filner [continuing]. Sometimes this stuff becomes so 
bureaucratic that nobody either pays attention or understand 
them.
    I would have put a big red notice in there that says stop, 
are you a homeowner? Then you may be having problems. I doubt 
that is what you did. You probably put a little line that says 
don't forget that the SCRA, which you learned in school, should 
be applied. But listen, these kids learn in different ways, you 
need to hit them on the head in different ways, and this stuff 
is serious, and we just can't assume that they are going to 
have the responsibility to read a little bureaucratic line on 
there.
    Thank you, Mr. Chairman.
    [The DoD subsequently provided the following information:]

    There were two different Leave and Earning Statement (LES) remarks 
used in 2009 for the housing/mortgage crisis--both including the 
Military ONESOURCE number. They are listed below:

     RENT, MORTGAGE, EVICTION, OR FORECLOSURE DIFFICULTIES? GET FREE, 
CONFIDENTIAL HELP. VISIT YOUR MILITARY LEGAL ASSISTANCE OFFICE OR CALL 
MILITARY ONESOURCE AT 1-800-342-9647.

     HOUSING DIFFICULTIES? SEE YOUR MILITARY LEGAL ASSISTANCE OFFICE OR 
CALL MILITARY ONESOURCE AT 1-800-342-9647.

    We also ran a MILITARY PAY NEWSLETTER Article in September 2008 
(this is specific to members who are renting private housing that is 
foreclosed and they are not the owner):
                            ``Foreclosure''
          An armed forces member who relocates from, or whose 
        dependent(s) relocate from leased or rented private housing by 
        reason of a foreclosure action against the landlord, is 
        authorized a short distance move (this provision does not apply 
        if a member and/or dependent(s) are the homeowner).
          The household goods move is to another dwelling from which 
        the member is to commute daily to the permanent duty station 
        (or at a location at which the dependent(s) reside).
          Before using this authority, a member is encouraged to 
        exhaust remedies available under the Servicemembers Civil 
        Relief Act (50 USC, Appendix 531) and State law. The 
        Servicemembers Civil Relief Act limits evictions of 
        servicemembers or their dependents to court orders during 
        periods of military service. It also empowers the courts to 
        stay proceedings for a period of 90 days (may be shorter or 
        longer if the judge determines it is needed) or adjust the 
        obligation under the lease. Consult your legal office for 
        specific situations.

    The Chairman. We have votes coming up in just a few 
minutes, so Mr. Michaud.
    Mr. Michaud. Thank you very much, Mr. Chairman.
    Ms. Petraeus, in your statement did you say that for the 
military families that the second issue of stress is financial?
    Mrs. Petraeus. Yes, the Department of Defense did a survey, 
I don't have the details of that survey, but I did say--it was 
of servicemembers, I believe, not family members--and I said 
that they considered their finances to be the second largest 
source of stress, and that was ahead of deployments, health, 
family, and war, so.
    Mr. Michaud. Colonel, and I want to get back to the whole 
suicide issue because I know, you know, finances are very 
stressful and what the Rowleses went through is just 
unbelievable, and for suicides within the military, do you 
follow up on why a suicide occurs--had occurred?
    Colonel Shumake. Sir, I would have to get back with you on 
that. I don't have the visibility on that followup in the 
suicide world.
    [The DoD subsequently provided the following information:]

    There is a general consensus based on recent studies that bad 
economic times contribute to increases in suicides. From that broad 
conclusion, one could more narrowly conclude that an individual's own 
financial difficulties could be a stressor contributing to suicide.

      Department of Defense Task Force on the Prevention of Suicide by 
Members of the Armed Forces Report, August 2010. This report at pages 
11 and 12 notes many historical factors affecting suicide rates, 
including exposure to trauma and access to lethal means, but it goes on 
to note that a number of additional layers of complexity require 
consideration. Two of those are noted: the impact of multiple 
deployments and the use of Internet-based communications with family 
while deployed. The report at page 44 also states that failed 
relationships and mental health diagnoses were primary stressors. This 
report does 
not specifically note economic factors, but they might reasonably be 
considered 
to arise as an effect of multiple deployments. (http://www.health.mil/
dhb/downloads/Suicide%20Prevention%20Task%20Force%20final%20report%208-
23-10.pdf)
      Army Health Promotion Risk Reduction Suicide Prevention Report, 
2010. This report concludes that economic difficulties are potentially 
magnified for servicemembers. It suggests that is a stressor 
potentially impacting the suicide rates. (http://www.apd.army.mil/
pdffiles/p600_24.pdf) Rand Study: The War Within, Preventing Suicide in 
the U.S. Military. This report at page 35 does mention financial 
hardships as a stressor that could affect suicide rates. (http://
www.rand.org/content/dam/rand/pubs/monographs/2011/RAND_MG953.pdf)
      Department of Defense Suicide Event Report for 2008. This report 
at page 23 indicates that excessive debt or bankruptcy was reported for 
10 percent of suicides. (https://dodser.t2.health.mil/)
      Department of Defense Suicide Event Report for 2009. This report 
at page 2 indicates that excessive debt or bankruptcy was reported for 
11 percent of suicides. (https://dodser.t2.health.mil/)
      ``Relationship between Economy, Unemployment and Suicide,'' 
prepared by the Suicide Prevention Resource Center, November 12, 2008. 
It notes that a review of the last two decades of literature suggests 
``a strong relationship exists between unemployment, the economy, and 
suicide.'' This article did not focus 
on the military. (http://www.sprc.org/library/Economy_Unemployment_and_ 
        Suicide_2008.pdf)

    Mr. Michaud. If you could I would appreciate it, because I 
can't help but believe with the number of suicides in the 
military that it has not been caused by, you know, financial 
stress.
    Colonel Shumake. And you mean specifically a report that 
goes back and tries to characterize kind of an autopsy if you 
will in what happened?
    Mr. Michaud. Well, I mean has there been a conclusion or 
been suicide notes, you know, I just can't stand it anymore 
because I can't make my mortgage payments or stuff like that. 
Has there been any reports done on suicide rates in the 
military of why they have occurred? If you can follow up.
    Colonel Shumake. If we have it I will find out.
    Mr. Michaud. Yeah. Because my concern is, and we heard the 
representative for JPMorgan this morning apologize and they are 
going to pay seven and a half percent interest, which I think 
is just unbelievable when you look at the chief executive 
officer of JPMorgan a $28 million bonus in 2007.
    I guess my concern, and I come from the manufacturing 
sector of the paper industry, and unfortunately some of the 
paper industry they violate a lot of environmental laws, and 
when I asked actually one of them why they do it and they said, 
well, you know, it is cheaper to violate the law, it is just 
the cost of doing business. And that is a concern that I have 
when you look at the violations that we heard this morning and 
the fact that seven and a half percent.
    Actually what I would like to see is the Justice Department 
find someone who actually had committed suicide and it is 
related to financial stress and actually hold a corporation 
liable under the Wrongful Death Act and that is when we 
actually will start seeing companies really follow the law 
versus paying a penalty because of the cost of doing business, 
and that is really where we are going to actually get the law 
followed is if we do have a hammer there to do that.
    So I want to thank you both for coming this morning. I 
appreciate your testimony.
    Colonel Shumake. Thank you, sir.
    The Chairman. Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman, and again, I thank you, 
you are certainly starting out with the promises you made when 
you assumed the Chairmanship of this Committee and holding 
pointed, important hearings for your veterans and their 
families, so thank you for that.
    To the Ranking Member your passion is also there, Mr. 
Ranking Member, and I appreciate it. I have to tell you though 
having been an enlisted soldier for 24 years I have to tell 
these guys to wear their helmet at times, and it becomes really 
hard. Those are the things I want them to focus on, the things 
like how do you set that head spacing timing on that .50 
caliber, how do you get your mission done? And it becomes quite 
burdensome to try.
    And you know, this is where I think there is a shared 
responsibility in the country and a corporate ethic to go a 
little above and beyond. And I am not absolving those soldiers 
of personal responsibility, Lord knows, they can get themselves 
into some of that, they can help get out of some of it, but I 
have to tell you one thing for you Colonel that I said, it is 
hard for them to remember it all.
    I know when I was able to resolve some of these and they 
were specifically car loan issues with young soldiers of doing 
that on a deployment. A senior NCO on the phone who has had a 
little more experience with talking to people cutting through 
the bureaucracy really made a difference.
    My question to you is do you get reports on that? I never 
filed a report on that and I did a bunch of these where there 
were issues of they were violating the rules of the law, we 
went in, we corrected them, and I will give credit in most 
cases these auto financers were pretty good about working it 
out and were being pretty good citizens, but no one reported 
that. So do you think you have an actual number? Do you think 
you have a grasp of how big a deal this is?
    Colonel Shumake. Sir, it is hard to tell, particularly when 
you are looking at the fact that you have attorneys, and 
usually it is going to be the attorneys. Of course if it is a 
senior NCO doing it, no, sir, we are not going to hear about 
that. We are not going to know, they are going take care of 
business like they do.
    Mr. Walz. Would you guess that is more common? I mean that 
is my personal experience, I can't say if that is an----
    Colonel Shumake. Sir, I kind of--I guess I come from a, you 
know, the legal focus and so I don't hear so many cases of 
that.
    Mr. Walz. Okay.
    Colonel Shumake. I kind of hope that first sergeant sends 
them to legal assistance and I kind of hope that legal 
assistance attorney is doing what I described earlier.
    And we do get reports--of course, you know, you can't tell 
exactly what is going on in the attorney/client world, but the 
services will report the number of clients they see overall and 
they break it down into certain categories, and one of the 
categories generally is SCRA.
    I know that for the Marines they--I think it is the 
Marines--they have the Uniformed Services Employment and 
Reemployment Act----
    Mr. Walz. Right.
    Colonel Shumake [continuing]. Which is the re-employment 
rights, they kind of mixed categories, so I just kind of have 
to guess on that.
    But there is a general overall report that you could track 
depending on how good their system is in the past. I do know 
that right now I can get a snapshot of how many----
    Mr. Walz. So you feel fairly comfortable that you are 
getting a--least a--how did you come to know about the JPMorgan 
issue? Did they come to you?
    Colonel Shumake. Sir, I got a call from a Senate staffer 
who asked if I heard anything about it, and I then called my 
friends in the American Bankers Association and my office does 
have contacts with----
    Mr. Walz. That is great.
    Colonel Shumake [continuing]. With the ABA. I have given 
Webinars for those guys on two occasions.
    Mr. Walz. That is great.
    Colonel Shumake. Gone out to the banking----
    Mr. Walz. So this work--I mean as far as the reporting and 
stuff you wouldn't want it--we never want it to happen, but you 
think the followup afterwards works?
    Colonel Shumake. I think it was good, sir.
    Mr. Walz. Okay.
    Colonel Shumake. Because it was the ABA, after I made the 
call to the ABA the next thing I know I got a call from one of 
their attorneys who said JPMorgan Chase would be giving me a 
call. So once I got that----
    Mr. Walz. I think that needs to be noted because there is a 
help and I know the Chairman mentioned about ABA and reaching 
out to them, that is smart. Because what we want to do is we 
want to alleviate this, we want to make sure that it doesn't 
happen, put safeguards in, but the biggest thing is never to 
have it happen in the first place.
    Colonel Shumake. Yes, sir. And so I think from that 
information we can then--my office could push it down and we 
had the hotline out because the JPMorgan Chase piece ran on The 
Today Show on the 17th.
    Mr. Walz. Great.
    Colonel Shumake. We had it out that weekend.
    Mr. Walz. Colonel, can you tell me, and just maybe as an 
example of how this is--the difficulty of this as you 
mentioned. I think of myself in my situation. I signed up when 
I was 17, I didn't buy my first house until I was 33, I 
deployed 7 years after that. I actually wouldn't have been 
covered then, correct, because I had the loan during service?
    Colonel Shumake. That is correct. The mortgage protection 
on first the interest rate cap is pre-service and so is the 
foreclosure piece. And again, all the foreclosure piece says is 
that you have to have a court order to do it.
    Mr. Walz. So for a National Guard soldier like me my life 
situation obviously changed greatly from 17 to 40 when I am 
deployed, children, home, all of that, but because of the 
nature of the way this is set up, I was not afforded those 
protections because I would have already been in the service 
when I got the loan.
    Colonel Shumake. Well, it has to be a pre-service, so I 
think if you had some gaps in there you might be able to make 
your argument.
    Mr. Walz. But if you are National Guard the whole time the 
way I understand this you are not; is that correct?
    Colonel Shumake. Well, no, sir, if you left--it is not so 
much that you are in active service in the National Guard, it 
is that you are on active duty.
    Mr. Walz. Yeah.
    Colonel Shumake. That is the key.
    Mr. Walz. But if you were a technician or any of these 
people do they----
    Colonel Shumake. The technician--I am going to pass on the 
technician because that is about as complicated as it gets.
    Mr. Walz. Well, I appreciate it, but I do think your point 
is right about explaining this out.
    My last question, Mrs. Petraeus on this is, I have to tell 
you I talk with a lot of my bankers. The CFPB is not their 
favorite organization at this point even though it is brand 
new.
    How are you going to get beyond that to say we are not here 
to persecute, we are here to help the consumers and you can 
help us make that happen? Are you feeling that? I mean are you 
feeling cooperation from these institutions?
    Mrs. Petraeus. Yeah, I think so. I mean part of our goal is 
to make a level playing field for consumers, and that doesn't 
mean, you know, that we are anti-business.
    Mr. Walz. Right.
    Mrs. Petraeus. And we do want to convey that message. And 
Professor Warren has been hard at work doing that.
    Mr. Walz. Okay. I just know that, you know, that perception 
is there, just wanted to know.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much. Thank you to everybody 
for being here today, those that testified.
    Let me assure you if changes need to be made to the SCRA, 
we will work across the aisle with our colleagues to see that 
they are done. No servicemember in a fox hole or serving on the 
front line should have to worry about the roof over their 
family's head back at home, and we will do everything we can to 
make sure that they are protected.
    With unanimous consent, all Members shall have 5 
legislative days to revise and extent their remarks or 
extraneous material, and I thank all the Members for 
participating today, and this hearing is adjourned.
    [Whereupon, at 1:29 p.m., the Committee was adjourned.]

                            A P P E N D I X

                              ----------                              

                Prepared Statement of Hon. Jeff Miller,
             Chairman, Full Committee on Veterans' Affairs

    Good morning and welcome to the first oversight hearing of the 
House Committee on Veterans' Affairs of the 112th Congress.
    As we begin our important work on behalf of America's veterans and 
servicemembers, I would like to point out that veterans are well-
represented on this Committee. While our members look after the 
interests of all 23 million U.S. veterans and their families, some 12.2 
million--over half of America's veterans--reside in the States we 
represent. I am especially proud that 110,000 of those heroes reside in 
Florida's First Congressional District.
    And that responsibility brings us to the subject of today's 
hearing.
    I know the Members on both sides of the aisle are concerned about 
today's topic, but consistent with past practice, I would like to limit 
opening remarks to myself and the Ranking Member so that we may have 
more time to hear from our witnesses. Of course, Members are welcome 
and encouraged to submit their opening remarks for the record.
    The Servicemembers Civil Relief Act has existed in various forms 
since the War of 1812 and each version has shared a singular goal: to 
protect those who protect us. The 2003 revision, which I cosponsored, 
and the amendments we have made since, continue that tradition. I am 
committed to ensuring SCRA remains a relevant and viable tool and I 
know the Ranking Member and the rest of this Committee share in my 
commitment.
    My goal for this oversight hearing is to determine whether the SCRA 
afforded our servicemembers and their families are meeting their needs. 
We are all aware of related matters pending before the court. This is 
not intended to be a trial of any sort. I am not seeking to prejudice 
that or any future action in any direction. At the same time, it is 
important to recognize the obligations that exist under the law, and 
that this Committee has a duty to ensure that the law is working for 
active duty servicemembers.
    I have said recently, and I will say again now, that our Nation's 
war fighters--and their families--should not have to fight to keep 
their piece of the American Dream while they are on foreign ground 
defending that fundamental right for all of us.
    I want to thank our witnesses for appearing before us. First, I 
thank Captain Jonathon Rowles (ROLLs) and his wife Julia, for their 
persistence in exercising their rights. Second, I thank JPMorgan Chase 
for reaching out to us, and more importantly, for admitting its 
mistakes and then making the efforts it has at rectifying them.
    I hope our witness from the Department of Defense will be able to 
assure us of the effectiveness of their program to educate 
servicemembers of their rights under SCRA. I also look forward to 
hearing from the newly established Consumer Financial Protection Bureau 
about how it can contribute to preventing similar occurrences in the 
future.
    What we have here is what some might call a ``teachable moment.'' 
For the financial services industry, the lesson is to understand the 
Servicemembers Civil Relief Act and to undertake the same sort of 
review as has Chase to ensure compliance. For DoD, it is time to review 
whether the services' SCRA training programs are getting the job done. 
Finally, servicemembers are ultimately responsible for understanding 
their rights and responsibilities under SCRA and holding their 
financial institutions accountable. Today, we will be asking and 
listening for ways to ensure that these goals are met.
    Before we begin I ask unanimous consent that all Members be allowed 
to sit at the dais and be permitted to ask questions. Hearing no 
objection so ordered. I also want to extend a warm welcome to Mr. Brad 
Miller of North Carolina. Mr. Miller drafted legislation last congress 
on SCRA and I am happy that he is here today.
    I now recognize the Ranking Member, Mr. Filner, for his remarks.

                                 
                 Prepared Statement of Hon. Bob Filner,
     Ranking Democratic Member, Full Committee on Veterans' Affairs

    Good morning, everyone. I'm glad you all could join us for this 
very important hearing today on overcharges by JPMorgan Chase on 
military families. I would also like to thank the Chairman for holding 
this hearing today.
    I believe this is a very important issue and is something that we 
should continue to monitor as the foreclosure crisis continues to 
unfold. I also want to thank all of our distinguished panelists for 
participating in today's Committee hearing. I know that some of our 
panelists have traveled far distances to be here today.
    Today's hearing seeks to examine why banks such as JPMorgan Chase 
have overcharged our military families who are actively engaged in 
defending our country.
    While we want to know how these overcharges happened, I also want 
to know what they are doing to prevent this from occurring again.
    As foreclosure filings continue to rise, the effect on Americans 
has been acute, with California having one of the most affected 
populations. According to RealtyTrac, California metro areas such as 
San Diego have been seriously affected by the foreclosures.
    Like most Americans, many of our Nation's heroes see homeownership 
as an integral part of the American dream. Unfortunately, for a number 
of military families, that part of the American dream became a 
nightmare when JPMorgan foreclosed on their homes. It is my sincerest 
hope that JPMorgan Chase is taking immediate corrective steps to 
restore these families to their home as soon as possible.
    I personally have grave concerns for Marine Captain Rowles and his 
wife. They have been through a 5-year saga with the bank.
    It is unconscionable that any family would have to endure this kind 
of treatment--especially a military family. I strongly urge JPMorgan 
Chase to move as quickly as possible to do the right thing for them and 
all of the other military families who are affected.
    For many of our returning servicemembers and veterans, the stress 
of what they have gone through by serving in a war zone may still 
affect them. This is why the protections under the Servicemembers Civil 
Relief Act are there to provide protection for all of our military 
families.
    Mr. Chairman, I hope you and everyone else on the Committee will 
make a commitment today to stand up for veterans and their families by 
joining me in making these protections permanent for the military 
families.
    I look forward to hearing the testimony of all our panelists so 
that we may better understand the problem and see what preventive 
strategies can be implemented to address the overcharges and 
unnecessary foreclosures on our Nation's military families.
    Again, I would like to thank you, Mr. Chairman, for holding this 
hearing and I thank all of our panelists for being here with us today. 
Your dedication to our Nation's servicemembers and veterans is 
extremely important as we seek to identify and improve lending 
practices to protect military families, while continuing to allow 
opportunities for home ownership.
    Thank you and I yield back my time.

                                 
              Prepared Statement of Hon. Gus M. Bilirakis

    Mr. Chairman, Ranking Member Filner, I want to thank you for 
promptly holding this hearing to delve into allegations of violations 
of the Servicemembers Civil Relief Act (SCRA). Those serving in the 
uniform of the United States Military make tremendous sacrifices in 
their personal lives. The nature of their service often does not afford 
them the same opportunities that civilians have in managing their day-
to-day lives.
    I was distraught to learn that financial institutions were remiss 
in providing servicemembers with the benefits the law affords to them. 
It is frustrating to learn of the unnecessary burdens that many 
servicemembers, such as Captain and Mrs. Rowles, have faced as they 
have answered the call of service to our Nation.
    It is my hope that this hearing will bring light to the overall 
impact of alleged violations and their prevalence in the financial 
sector. In addition I hope that sufficient remedies will be implemented 
and serve as a model to ensure that servicemember's requesting 
protections under SCRA will be realized without delay. Today's hearing 
serves as an opportunity to identify shortfalls in implementation of 
this law and move forward in a productive manner so that we can better 
serve those who serve our Nation.

                                 
                 Prepared Statement of Hon. John Barrow

    Thank you Chairman Miller and Ranking Member Filner.
    This is my first hearing as a Member of the Veterans' Affairs 
Committee, and I would like to express the honor and humility with 
which I serve on this Committee. We owe an extraordinary amount of 
gratitude to those who have served our country, and we still have a lot 
to do before we can say we have kept the promises we made to our 
veterans when they first joined up. Better enforcement of the 
Servicemembers Civil Relief Act is an important step in the right 
direction to keeping those promises.
    Proper adherence to the Servicemembers Civil Relief Act makes our 
country safer and protects the families of our troops. Servicemembers 
should be able to devote themselves completely to the defense of the 
Nation. With the very real dangers they face in war they cannot be 
distracted by the thought of losing their home while serving and 
leaving their family on the street. But they will be distracted if the 
few times they hear from home they discover that their family is in 
danger of losing their home to an illegal foreclosure. The families of 
our troops already face undue stress while their loved ones serve 
abroad on active duty.
    I understand that JPMorgan Chase has taken steps to correct the 
accounting problems that violated the Servicemembers Civil Relief Act, 
but we have to do better in the future. I look forward to hearing 
specifically how and why the protections under SCRA were not followed. 
More importantly, I want to hear specific suggestions on how we can 
improve the application of SCRA through oversight so that no one has to 
worry about losing their home because they have been called to active 
duty.

                                 
             Prepared Statement of Hon. Marlin A. Stutzman

    Thank you, Mr. Chairman. This is my first full Committee hearing 
and I am very honored to serve on this Committee to serve our veterans 
who have so honorably defended this Nation.
    In addition to the honor of serving on this Committee, I have the 
additional honor of serving as the Chairman of the Subcommittee on 
Economic Opportunity. The Servicemembers Civil Relief Act (SCRA) falls 
under the oversight of my Subcommittee. Over the past few days and 
weeks I have been learning about SCRA and the benefits and protections 
it affords to our servicemembers. I commend the work of previous 
Congresses on this legislation.
    With the amount of servicemembers currently deployed, it is of 
utmost importance that servicemembers and the financial institutions 
that handle their affairs are fully educated on the intricacies of the 
SCRA. Servicemembers must be fully focused on the mission abroad, not 
worrying about their personal affairs at home and wondering if they 
will come back to a foreclosed home.
    It is the duty of financial institutions to serve all their clients 
with the utmost respect and customer service but there is an increased 
responsibility to those clients who are serving overseas. Should 
mistakes be made by the financial institution, in this case JPMorgan 
Chase, steps must be taken to correct the problem and make it right for 
the men and women in uniform who were mistakenly charged a higher 
amount of interest rates and fees, or, in the worst cases, faced 
foreclosure on their homes while deployed.
    While I do not stand here today in judgment of any of the involved 
parties, I do have a strong interest in identifying any weaknesses in 
the SCRA and learning more about how servicemembers are informed of the 
rights and privileges afforded to them by the SCRA. Additionally, I am 
interested in learning more about the vulnerabilities in JPMorgan 
Chase's SCRA compliance and the steps they are taking to correct their 
mistakes for servicemembers involved in wrongful interest charges on 
their mortgages and home foreclosures.
    I would like to thank our witnesses for being here today. Many of 
you have served our Nation honorably in many different capacities. I 
look forward to hearing your testimony.
    Thank you, Mr. Chairman.

                                 
                Prepared Statement of Hon. Russ Carnahan

    Mr. Chairman, thank you for holding this important hearing on 
alleged violations of the Servicemembers Civil Relief Act by JPMorgan 
Chase Bank.
    Since the passing of the Soldier's and Sailor's Civil Relief Act in 
1940, Congress has continuously recognized the importance of providing 
protections to servicemembers and their families to help relieve them 
of the civil and financial burdens they face while on active duty. The 
Servicemembers Civil Relief Act simply expanded upon that original law 
by providing a broader range of protections including provisions that 
would reduce interest rates to 6 percent on mortgage loans and 
foreclosure projections.
    Upon hearing of these allegations, I was deeply troubled to know 
that one of the Nation's largest financial institutions possibly 
disregarded the very Act that was put in place to protect our Nation's 
heroes and their families. Although I am pleased to know that JPMorgan 
Chase has begun the process of refunding money to the more than 4,000 
affected servicemembers that were overcharged and putting 14 families 
back into their wrongfully foreclosed homes, I remain concerned that 
there may be more servicemembers and families affected by this matter.
    In this climate, in which the housing market is still struggling to 
stabilize, it is particularly important that all financial institutions 
adhere to the safeguards put forth to protect those very individuals 
that sacrifice so much for the good of our Nation. It is my hope that 
today's hearing gives JPMorgan Chase the opportunity to explain their 
wrongdoings, to inform the Committee of their plans to quickly resolve 
these matters and ensure us that they will adhere to the protections 
under the Servicemembers Civil Relief Act moving forward.
    To all the witnesses today--thank you for taking time out of your 
busy schedules to appear before us. I look forward to hearing your 
testimony.

                                 
      Prepared Statement of Richard A. ``Dick'' Harpootlian, Esq.,
               Richard A. Harpootlian, P.A., Columbia, SC

                           EXECUTIVE SUMMARY

    The Committee has invited testimony on the facts and circumstances 
surrounding the class action lawsuit filed in the District of South 
Carolina as Rowles v. Chase Home Finance, LLC. The testifying witness, 
Richard A. Harpootlian, is an attorney representing three members of 
the Armed Forces who serve as putative class representatives 
representing servicemembers who allegedly were denied benefits to which 
they were entitled under the Servicemembers Civil Relief Act by Chase 
Home Finance, LLC and Chase Auto Finance Corp.
    Whereas the lawsuit is still in its infancy, all facts are not yet 
known to the servicemembers. However, in statements to the press 
JPMorgan Chase has confirmed that at least 4,000 servicemen and 
servicewoman were denied the 6-percent interest cap on preexisting 
debts. Also, Chase Home Finance, LLC foreclosed on the homes of 
numerous servicemen and servicewomen (the exact number of which is not 
yet known).
    The individual plaintiffs in this case are Captain Jonathan Rowles 
of the United States Marine Corps, whose family was denied the 6-
percent interest cap while he was deployed on active duty, Lieutenant 
Colonel Sarah Letts-Smith of the United States Army Reserve, whose home 
was foreclosed on while she was serving in Iraq, and Lance Corporal 
Martin Hupfl, whose automobile installment loan was terminated and 
placed into collections while he was in basic training.
    The damage to the servicemembers as a result of the SCRA violations 
not only financially harms the soldiers but also negatively affects 
their ability to serve in the military. Each of the plaintiffs in the 
Rowles case was forced to wrestle with debt collectors and threats of 
loan acceleration, foreclosure, and/or repossession while he or she was 
on active duty. This pressure cannot be overstated as it represented a 
threat not only to the financial well-being of the servicemembers, but 
to the physical well-being of the families that they left behind.
    Whatever facts this lawsuit may reveal, thus far it is clear that a 
systematic failure to adhere to the requirements of the SCRA has 
occurred. Congress should consider three areas in which the SCRA may be 
strengthened to deter future violations: (1) stronger criminal 
penalties for knowing violations; (2) civil fines for all violations 
with an incentive discount for self-reporting; and (3) an attorneys' 
fee provision for successful plaintiffs seeking to enforce their rights 
as servicemembers under the SCRA.

                               __________

    Mr. Chairman and Members of the Committee,
    I thank you for the invitation to speak on behalf of my clients--
Captain Jonathan Rowles of the United States Marine Corps, Lieutenant 
Colonel Sarah Letts-Smith of the United States Army Reserve, and Lance 
Corporal Martin Hupfl of the United States Marine Corps. I represent 
these fine men and women in uniform along with my co-counsel, William 
Harvey and Graham Newman.
    As the Committee is aware, our law firms have filed a class action 
complaint against subsidiaries of JPMorgan Chase alleging systematic 
violations of rights guaranteed to our men and women in uniform under 
the Servicemembers Civil Relief Act that have harmed thousands of our 
soldiers and their families. This litigation is in its earliest stages. 
No discovery has been conducted and I am limited by law as to what 
comments I may offer regarding the merits of these claims or any 
defenses thereto. I may, however, share with you the facts giving rise 
to my clients' complaints, the difficulties they have suffered while 
serving our country, and suggestions that the Committee might entertain 
in hopes of preventing such occurrences in the future.
    The opening words of the Servicemembers Civil Relief Act establish 
that the purpose of the law is ``to provide for, strengthen, and 
expedite the national defense through protection extended by this Act 
to servicemembers of the United States to enable such persons to devote 
their entire energy to the defense needs of the Nation.'' The venerable 
nature of these goals is undeniable. But to truly grasp the importance 
of the Act to our Nation as a whole, one must examine the history of 
the legislation through the last two centuries.
I. History of the Servicemembers Civil Relief Act
    The roots of the Servicemembers Civil Relief Act lie in the 
Constitution itself. Article I, section 8 of the Constitution expressly 
grants to Congress the authority to build and maintain our Armed Forces 
in order to guarantee the security of this Nation. With this in mind, 
as early as the Civil War Congress recognized the need to enact 
legislation placing certain restrictions on civil actions that would 
hinder the abilities of an individual soldier or sailor to dedicate all 
of his efforts to defending this country. In 1917, as the United States 
became embroiled in World War I, our government employed the services 
of Major John Wigmore--then Dean of the Northwestern University Law 
School and author of the famous treatise Wigmore on Evidence--to draft 
the first modern version of the SCRA, then known as the ``Soldiers' and 
Sailors' Civil Relief Act.'' This Act instituted many of the 
regulations that are central features of the modern law, including a 
stay of civil actions and a prohibition of foreclosures upon the homes 
of those on active duty.
    Major Wigmore's Soldiers' and Sailors' Civil Relief Act expired 6 
months after the end of World War I due to a sunset provision included 
in the initial draft. Thus, in 1940, as conflicts throughout the globe 
again escalated into World War, Congress reenacted Major Wigmore's bill 
with some amendments. At the time, Congressman Overton Brooks of 
Louisiana reiterated the vital role the Act played in preserving the 
Nation's defense and recognized the concerns the Act was intended to 
address.

          This bill springs from the desire of the people of the United 
        States to make sure as far as possible that men in service are 
        not placed at a civil disadvantage during their absence. It 
        springs from the inability of men who are in service to 
        properly manage their normal business affairs while away. It 
        likewise arises from the differences in pay which a soldier 
        receives and what the same man normally earns in civil life.

    The Soldiers' and Sailors' Civil Relief Act has been in effect 
since it was reenacted by Congressman Brooks and others in 1940.
    In April of 2003, as Operation Enduring Freedom in Afghanistan 
progressed, this Committee took the lead in the 108th Congress to style 
a complete restatement of the Act. The bill that originated in this 
Committee received broad bipartisan support, boasting as its sponsors 
then-Chairman Christopher Smith of New Jersey and Ranking Member Lane 
Evans of Illinois. In its Report to the House, the Committee expressly 
noted the following:

          Congress has long recognized that the men and women of our 
        military services should have civil legal protections so they 
        can ``devote their entire energy to the defense needs of the 
        Nation.'' With hundreds of thousands of servicemembers fighting 
        in the war on terrorism and the war in Iraq, many of them 
        mobilized from the reserve components, the Committee believes 
        the Soldiers' and Sailors' Civil Relief Act (SSCRA) should be 
        restated and strengthened to ensure that its protections meet 
        their needs in the 21st century.

    Among the protections recognized as necessary in modern society 
were four rights directly implicated in the pending litigation 
involving my clients: (1) a 6-percent cap of interest chargeable on 
debts incurred prior to military service; (2) a prohibition of 
derogatory reports to credit agencies due to eligibility of SCRA 
protection; (3) limitations upon the ability to foreclose upon 
servicemembers' homes; and (4) limitations upon the ability to 
terminate installment contracts or otherwise repossess personal 
property purchased via installment contract.
    Once favorably reported to the House, the bill gained thirty-nine 
(39) co-sponsors from both parties and was passed by the full House by 
425-0. The Senate passed similar legislation with the leadership of 
Senator Lindsey Graham from my home State of South Carolina and the 
differences between the two bills were negotiated without need of a 
conference committee. On December 19, 2003, President George W. Bush 
signed into law the now-restyled ``Servicemembers Civil Relief Act.''

II. EXPERIENCES OF THE ROWLES PLAINTIFFS
    The litigation in which we are involved began only after Jonathan 
Rowles and his wife, Julia, endured several years of frustration 
regarding their home mortgage with Chase Home Finance, LLC. Our law 
firms filed this lawsuit on behalf of Captain Rowles in July of 2010. 
Over the past several months, we have been contacted by numerous 
military personnel who have experienced similar denials of SCRA 
protection from Chase's subsidiaries. Last week, we filed an amended 
complaint, adding allegations on behalf of Lieutenant Colonel Sarah 
Letts-Smith of the United States Army Reserve and Lance Corporal Martin 
Hupfl of the United States Marine Corps.
    Our research has revealed systematic failures in the maintenance of 
SCRA protections pertaining to four classes of military men and women: 
(1) those denied the 6-percent maximum interest rate on debts incurred 
prior to military service; (2) those who received a blighted credit 
report as the result of their invocation of SCRA protection; (3) those 
whose homes were foreclosed upon despite SCRA protection; and (4) those 
possessing installment contracts that were cancelled or resulted in 
repossession of personal property such as automobiles despite SCRA 
protection.
    A review of the facts pertaining to each plaintiff is helpful in 
explaining how these violations came about.
    In February of 2004, Jonathan and Julia Rowles entered into a 
purchase money mortgage with BNC Mortgage, Inc. In May of 2004, Chase 
Manhattan Mortgage Corporation purchased this loan and, from that point 
in time, the Rowleses made all payments to Chase. After a year of 
making payments on this mortgage, Jonathan Rowles executed a United 
States Marine Corps Reserve contract on August 16, 2005 and received 
Assignment to Active Duty Orders which became effective on January 22, 
2006. Shortly thereafter, Rowles requested in writing that Chase reduce 
the interest rate on the loan to 6 percent pursuant to the SCRA. In 
this letter, Rowles specified January 22, 2006 as the date he entered 
active duty and produced two sets of orders to verify his current 
status. Again on May 2, 2006, Rowles wrote to Chase to request the 6-
percent rate protection under the SCRA. This letter also specified 
Rowles' active duty date and included additional copies of his orders 
and a copy of his previous letter.
    On May 8, 2006, in response to this series of correspondence, Chase 
requested that Rowles provide ``orders and/or an enlistment agreement 
showing the date of original call to duty.'' Again Rowles sent faxes to 
Chase customer service representatives that included handwritten cover 
sheets explaining his active duty orders as well as copies of his 
letters of April 14 and May 2. In a letter dated July 27, 2006--7 
months after Rowles received his active duty orders--Chase informed 
Rowles that because he had qualified for the protection of the SCRA, 
the company had adjusted the interest rate on the loan to 6 percent 
effective with his May 1, 2006 payment. However, Chase failed to apply 
the statutory interest rate to the loan until August 17, 2006, which 
was the date of the first statement received by Rowles that reflected 
the 6-percent rate. The July 27 letter also informed Rowles that his 
``loan is protected against late fees, adverse credit reporting, and 
default activities. These protections will remain in effect for 90 days 
following your return from active duty.''
    Though Rowles' SCRA protection had been in place for less than 4 
months, Chase mailed Rowles a letter on December 1, 2007 which it 
characterized as a ``required quarterly verification.'' The letter 
included a form which Rowles was instructed to complete and sign in 
order to continue to receive the protection of the SCRA. Rowles duly 
completed the form and returned the letter to Chase. Chase sent 
additional verification letters on December 17, 2008, March 25, June 22 
and December 29 of 2009 and March 22, 2010. In addition to the periodic 
verification letters, no fewer than four times per year since July of 
2006, Rowles has had to call various Chase customer service 
representatives after being verbally informed or receiving 
documentation indicating that the interest rate on the loan was going 
to be adjusted above 6 percent if he failed to do so. In March of 2008, 
Rowles was forced to request that his commanding officer at Training 
Squadron Eighty-Six in Pensacola, Florida, write to Chase on his behalf 
in order to confirm that he was in fact an active duty Marine.
    In a letter dated January 16, 2007, Chase again informed Rowles 
that he had qualified for the protection of the SCRA and that the 
company had accordingly extended the adjustment on the 6-percent 
interest rate effective February 1, 2007. On April 2, 2008, Chase 
informed Rowles in writing that the company was ``in receipt'' of his 
``request for relief'' under the SCRA and that he should allow 3 to 4 
weeks for review of the request. A subsequent letter dated April 25, 
2008, again informed him that his rate adjustment would be extended 
effective October 1, 2008.
    From the time that Chase applied the 6-percent interest rate to the 
loan until April 2009, Chase would send loan statements to the Rowles 
family indicating the interest rate charged on their loan was, in fact, 
substantially above 6 percent. On information and belief, during this 
time Chase would use various formulas and accounting methods to 
reconcile the higher stated interest rates while effectively only 
charging Rowles at 6 percent.
    Beginning in April 2009, the Rowleses' loan was to shift from 
``interest only'' to an amortized loan over remaining 25 years per the 
terms of the original agreement. On Rowles' April 2009 statement and 
each subsequent statement, Chase not only failed to accurately 
characterize the interest rate on the loan as 6 percent but also ceased 
to employ any formula or accounting method to effectively provide 
Rowles with the benefit of the 6-percent protection under the SCRA.
    Each month between April 2009 and the time of the filing of the 
lawsuit, Rowles made a payment to Chase in the original contractual 
amount, which is the last correct amount billed by Chase reflecting 
interest at 6 percent. Despite this fact, Chase repeatedly failed to 
credit Rowles for payments made and began to pursue aggressive 
collection methods for what it characterized as a past-due balance on 
Rowles' account.
    Chase's collection methods during this time included repeated phone 
calls and correspondence to Rowles from Chase debt collection 
departments in various locations. These calls often came at a rate of 
three per day and included calls to his mother who lives at a different 
address and his workplace as well as calls made to his residence after 
midnight, and as late as 4:00 a.m. In telephone conversations, 
voicemails and correspondence during this time, Chase representatives 
repeatedly threatened to report Rowles to the credit bureaus and to 
initiate foreclosure proceedings on their house.
    This pattern of conduct by Chase caused Rowles to spend 
considerable time communicating with Chase via telephone, email and 
written correspondence. This time included leave from his unit which 
was spent traveling to meet with Chase representatives in an effort to 
preserve his 6-percent interest rate under the SCRA and to prevent 
Chase from taking threatened actions which are unlawful under the SCRA. 
Finally, in June of 2010, Chase denied Rowles electronic access to his 
account. Thereafter Rowles brought this suit.
    United States Army Reserve Lieutenant Colonel Sarah Letts-Smith
    Lieutenant Colonel Sarah Letts-Smith is an intelligence officer 
with the United States Army Reserve. On July 26, 2005, LTC Letts-Smith 
and her husband, Rory Smith, jointly purchased a house located in 
Temecula, California. At the time of the purchase, Lt. Col. Letts-Smith 
was not on active duty. The purchase was financed by Washington Mutual 
Bank, FA, popularly known as ``WaMu.'' For the first 3 years, the 
Smiths made all mortgage payments on time for the 44200 Sunset Terrace 
home.
    On January 29, 2008, the Department of the Army ordered LTC Letts-
Smith to active duty, instructing her to report to Fort Leavenworth, 
Kansas for a training period of 120 days to be followed by deployment 
to Iraq. LTC Letts-Smith soon thereafter faxed letters to all of her 
creditors--including WaMu--informing them of her active duty status and 
requesting any and all protection afforded under the SCRA.
    During the summer of 2008--while LTC Letts-Smith was serving in 
Iraq--Rory Smith was laid off from his job, leaving his wife as the 
sole wage earner in the house. On August 5, 2008, Rory Smith sought 
assistance from WaMu in modifying the Smith family's mortgage so that 
payments could continue to be made. Smith informed WaMu in writing that 
he had been laid off from his job, that his wife was on active duty in 
Iraq, and that the family was having difficulty making their mortgage 
payments.
    On September 25, 2008, in the largest bank failure in American 
history, Washington Mutual Bank was closed by the Federal Government's 
Office of Thrift Supervision and the Federal Deposit Insurance 
Corporation was named receiver. Regulators simultaneously brokered a 
deal selling nearly all of WaMu's assets and liabilities to JPMorgan 
Chase. On October 11, 2008, WaMu--now owned by JPMorgan Chase--
responded to Rory Smith's earlier request for ``Borrower Assistance'' 
as follows.

          This letter is in response to your request for assistance on 
        the above referenced loan. Washington Mutual received and 
        reviewed documentation regarding a potential workout. Based on 
        the financial information received, it does not appear we are 
        able to offer you assistance at this time, therefore your 
        request for a loan workout Modification has been denied.

    On the same date, WaMu and Chase informed the Smiths via a separate 
letter that their line of credit was suspended. In addition to this 
information, the WaMu/Chase correspondence contained the following 
warning.

          WE MAY REPORT INFORMATION ABOUT YOUR ACCOUNT TO CREDIT 
        BUREAUS. LATE PAYMENTS, MISSED PAYMENTS OR OTHER DEFAULTS ON 
        YOUR ACCOUNT MAY BE REFLECTED IN YOUR CREDIT REPORT.

    Several weeks later on December 1, 2008--and despite the fact that 
the bank was fully aware of Letts-Smith's active duty status and 
request for assistance--WaMu/Chase issued a ``Notice of Collection 
Activity'' to the Smiths. Contained in this notice was a threat of 
foreclosure.

          Failure to cure the default within the 30-day period may 
        result in Washington Mutual Bank declaring the entire 
        outstanding principal balance, accrued interest and any other 
        fees and charges due under the terms of the Note and Security 
        Instrument to be immediately due (``Acceleration''). If this 
        amount is not immediately paid at such time, Washington Mutual 
        Bank may exercise any and all remedies available under the 
        terms of the Note and Security Instrument and applicable law, 
        including the commencement of foreclosure proceedings which may 
        result in the sale of your property.

    On March 26, 2009--with LTC Letts-Smith still stationed in Iraq--
WaMu/Chase initiated foreclosure actions against the Smith family. Lt. 
Col. Letts-Smith was released from active duty on August 4, 2009. Three 
days later, on August 7, 2009, the foreclosure trustee sold the Smith 
family's home for $934,150.00--approximately $800,000 less than the 
original purchase price of the home.
         United States Marine Corps Lance Corporal Martin Hupfl
    Martin Hupfl is currently a Lance Corporal in the United States 
Marine Corps stationed at NAS Jacksonville. In July of 2007, Hupfl--
while still a civilian--purchased a 1999 Dodge Ram truck. LCpl Hupfl 
financed the purchase with 72 month installment loan from Defendant 
Chase Auto Finance Corp. The interest rate on the Chase loan was 
approximately 12 percent.
    In July of 2008, LCpl Hupfl enlisted in the Marine Corps. LCpl 
Hupfl recruiter informed him of the protections offered by the SCRA. 
With the recruiter's assistance, LCpl Hupfl completed a SCRA Advice and 
Statement of Understanding that he signed and faxed to Defendant Chase 
Auto Finance Corp.
    LCpl Hupfl entered boot camp at Parris Island, South Carolina on 
July 21, 2008. From boot camp Hupfl was transferred to Camp Lejeune, NC 
for further entry level training. During this period of training, LCpl 
Hupfl's mother received a letter from Defendant Chase Auto Finance 
dated December 11, 2008 stating that Chase had finally ``processed'' 
his SCRA request and that Chase had ``reduced the interest rate to 6 
percent and discontinued all fee accruals from the date of your 
military orders.''
    LCpl Hupfl completed his entry level training on March 5, 2009 and, 
from there, was assigned to his first duty station in Philadelphia, 
Pennsylvania. Hupfl telephoned Chase Auto Finance to resume his loan 
payments at the original contracted amount. However, Hupfl was advised 
by Chase Auto Finance that it had terminated the installment loan 
contract in December of 2008 and therefore was unable to accept any 
payments from him. Soon thereafter, Chase Auto Finance assigned LCpl 
Hupfl's account to a collection agency that began sending him 
collection letters and making collection calls to his mother's house. 
Chase Auto Finance also reported to various credit bureaus that Hupfl's 
account had been ``charged off as bad debt.''

III. Practical Effects of the Failure to Recognize SCRA Protections
    The immediate effect of SCRA violations on our military men and 
women are obvious. Unlawful foreclosures force families from their 
homes. Illegal repossessions strip families of their cars, appliances, 
and other essential household items. Derogatory reports to credit 
agencies damage the ability of our soldiers and sailors to enter into 
future financial agreement. Excessive charges of interest demand monies 
which are not owed.
    Perhaps more damaging than these immediate effects, however, is the 
financial stress endured by military families while their loved ones 
serve on active duty. As the stories of Captain Rowles and LTC Letts-
Smith show, the spouses, parents, and children of our military men and 
women are those that inevitably bear the brunt of SCRA violations. 
While her husband was deployed to Korea, Julia Rowles was forced to 
negotiate with Chase representatives while caring for a small child and 
pregnant with another. While his wife was surviving the Iraqi war zone, 
Rory Smith prepared his children to move from their home as foreclosure 
crept closer.
    I began this written testimony by referring to the stated policy of 
the SCRA: ``to enable [servicemembers] to devote their entire energy to 
the defense needs of the Nation.'' Violations such as those suffered by 
our clients directly defeat this purpose. While on active duty, our 
soldiers have limited time to so much as contact their families. Sadly, 
according to public statements made by JPMorgan Chase to the press, it 
appears that over the past few years several thousand men and women 
like Captain Rowles, like LTC Letts-Smith, and like LCpl Hupfl were 
forced to spend what personal time they did have on the phone with 
banking officials seeking an explanation why their families were being 
overcharged interest, why their car was being repossessed, or why their 
home was being foreclosed.

IV. Suggestions for More Diligent Enforcement of SCRA
    The systematic failure of SCRA protections in the Rowles litigation 
is evidence that the enforcement provisions of the SCRA deserve 
reconsideration. In our review of the law and its application over the 
last 6 months, we believe that there are three areas Congress may 
improve to strengthen the SCRA in hopes of preventing such failures in 
the future.

a. Criminal Penalties for Violations of the SCRA
    Criminal indictment is the ultimate sanction provided by the SCRA. 
Yet such punishment is extraordinarily rare as it carries the burden of 
proving one ``knowingly'' inflicted upon servicemembers the hardships 
prohibited by the SCRA. But even if such proof exists, the potential 
criminal penalties available, for example for intentionally foreclosing 
upon the home of a soldier serving in Afghanistan, are very limited. Of 
the sections directly pertaining to the Rowles litigation, three 
prescribe misdemeanor criminal penalties for ``knowing'' violations 
(Sections 527 (violation of interest cap), 532 (termination of 
installment loans and/or repossession), and 533 (foreclosure of 
mortgages)) and the fourth contains no criminal penalty whatsoever 
(Section 518 (unlawful report to credit agencies)).
    Even without considering the difficulties of proving a ``knowing'' 
violation of the SCRA, the realities of criminal sentencing render the 
potential of a prison term for a misdemeanor ``white collar'' criminal 
offense almost nonexistent. In response, Congress should consider 
stiffening maximum sentences for SCRA violations beyond the current 1-
year cap. Doing so will provide the dreaded ``felony'' label to 
violations as well as raise the specter of a potential for 
incarceration for egregious examples of SCRA breaches.

b. Imposition of Civil Fines for Violations of the SCRA
    None of the SCRA provisions pertaining to interest rates, 
mortgages, or installment loans contemplate civil fines as a deterrent 
to SCRA violations. Fines are only contemplated in terms of a criminal 
violation, and thus the government must demonstrate a ``knowing'' 
violation of the SCRA in order for any monetary penalty to attach. 
Congress should consider the imposition of civil fines for any 
violation of the SCRA--regardless of the existence of preexisting 
knowledge or intent.
    In order to encourage compliance with the SCRA and discourage 
additional civil and criminal litigation, Congress should consider 
offering a discounted fine to SCRA violators that self-report breaches 
of the law. A 50 percent reduction in civil penalties owed for each 
violation of the SCRA will provide ample incentive to lenders to 
monitor their business practices, rapidly correct any breaches, and 
promptly remedy any damage inflicted upon servicemembers.

c. Provision Providing for Attorneys' Fees in Conjunction with Civil 
        Relief
    In addition to the provision of civil fines, Congress should 
consider providing for the statutory right of recovery of reasonable 
attorneys' fees by servicemembers from SCRA violators. Due to the 
nature of SCRA protections, oftentimes damages suffered by 
servicemembers will be relatively small. If a servicemember were to 
retain the services of an attorney to attempt to enforce his SCRA 
rights, a typical attorney's contingency fee would decimate an already 
modest recovery by one-third or more--assuming that that servicemember 
could retain an attorney willing to invest in such a modest potential 
gain. Likewise, an attorney's hourly billable rate may exhaust a 
servicemember's recovery all together.
    In contrast, the statutory provision for a recovery of reasonable 
attorneys' fees will enable servicemembers to seek counsel for the 
protection of their SCRA rights while vesting in the Federal judiciary 
the power to ensure that the servicemembers' attorneys are fairly 
compensated while prohibiting windfall fee awards. A successful example 
of such a statutory fee scheme may be found in civil rights litigation, 
more specifically that related to 42 U.S.C. 1983. Recognizing that a 
successful suit over a violation of civil rights may produce little or 
no financial reward, Congress enacted the accompanying authority of 42 
U.S.C. 1988 that provides for ``reasonable attorneys' fees'' to be 
awarded to a successful plaintiff by the defendant adjudged liable for 
the violation. This statute has enabled victims of civil rights 
violations to have access to the civil justice system and civil counsel 
while preventing the award of excessive fees.

                               CONCLUSION

    I would again like to thank the Committee for the opportunity to 
speak on behalf of our clients and on behalf of the thousands of 
servicemen and servicewomen who have fallen victim to SCRA violations 
in the last several years. As the SCRA recognizes, its protections are 
essential to our national defense. It is my hope that Congress will 
take all steps necessary to ensure the continued vitality of this law.

                                 
  Prepared Statement of Stephanie B. Mudick, Executive Vice President,
    Office of Consumer Practices, JPMorgan Chase & Co., New York, NY

                           Executive Summary

    Chase has discovered mistakes in our compliance with the 
Servicemembers Civil Relief Act (SCRA), and we are committed to fixing 
them. We deeply regret that servicemembers have been overcharged and in 
some cases faced foreclosure because of these errors. We are acting to 
make these customers whole as soon as possible and enhancing our 
safeguards to prevent such mistakes going forward. Chase is determined 
to get this right.
    Chase has identified two problems: First, based on our review to 
date, some 4,500 servicemembers were charged interest rates and fees 
above SCRA's 6-percent cap. We have begun paying back those 
overcharges. Second, to date, we have found 18 cases where 
servicemembers were improperly foreclosed upon. For 12 of these 
borrowers, we have rescinded the sale or reached a settlement, and we 
will work to resolve the other cases.
    Our review is on-going and these numbers could change. SCRA also 
applies to other types of consumer loans, and we are actively reviewing 
all our businesses to ensure they comply with the SCRA.
    Weaknesses in Chase's SCRA Compliance. Our ongoing review of SCRA 
compliance has identified several operational problems that led to 
mishandling of SCRA loans. In some cases, Chase employees 
misinterpreted military orders and the length of time servicemembers 
were on active duty, affecting fees and interest rate charges. In other 
cases, errors on our part resulted in some loans not being identified 
as SCRA-protected, which resulted in overcharges, and in some cases, 
improper foreclosures.
    Enhancements to Our Processes to Prevent Further Problems. Chase 
has made significant enhancements to our SCRA compliance protocols. We 
have centralized SCRA loan set-up in a single unit in Florence, South 
Carolina, where employees get special training in interpreting military 
orders and key decisions are reviewed by managers or other employees. 
Chase now checks SCRA loans daily to verify that the law's protections 
remain in place on Chase's system. We have added new controls to 
prevent foreclosures on borrowers covered by the SCRA.
    Military Initiatives. Chase is expanding our outreach to customers 
who may be in the military, advising them of SCRA's protections. This 
outreach will be automatic when a customer has a military address. We 
have set up a new customer service hotline for servicemembers, staffed 
by 30 Chase employees in Monroe, Louisiana. We are providing SCRA 
training to 2 employees in each of our 51 existing Chase Homeownership 
Centers created to help borrowers struggling with their mortgages. By 
this summer, these centers will be in 27 States and the District of 
Columbia.
    Chase deeply regrets our errors in SCRA compliance. We are 
committed to correcting them, and making changes that will prevent such 
problems in the future.

                               __________

Introduction

    Chairman Miller, Ranking Member Filner, and Members of the 
Committee, thank you for inviting me to appear before you today. My 
name is Stephanie Mudick, and I am the Head of Consumer Practices at 
JPMorgan Chase & Co. I appreciate the opportunity to appear before you 
today to discuss errors that Chase discovered in its compliance with 
the Servicemembers Civil Relief Act (SCRA), the steps Chase is taking 
to compensate servicemembers mistakenly overcharged or improperly 
foreclosed upon as a result of those errors, and the enhancements that 
Chase has implemented in its controls related to SCRA compliance going 
forward. I will also discuss several new initiatives that Chase is 
implementing to ensure that Chase customers who are servicemembers have 
reliable information about their rights and receive the very best 
customer service we can provide.
    Before I go further, I'd like to acknowledge to you that we clearly 
made mistakes here, and that we are working very hard on fixing them.
    The SCRA provides vitally important financial protections to the 
men and women of our armed forces during active duty--a period of 
personal sacrifice for themselves and their families. I want to express 
to the men and women serving our country and to the Members of this 
Committee Chase's deepest regret over the mistakes we made in applying 
those protections. I also commit to you that Chase is determined to get 
this right. My focus today will be on mistakes in our mortgage 
business, where we first became aware of these issues. We are also 
reviewing all of our lines of business that are subject to the SCRA to 
ensure that they are in compliance. And if and wherever we find a 
mistake, we will fix it.

SCRA Compliance Errors

    We have identified two problems in our home lending business with 
respect to certain mortgages, including home equity loans, held by 
servicemembers who are eligible for SCRA protection.
    First, under the SCRA, servicemembers who are on active duty and 
who took out a mortgage loan prior to the start of that duty are 
entitled to have the interest rate and fees on their mortgages capped 
at 6-percent interest for the period of their active duty, and 12 
months afterward, by providing the lender with the orders calling them 
to active duty. In many instances, Chase charged SCRA-eligible 
borrowers who had provided Chase with their active duty orders interest 
and fees that raised their effective interest rate above the 6-percent 
cap for at least some part of the SCRA-covered period. We are in the 
process of calculating the refunds and credits for any interest that we 
charged SCRA-eligible borrowers above 6 percent, as well as fees (which 
do not include tax and insurance payments) charged to SCRA-eligible 
borrowers. To date, the amount we have identified equals approximately 
$1.8 million. We have added to the refunds 7.25 percent interest from 
the date of the overcharge, which comes to approximately $600,000, for 
a total of approximately $2.4 million. The total number of affected 
servicemembers we have identified is approximately 4,500, and the 
median payment is approximately $70, plus interest. We already sending 
an initial batch of checks to some of these servicemembers this week 
and intend to send additional checks over the coming weeks as we 
finalize and double-check the amounts they are due.
    Second, the SCRA protects a servicemember from foreclosure judgment 
or sale while the servicemember is on active duty and, since SCRA was 
amended by the Housing and Economic Recovery Act (HERA) of 2008, that 
protection is extended for the 9 months after completing active duty. 
We are scrutinizing our files closely and to date we are aware of 18 
servicemembers who were on active duty or otherwise within the SCRA/
HERA protection period at the time of foreclosure sale. In 12 of these 
cases, we have either rescinded the sale or entered into a settlement 
with the borrower. We will attempt to make the remaining borrowers 
whole as quickly as possible. We are continuing to review our files to 
make sure that we have identified all borrowers affected by these 
issues. If we find problems involving additional servicemembers 
protected by the SCRA, we will fix them.

Weaknesses in Chase's SCRA Compliance 
    We routinely review all of our businesses for compliance with 
applicable laws and regulations, including the SCRA. As part of that 
process, we became aware of weaknesses in our SCRA compliance.
    We have identified several operational problems that caused us to 
mishandle SCRA loans. Chase's handling of military loans involved 
significant manual processing and complexity, which led to (i) human 
errors, including in the review and interpretation of military orders, 
the identification of the protected period from those orders, and the 
interest rate and fee calculations; and (ii) errors relating to the 
coding of these servicemember loans on our system, which resulted in 
certain loans not being properly identified as SCRA-eligible. For 
example, in certain instances, we misinterpreted the military orders, 
recording the protection period on the servicing system as commencing 2 
weeks after the actual active duty date, leading to an interest rate 
overcharge for several weeks. In other instances, the coding on the 
system did not identify the account as SCRA-protected, leading to a 
longer period of overcharges and fees and, in some instances, to an 
improper foreclosure. We did not check the Web site maintained by the 
United States Department of Defense, called the Defense Manpower Data 
Center (DMDC) Web site, with sufficient frequency or consistency.
    We understand that Mr. Harpootlian, the lawyer for Captain Rowles 
and his family, accompanied by the Rowleses, will testify before this 
Committee about the family's dealings with Chase in connection with 
their mortgage. We have reviewed the history of their account, and we 
clearly made mistakes in how we serviced their mortgage and how we 
dealt with them in trying to resolve those mistakes. The customer 
service that we provided to Captain Rowles and his wife was 
unacceptable, and the fact that this was a servicemember makes our 
mistakes all the more inexcusable. We deeply regret any hardship or 
distress we caused the Rowles family. We've communicated to Captain 
Rowles through his attorney our commitment to resolve this matter and 
our genuine desire to make him and his family whole as quickly as 
possible.

Enhancements to Our Process to Prevent a Recurrence
    Recognizing the causes of the errors in SCRA-eligible accounts, 
Chase now has made significant enhancements to its processes to ensure 
that loans are properly categorized on the servicing system as SCRA-
eligible loans, that SCRA protection periods are properly identified, 
that interest and fees are calculated correctly, and that several 
verifications are done and documented prior to any foreclosure sale to 
confirm that borrowers are not SCRA-eligible.

      Enhanced Controls on SCRA Setup and Protection Period 
Determinations. We have centralized SCRA loan set-up in a single unit 
located in Florence, South Carolina. The members of this group receive 
enhanced training on interpreting military orders, and every single 
determination of the protected period under military orders is subject 
to quality control by another employee. In addition, any determination 
by a member of this group that a borrower is not eligible for SCRA 
protection requires manager review and sign-off.
      Enhanced Controls on SCRA-Eligible Loans. Chase has instituted a 
daily review and reconciliation of the entire list of SCRA-protected 
loans to ensure that the SCRA codes blocking foreclosure of those loans 
remain in place, and a periodic review to ensure that the aggregate 
interest and fees on these loans are capped at 6 percent.
      Enhanced Controls on Interest Rate Calculation. The calculation 
of the 6-percent interest rate cap now is subject to 100 percent 
quality control review by another employee every billing cycle.
      Enhanced Controls on Foreclosure Referrals and Sales. Chase has 
implemented enhanced controls on foreclosure referrals and sales 
through repeated checks on military status at different points in the 
process. First, before any loan is referred for foreclosure, an 
Independent Foreclosure Review team reviews each loan for military 
status by checking Chase's own system and the DMDC Web site. Second, 
before the first legal filing to start a foreclosure, Chase policy 
requires its local foreclosure counsel to check the DMDC Web site and 
then upload evidence of that check onto Chase's servicing system. 
Third, 2 to 3 weeks before foreclosure sale, the Independent 
Foreclosure Review team again reviews the servicing system for military 
coding and checks the DMDC Web site. Finally, 96 hours before a 
foreclosure sale, a Pre-Sale Review team reviews the loan again for 
military status.

    To summarize, today when a servicemember calls to tell us he or she 
is going on active duty, a special unit of Chase reviews the military 
orders and codes the account to reflect the start date for SCRA 
coverage. Once the system is coded, the account is capped at 6-percent 
interest and fees until 1 year following the end of the active duty 
period. We have created a hotline--staffed by employees who have 
received training on SCRA--to handle borrower questions. And Chase or 
its outside counsel checks the DMDC Web site at least three times 
before moving to a foreclosure sale.
    We are committed to addressing effectively the issues that we found 
with our SCRA compliance. Therefore, the current processes are being 
reviewed by Chase Internal Audit and by Chase's Operational Risk unit, 
with the assistance of outside advisors, to ensure that they are 
effective in identifying SCRA-eligible servicemembers and ensuring that 
these servicemembers receive the protections provided under the SCRA.
Student Loans
    We would like to explain our deferral policy with regard to student 
loans. Several years ago, we began deferring all student loan payments 
for active duty servicemembers, in addition to lowering the interest 
rate and fees to 6 percent. This policy went beyond the requirements of 
SCRA. However, as part of a broader review of our forbearance policies 
in our student lending business, last December we stopped offering 
deferments for new participants. When some servicemembers expressed 
concern, we decided to reinstitute the deferment option and offer them 
a choice: continue paying at 6 percent, or defer the payments.

Military Initiatives
    In addition to these enhancements to our controls, we also are 
taking certain other proactive steps to better support our 
servicemember customers.
    First, we are enhancing our communications with military personnel 
about their SCRA rights. Chase already has a specific Web page 
dedicated to military personnel (www.chasemilitary.com), and we plan to 
provide a prominent link to a Web site recommended by the Department of 
Defense (DoD). \1\ We will also send a letter to borrowers whom we 
believe may be military personnel based on information that comes to 
our attention. Our letter will alert them to the existence of SCRA 
protections and direct them to the DoD-recommended Web site for further 
information. We would welcome the opportunity to work with the 
government to provide additional information to servicemembers about 
their rights.
---------------------------------------------------------------------------
    \1\ http://www.militaryonesource.com/MOS/FindInformation/Category/
Topic/Issue/Material.aspx? MaterialID=15924&MaterialTypeID=9.
---------------------------------------------------------------------------
    Second, to improve our ability to identify military personnel to 
whom such a letter should be sent, we are following the suggestion of 
Holly Petraeus, the newly appointed Team Lead of the Office of 
Servicemember Affairs of the Consumer Financial Protection Bureau 
Implementation Team, that we identify servicemembers by setting up a 
process for identifying when a borrower has changed his or her home 
address from a standard street address to an APO or FPO. When we are 
alerted to such a change of address, we will reach out to the 
servicemember to alert them to the existence of SCRA protections.
    Third, we also believe it is critical to ensure that our 
servicemember customers have access to customer service representatives 
who understand their unique issues and can provide top quality service. 
Therefore, we have created a hotline (877-469-0110) that is staffed by 
approximately 30 Chase employees based in Monroe, Louisiana who are 
trained on SCRA coverage. These customer service personnel also will be 
able to liaise directly with Chase personnel involved in the system 
setup of SCRA protection periods to ensure that any issues with those 
protection periods are quickly resolved.
    We are also training two people in each of our existing 51 Chase 
Homeownership Centers (CHOCs) in SCRA matters so that servicemembers 
and their families can have local access when they would like to speak 
to a Chase representative face to face. Chase Homeownership Centers are 
local offices devoted exclusively to serving families struggling with 
their Chase mortgages, and CHOC counselors will help customers 
understand the full range of options available that could allow them to 
stay in their homes. We recently announced we will soon open an 
additional 25 CHOCs. This expansion will bring Chase Homeownership 
Centers to a total of 27 States and the District of Columbia, reaching 
the vast majority of borrowers with Chase mortgages.
    In closing, I would like once again to express Chase's deepest 
regret to Captain Rowles and his fellow servicemembers for our errors 
in SCRA compliance. I hope that my testimony has made clear that we are 
committed to correcting past mistakes and that we will continue to 
improve processes and controls to ensure that we are in full compliance 
with the SCRA.
    I would be happy to answer questions from the Committee.

                                 
        Prepared Statement of Hollister K. Petraeus, Team Lead,
 Office of Servicemember Affairs, Consumer Financial Protection Bureau
          Implementation Team, U.S. Department of the Treasury

    Chairman Miller, Representative Filner, and distinguished Members 
of the Committee: thank you for the opportunity to speak with you today 
about the Servicemembers Civil Relief Act as well as the Consumer 
Financial Protection Bureau (CFPB) Implementation Team's work to 
establish the Office of Servicemember Affairs (OSA). First of all, I'd 
like to thank this Committee for its continuing efforts to protect 
servicemembers, veterans, and their families from predatory financial 
practices. As many of you know, I've been a member of the military 
community my entire life, and I feel that it's very important that our 
military has strong advocates working on its behalf. And it's my intent 
that the Office of Servicemember Affairs be one of those strong 
advocates, educating and looking out for military personnel and their 
families.
    First, I'd like to tell you a bit about my background, especially 
my work on military financial education issues during the last 6 years. 
Next, I'll provide some background on the Consumer Financial Protection 
Bureau and the Office of Servicemember Affairs (OSA). Finally, I'll 
touch on the alleged violations of the Servicemembers Civil Relief Act 
(SCRA) that are the subject of today's hearing.

My Background
    I come from a military family, one that has a tradition of service 
going back to the Revolutionary War. My father served in the Army for 
over 36 years, fighting in both World War II and Vietnam. Two of my 
brothers also served in Vietnam, and, of course, my husband is 
currently serving. And I'm a military mom, as well. The military is in 
many ways a separate community in our Nation, and it's one that I have 
the privilege to know very well.
    The last time I testified before Congress was over 6 years ago, 
when I spoke about deployment-related issues at a joint hearing of two 
Senate Subcommittees: The Subcommittee on Children and Families from 
the Committee on Health, Education, Labor & Pensions, and the 
Subcommittee on Personnel from the Committee on Armed Services. At that 
time, my husband had just begun the second of three deployments to Iraq 
and I was a longtime volunteer in the military community. As a 
volunteer, I had the opportunity to serve as a senior Family Readiness 
Group advisor during deployment and to work with local, State and 
national legislators on issues affecting Army families. Five months 
after that testimony, I became the Director of BBB Military Line, a 
program of the Council of Better Business Bureaus (BBB) providing 
consumer education and advocacy for servicemembers and their families--
a position that I held for 6 years. In that role, I oversaw a national 
program that worked with the Department of Defense (DoD) as a partner 
in the DoD Financial Readiness Campaign and fostered outreach from the 
120 local Better Business Bureaus to military communities across the 
United States.
    While with the BBB, I made on-site visits to many military 
installations, learning about the consumer issues that impacted them, 
giving presentations on consumer scams, and working to establish local 
BBB-military relationships. I guided development of teen and adult 
financial education curricula taught to over 10,000 individuals in 
military communities around the United States, and wrote a monthly 
consumer newsletter addressing issues of interest to the military.
    Last fall, I was one of a number of people who offered advice to 
Professor Warren when she first began her task of setting up the 
Consumer Financial Protection Bureau. And when she offered me the 
opportunity to be in on the ground floor of building the Office of 
Servicemember Affairs, I couldn't resist this new opportunity to serve 
as an advocate for military personnel and their families.

Functions and Structure of the CFPB
    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) which was signed into law on July 21, 2010, 
established the CFPB as an independent bureau within the Federal 
Reserve System and charged it with ensuring that consumers have the 
information they need to make financial decisions that are best for 
them and their families. The CFPB will work to promote fairness, 
transparency, and competition in the markets for mortgages, credit 
cards, and other consumer financial products and services. The CFPB 
will set--and enforce--clear, consistent rules that allow banks and 
other consumer financial service providers to compete on a level 
playing field and that allow consumers to see clearly the costs and 
features of financial products and services.
    Under the Dodd-Frank Act, the Secretary of the Treasury has 
responsibility for standing up the CFPB until a Director of the CFPB is 
in place. In September, the Secretary asked Elizabeth Warren to serve 
as a Special Advisor leading the effort to stand up the CFPB. The CFPB 
implementation team, currently housed within the Treasury Department, 
is hard at work putting in place the building blocks for the CFPB.
    The CFPB Implementation Team is divided into several teams that are 
standing up the various functions of the CFPB, including: Bank 
Supervision, Nonbank Supervision, Enforcement, Financial Education, 
Rulemaking, Consumer Response, Fair Lending, Research and Markets, etc. 
On July 21st of this year, many consumer financial protection functions 
that are currently with other agencies will transfer to the CFPB--I 
have to point out, however, that responsibilities relating to the 
Servicemembers Civil Relief Act, the focus of this hearing, will remain 
with the prudential regulators and the Justice Department. Eventually, 
the CFPB will grow into a fully operational financial regulator and 
supervisor, and it will be the primary place where members of the 
public--including servicemembers--can come with questions and 
complaints about consumer financial products and services.

Functions and Structure of the Office of Servicemember Affairs
    Professor Warren asked me to join the implementation team at the 
end of last year. I started a little less than a month ago, and we are 
hard at work building the Office of Servicemember Affairs.
    The Dodd-Frank Act authorizes the OSA to work in partnership with 
the Pentagon to see that military personnel and their families receive 
strong financial education, to monitor their complaints about consumer 
financial products and services--and responses to those complaints--and 
to coordinate efforts by Federal and State agencies to improve consumer 
financial protection measures for military families. We are authorized 
to enter into agreements with the Department of Defense to carry out 
OSA's work and to make sure that we achieve those goals.
    Within the CFPB, our job is to make sure that every division of the 
CFPB understands the unique military community and the financial issues 
that impact it. I plan to work with our examiners to ensure they are 
current on military-specific issues, to encourage our enforcement team 
to take action against financial providers who break the law to harm 
servicemembers and to work with the consumer response unit to be sure 
that it is attuned to the military community and responsive to its 
concerns. We also plan to work closely with the consumer financial 
education team at the CFPB. History has shown us that best practices 
developed in support of the military can translate to the larger U.S. 
community--and that the military can be a great test bed for innovative 
financial education products that could have an application to the 
population at large.
    According to our current draft organizational chart, the Office of 
Servicemember Affairs will eventually fit under the Associate Director 
for Education and Engagement, along with financial education and other 
offices that focus on particular segments of the population. Although 
education and engagement will be our primary responsibilities, our 
reach will go beyond our box on the organization chart; the goal is for 
the OSA to work closely with all parts of the CFPB to make sure that 
they keep the needs of the military community in mind in all of their 
work.

Outreach Activities
    Right now we are focused on planning and scheduling visits to 
military bases and other meetings that will help us identify the 
problems and determine where we can make the biggest difference. I have 
already met with senior DoD officials, including Robert Gordon, the 
Deputy Assistant Secretary of Defense for Military Community and Family 
Policy. It's clear to me that the people at the Pentagon are very 
supportive of our mission, and we are working closely with them to plan 
our future activities. In addition, I have met with senior staff from 
the Department of Justice's Civil Rights Division, headed by Assistant 
Attorney General Tom Perez. The Justice Department is also supportive 
of our mission and eager to work with the CFPB to protect the rights of 
servicemembers. I was pleased to hear about the scope of DOJ's 
enforcement activities on behalf of servicemembers, which includes 
authorized lawsuits against 3 nationwide lenders and several active 
investigations involving both foreclosures issues and failure to lower 
the interest rate to 6 percent. We are planning to coordinate closely 
with DOJ in light of its enforcement responsibilities under the SCRA.
    This past Tuesday, I sent a letter to the chief executive officers 
of the 25 largest banks that provide mortgage servicing. This was 
prompted by the recent news reports alleging that major financial 
institutions had violated the Servicemembers Civil Relief Act, which 
provides financial protections for our military. I urged the chief 
executive officers to take steps to ensure that their institutions are 
in compliance with the law.

Military Outreach
    We've already started a conversation with the military community. 
Professor Warren and I have been to Joint Base San Antonio, where we 
had two roundtable discussions. The first was with military service 
providers, including lawyers, financial counselors, mental health 
professionals and chaplains, as well as the base's leadership. We asked 
questions about what scams and other financial problems these service 
providers were seeing, and how they thought those financial problems 
might be dealt with. The second roundtable was with military personnel 
and spouses from the Air Force, Army and Navy. They felt strongly about 
the need for mandatory financial training, not just in basic training, 
but on a continuing basis. The military spouses in the room also 
brought up the challenges of deployment for dual-career couples, and 
the difficulties and temporary loss of income when moving a spouse's 
civilian career job, as well as the basic financial strains of frequent 
moves. I could certainly relate to that, as I have moved 23 times in 36 
years of marriage! We plan to do more roundtables, and have a tentative 
travel schedule mapped out through the spring that includes about one 
base visit per month.

Servicemembers Civil Relief Act
    Protecting our servicemembers from suffering devastating financial 
repercussions for answering the call to service is not only the right 
thing to do--it is also important to our National security. Military 
personnel who are distracted by financial problems cannot do their jobs 
to the best of their abilities. In fact, hundreds of people in the 
military have their essential security clearances revoked each year due 
to financial problems, which then means they can't do the job they were 
trained for. A recent Department of Defense survey found that 
servicemembers consider their finances to be the second largest source 
of stress in their lives, behind career concerns but ahead of 
deployments, health, family, and war.
    The SCRA provides important safeguards for our military families 
who do so much for our country. It protects military personnel who are 
called to active duty by lowering the interest rate to 6 percent on 
certain debts incurred before entering active duty, including mortgage 
and credit card loans. Additionally, the SCRA provides certain 
protections from foreclosure for the home of a servicemember on active 
duty.
    In light of the importance of protecting our servicemembers, I was 
dismayed to learn about the recent allegations of mortgage-related 
violations of SCRA. I hope that the recent attention to this issue will 
cause all lenders to take steps to educate their employees about the 
financial protections that the SCRA provides and to take appropriate 
proactive steps to ensure compliance. This law was put in place to 
enable our soldiers to focus on their jobs, and it's important that it 
be adhered to. Servicemembers should not have to struggle to get the 
provisions that are due to them under law. A National Guard wife once 
told me that her husband had been activated three times, and each time 
she had had to fight with their bank for months to get the SCRA 
applied.
    As you know, a foreclosure is devastating for any American family 
to experience, but it can be especially painful for military families. 
Both the family back home and the servicemember abroad, who feels 
helpless to take action to prevent the foreclosure, are put in a 
terrible situation. That's why it is so important that servicemembers 
receive all the protections afforded to them under the SCRA. Again, I 
would hope that the recent problems will be a wake-up call for all 
banks and other financial companies to be especially careful to comply 
with the SCRA.

Conclusion
    Last month, I attended the White House announcement of the 
``Strengthening Our Military Families'' initiative. The President, 
First Lady and Dr. Biden all spoke at that event, affirming their 
commitment to military families, and almost the entire cabinet was in 
attendance as well. There is currently a very positive feeling in this 
country toward the service and sacrifice of military families, and a 
desire to support them. One way to help is to enforce the laws that are 
already on the books to protect them, and to hold to account those who 
ignore them. Another is to write new rules when needed. It's also 
important to educate the military about their financial protections and 
about best financial practices. That will all be a big part of the 
mission of the CFPB and the Office of Servicemember Affairs.

                                 
      Prepared Statement of Colonel Shawn Shumake (USA), Director,
      Office of Legal Policy, Office of the Deputy Under Secretary
                 of Defense, U.S. Department of Defense

    Chairman Miller and Members of the Committee, thank you for 
extending the invitation to the Department of Defense to comment on the 
Servicemembers Civil Relief Act (SCRA) and explain how we educate our 
servicemembers, their families, and private industry about it. The 
Department recognizes the fundamental importance of the SCRA. No other 
statute provides the breadth of benefits and protections for 
servicemembers as are found in the SCRA. It protects those who have 
dropped their own affairs and taken up those of the Nation.

Purpose and Importance of the SCRA
    The purpose of the SCRA is no less lofty than to provide 
servicemembers' peace of mind, knowing that while they put their lives 
at risk to protect this great Nation, their personal affairs and 
economic interests will be protected. They and their families will be 
relieved from many of the day-to-day strains and pressures that the 
rest of us are more easily able to handle.
    The SCRA's protections are broad and diverse. It protects 
servicemembers from evictions, default judgments, and foreclosure. It 
allows them to delay judicial proceedings and to cap their interest 
rates. It provides them and their spouses certain tax relief. It does 
more for our servicemembers than any other single law by shifting--at 
least temporarily--some of the burdens associated with military service 
from the servicemember to others more capable of bearing those burdens.
Congressional Efforts to Strengthen Enforcement of the SCRA
    Congress continues to play the most critical role in protecting our 
servicemembers and their families. To ensure that the SCRA could be 
aggressively enforced by those it is designed to protect, the 111th 
Congress passed the Veterans' Benefit Act of 2010.\1\ This law could 
have the most broad-reaching effect of any single change to the SCRA 
since the overhaul and update of the SCRA in 2003. The Veterans' 
Benefit Act of 2010 clarified that servicemembers and others that it 
protects could seek civil enforcement through the courts and receive 
monetary damages and attorneys' fees. It also clarified that the 
Attorney General has similar enforcement authority on behalf of 
servicemembers and other aggrieved persons.
---------------------------------------------------------------------------
    \1\ Section 303 of the Veterans' Benefit Act of 2010, Public Law 
111-275, October 13, 2010, amended the Servicemembers Civil Relief Act 
(50 USC App.  501 et seq) by adding at the end new title VIII, Civil 
Liability. This title contains new sections of the Servicemembers Civil 
Relief Act: 801, Enforcement by the Attorney General; 802, Private 
Right of Action, and 803, Preservation Of Remedies. These have been 
codified as sections 50 USC App  597, 597a and 597b.
---------------------------------------------------------------------------
    Although many courts had found that such a private right of action 
was implied, others have resisted this interpretation, leading to the 
almost unconscionable conclusion that servicemembers had benefits and 
protections that could not be enforced. In Hurley v. Deutsche Bank 
Trust Co. Americas,\2\ which recently received front page coverage on 
the New York Times,\3\ the court initially ruled that a Michigan 
National Guardsman whose home was illegally foreclosed on and sold to a 
third party while the Guardsman was deployed to Afghanistan, had no 
legal remedy. Only through expert legal counterattacks by the 
servicemember's attorneys was the court persuaded to reverse its 
position--but only after adding 6 months to the already protracted 
litigation. Just the danger of such daunting impediments to the 
enforcement of smaller claims could leave servicemembers wronged, and 
without remedy. The Veterans' Benefit Act of 2010 ended such worries.
---------------------------------------------------------------------------
    \2\ Hurley v. Deutsche Bank Trust Co. Americas, et al, 2008 WL 
4539478 (W. D. Mich., 9/30/2008, Case No. 1:08-cv-361), vacated by 2009 
WL 701006 (W.D. Mich. 3/13/2009).
    \3\ http://www.nytimes.com/2011/01/27/business/
27foreclose.html?scp=1&sq=John+Odom&st=nyt
---------------------------------------------------------------------------
Substantive Changes to the SCRA
    Congress has for the last several years recognized the burdens that 
military service places on servicemembers through a number of 
substantive changes to the SCRA designed to relieve some of the burdens 
associated with military service.
    The 110th Congress recognized these burdens and amended the SCRA in 
2008 to extend the 6-percent interest rate cap for pre-service mortgage 
obligations. This interest rate cap, which had been in effect for 
decades, had previously only applied for actual periods of active duty. 
This amendment extended the interest rate cap for pre-service mortgage 
obligations for an additional year after leaving active duty.\4\
---------------------------------------------------------------------------
    \4\ P.L. 110-289, The Housing and Economic Recovery Act of 2008,  
2203(b).
---------------------------------------------------------------------------
    At the same time, Congress also temporarily amended the SCRA to 
extend protections from foreclosure on pre-service mortgage obligations 
from 90 days to 9 months after the servicemember leaves active duty. 
Under these conditions and during this time, no servicemember can be 
foreclosed on absent a court order.\5\ This extension to 9 months would 
have reverted by law to the previous 90 days on January 1, 2011. In one 
of its last acts, the 111th Congress extended this sunset provision for 
2 years.
---------------------------------------------------------------------------
    \5\ P.L. 110-289, The Housing and Economic Recovery Act of 2008,  
Section 2203(a).
---------------------------------------------------------------------------
Additional Statutory Protections Addressing the Burdens of Service
    In February 2009, the 111th Congress provided $555 million in the 
American Recovery and Reinvestment Act to expand the pre-existing 
Homeowner's Assistance Program (HAP) benefits to address unique 
economic pressures faced by military personnel who are required to 
relocate during adverse housing market conditions. Congress added 
another $300 million for HAP in 2010.
    HAP seeks to minimize the amount of financial harm--including risk 
of foreclosure, credit damage, or bankruptcy--that servicemember and 
civilian beneficiaries may experience when they are compelled to 
relocate under military orders. As of January 27, 2011, HAP has 
assisted 4,483 homeowners at a program cost of $674 million. Another 
4,643 homeowners are currently being evaluated for eligibility.
    On May 20, 2009, the 111th Congress recognized that because most 
servicemembers are not homeowners, but rather are renters, they faced 
particular difficulties when their landlords were foreclosed on. The 
Helping Families Save Their Homes Act of 2009,\6\ provides significant 
protections when such servicemembers face possible displacement. 
Although the above two statutes do not directly amend the SCRA, they 
recognize that servicemembers face challenges with their housing that 
puts them at greater risk than the rest of the country.
---------------------------------------------------------------------------
    \6\ P.L. 111-22, Title VII, the Protecting Tenants at Foreclosure 
Act of 2009,  701-704.
---------------------------------------------------------------------------
The Education Process
    These amendments to the SCRA and the other powerful statutory 
provisions discussed above, show Congress clearly recognizes the 
difficulties of military service. Of course, the protections and 
benefits from these and other laws mean little if our servicemembers do 
not know about them.
    The Service secretaries are directed to ensure that their Members 
know about the benefits and protections of the SCRA and of other 
similar laws. This educational process involves coordinated and 
overlapping efforts to alert the servicemembers and their commanders of 
these benefits and protections and then to ensure that the proper 
counselors are there to help the servicemember fully understand the 
nuances of the laws and receive everything the laws promise their full 
benefits and protections. The Department has worked closely with the 
Department of Justice, which has enforcement authority under the SCRA. 
Together DoD and DOJ have trained attorneys in the military legal 
assistance program so they are well prepared to answer servicemembers' 
questions and identify potential violations of the SCRA. The military 
legal assistance program provides the first line of defense for our 
servicemembers; however, if they are unable to resolve the matter, the 
servicemember may be referred to private counsel or seek representation 
through any number of State and local pro bono programs. The DoJ has 
also intervened on behalf of servicemembers when necessary to protect 
servicemember's rights and interests.
    The Department's efforts to educate servicemembers and their 
families center around the installation and the various reserve 
component mobilization and demobilization processing centers. These 
reserve component processing centers are particularly critical because 
two of the most important economic protections and benefits--the 6-
percent interest rate cap and the extension of foreclosure 
protections--only apply to pre-service obligations. Accordingly, those 
most likely to benefit from these protections are Reservists and 
National Guardsmen called to active duty.
    Because each of the Services has the authority to best determine 
how to provide the necessary training and counseling, the Department 
has asked the Services to set out how they educate their members about 
the SCRA. The timing of the Committee's request did not allow time to 
gather the data and then organize it to show the many ways the 
information is presented to the servicemember; therefore, that 
information will be submitted separately to the Committee as soon as 
possible.

                                 
       Statement of Colonel John S. Odom, Jr., USAF (Ret.) Esq.,
                   Jones & Odom, LLP, Shreveport, LA

Honorable Jeff Miller
                                           Honorable Bob Filner
Chairman
                                           Ranking Member
House Committee on Veterans Affairs
                                           House Committee on Veterans 
Affairs
335 Cannon House Office Building
                                           2428 Rayburn House Office 
Building
Washington, DC 20515
                                           Washington, DC 20515

Re: February 9, 2011 Hearing on Alleged violations of the 
Servicemembers Civil Relief Act

Mr. Chairman, Ranking Member Filner, Members of the Committee:

    I am grateful to the Committee for its invitation for me to present 
testimony on alleged violations of the Servicemembers Civil Relief Act 
(SCRA) by financial institutions and related matters. Cases arising 
under the SCRA occupy a substantial amount of my law practice and I 
appreciate any opportunity to share with the Members of Congress 
information about violations I have observed and suggestions I have for 
improvements to the SCRA.
    By way of introduction, I am a practicing attorney in Shreveport, 
Louisiana. From 1973 to 2005, I served as a judge advocate in the 
United States Air Force. Although I retired in 2005 in the grade of 
Colonel, I was recalled from retirement in 2010 and served for 6 months 
in the Office of Legal Policy, Undersecretary of Defense for Personnel 
& Readiness in the Pentagon. During that tour of duty, I was the 
principal author on a Report to Congress concerning certain child 
custody matters related to the SCRA. For over 20 years, I have lectured 
extensively on the topic of the Soldiers' and Sailors' Civil Relief Act 
(SSCRA), and the SCRA at the Air Force Judge Advocate General's School 
at Maxwell AFB, Alabama, the Army Judge Advocate General's Law Center 
and School at Charlottesville, Virginia and the Naval Justice School at 
Newport, Rhode Island. I have also lectured for local, State and 
national bar associations, judges' conferences and judicial colleges, 
consumer advocacy groups, bankruptcy trustee associations and financial 
service groups around the country concerning the SSCRA and the SCRA. I 
have recently completed writing a Bench Book on the SCRA which will be 
published by the American Bar Association later this year. I have 
represented countless servicemembers in a variety of claims under the 
SCRA, both in negotiations which led to out of court settlements and 
others that resulted in successful litigation.
    At the present time, I am lead counsel for Sergeant James Hurley in 
his suit against Deutsche Bank Trust Co. Americas, Saxon Mortgage 
Services, Inc. and Orlans Associates, P.C., currently pending in the 
Western District of Michigan (Case No. 1:08-cv-361). As of February 4, 
2011, over 300 pleadings had been filed in that case and the attorneys 
representing Sergeant Hurley have expended over 5,000 hours trying to 
recover damages for a National Guardsman whose home was illegally 
foreclosed upon, his family evicted and the property sold to a third 
party while he was deployed to Iraq. The case presents the worst case 
scenario for any servicemember--answering the call to duty only to find 
that when you returned home, everything you valued most in the way of 
property was irrevocably gone and nothing you did could recover it. The 
most amazing aspect of Hurley is the fact that after nearly 3 years of 
litigation, the Court granted summary judgment in favor of Sergeant and 
Mrs. Hurley against the mortgage company, the mortgage servicing 
company and the law firm that had carried out the illegal foreclosure--
and still there has been no monetary settlement to compensate this 
family 2 years after the defendants lost by summary judgment.
    The Chairman's invitation to present testimony asked that I inform 
the Committee of information I had on (1) financial institution 
compliance with SCRA; (2) how to best educate servicemembers as to 
their protections and responsibilities under SCRA; and (3) how to best 
inform the industries affected by SCRA as to their obligations. I was 
also asked to include any suggested changes or clarifications I believe 
need to be made to improve the SCRA.
    I want to thank this Committee and the entire Congress for the 
significant improvements made to the SCRA near the end of the 111th 
Congress. Specifically, the amendments to the SCRA contained in the 
Veterans' Benefit Act of 2010, Public Law 111-275, amended section 305 
of the Act (50 U.S.C. App.  535) to specifically prevent any early 
termination fees for leases of premises or motor vehicles being 
terminated under the Act. It also revised section 305a (50 U.S.C. App. 
 535a) to make termination of cell phone service contracts easier for 
servicemembers who are transferred to an area where their contract 
carrier does not offer service. Finally, and most importantly, Public 
Law 111-275 established a new Title VIII for the SCRA, comprised of 
sections 801 through 803 (50 U.S.C. App.  597, 597a and 597b) that 
clarify that the Attorney General has enforcement authority and that a 
private cause of action exists for damages plus costs and attorneys 
fees to sue violators of the SCRA. Those amendments are invaluable and 
I express my sincere appreciation for that action. When the President 
signed the law on October 13, 2010, he took action that will eliminate 
the need for future litigants to prove, as was the case in Sergeant 
Hurley's case, that they had a right to bring an action for damages 
against violators of their SCRA rights. That exercise in Hurley alone 
took nearly 2 years and countless hours of legal work to convince a 
Federal judge that Sergeant Hurley had a right to be in court.

1. Financial Institution Compliance with SCRA
    After handling hundreds of SCRA issues related to financial 
institutions, I am convinced that many of the financial institutions in 
our country, including some of our largest banks and mortgage 
companies, have a fundamental misunderstanding of the SCRA. 
Specifically, with regard to pre-service obligations, the financial 
community is well aware of the procedures necessary for a servicemember 
to request interest rate relief under 50 U.S.C. App.  527. If a 
servicemember has a pre-service obligation that bears interest at a 
rate above 6 percent per annum, they can make written demand to the 
creditor for reduction in the interest rate to no more than 6 percent. 
Per the terms of the SCRA, the servicemember must submit to the 
creditor a copy of their military orders. That demand for interest rate 
relief can be made at any time during the period of service, or within 
180 days after release from active duty and any reduction would be 
retroactive to the first date of active duty. We refer to that as a 
section 527 request and the banks and other financial institutions know 
precisely how to administer such demands.
    The complete disconnect comes when the situation moves from demands 
for interest rate relief under section 527 to the protections against 
non-judicial foreclosures of mortgages under 50 U.S.C. App.  533. The 
existing mortgage foreclosure protection--regardless of whether the 
default on the mortgage occurs prior to or during the period of active 
duty--provides that no sale, foreclosure or seizure of property for a 
breach of a mortgage protected by the SCRA (that is, a pre-service 
mortgage) is valid if made during or within 9 months after the period 
of service except upon a court order granted before such sale, 
foreclosure, or seizure with a return made and approved by the court. 
In other words, if a mortgage is protected by the SCRA, no self-help, 
or non-judicial foreclosure is allowed. There are 23 States in which 
some form of non-judicial foreclosure is ordinarily allowed. In those 
States, the mortgage companies will have obtained a waiver of any legal 
proceedings in the event of a default in the mortgage documents 
themselves. However, such a waiver is invalid under 50 U.S.C. App.  
517. When the mortgage companies want to foreclose on mortgage 
protected by the SCRA, they must file an ordinary lawsuit and get 
service on the defendant-servicemember. The servicemember is then 
entitled to a hearing before a judge, who has the power to stay the 
foreclosure, adjust the obligations between the parties and basically 
do just about anything the judge wants to do to protect the 
servicemember and his or her family from foreclosure. The mortgage 
companies have a hard time accepting the fact that the SCRA alters the 
terms of conventional contracts--but that is precisely what the Act 
does.
    In my experience, the mortgage companies do not understand that 
they cannot foreclose on an SCRA-protected mortgage except judicially. 
I am aware of any number of cases, Hurley being a prime example, in 
which the mortgage company stubbornly demanded copies of the 
servicemembers' individual orders before according them SCRA 
protection. That may be appropriate in a section 527 interest rate 
relief case, but it is completely improper in a section 533 case 
involving protection from a non-judicial foreclosure. The creditors 
have the burden of ascertaining the military status of debtors before 
exercising any non-judicial foreclosure rights. Congress shifted the 
burden from the servicemember (where the burden falls in a section 527 
interest rate relief situation) to the creditor (where it falls in a 
section 533 mortgage foreclosure situation). The creditors have no 
right to try and shift that burden back to the servicemembers.
    Banks and mortgage companies cannot have a ``one size fits all'' 
SCRA compliance policy. A policy that may be valid for compliance with 
Section 527 interest rate relief requests is probably useless for 
section 533 mortgage foreclosures if the creditor is insistent on 
receiving copies of orders before granting SCRA protection from non-
judicial foreclosures.
    The Hurley case is illustrative of the problem. During the run up 
period prior to his actual reporting for active duty, Sergeant Hurley 
received his unit mobilization orders at the weekend drill in September 
2004. He knew he was being mobilized and from the point he received 
those orders, he was protected under Titles I, II and III of the SCRA 
(see 50 U.S.C. App.  516. His mother, holding a power of attorney from 
him, contacted the mortgage servicing company on his loan a total of 
six separate times informing Saxon Mortgage Services that Sergeant 
Hurley was being mobilized and would go on active duty effective 25 
October 2004. The notifications included having Sergeant Hurley's 
commanding officer fax a letter to Saxon indicating ``this soldier is 
trying to claim his SCRA rights.'' Saxon already had Hurley's name, 
Social Security Account Number and unit information from earlier orders 
he had sent to them. The fax from the commanding officer included a 
letter advising that Sergeant Hurley would be on active duty beginning 
25 October 2004 for a period of up to 18 months, and included a copy of 
the First Army unit mobilization orders. Sergeant Hurley's individual 
orders were not issued until 12 October 2004. Despite all of those 
notices (which the Federal judge on the case has determined provided 
more than enough information for Saxon to know Sergeant Hurley was 
protected by the SCRA), Saxon referred the file to a Michigan 
foreclosure firm, Orlans Associates, P.C., which initiated a non-
judicial foreclosure on Sergeant Hurley's property on 14 October 2004. 
In the referral of the file, Saxon failed to notify Orlans that 
Hurley's case might involve protections under the SCRA. Obviously, the 
Hurley file must have been referred to Orlans Associates for 
foreclosure at some time prior to 12 October 2004 (the date of Hurley's 
orders). In other words, Saxon was demanding Hurley submit something 
that did not exist--his individual orders and refusing to follow the 
SCRA's prohibition against non-judicial foreclosures under they-- not 
Congress--felt like granting Hurley SCRA protection.
    As the court in Hurley ultimately ruled, it was Sergeant Hurley's 
status as a mobilized member of the National Guard that provided the 
SCRA protection--regardless of Saxon Mortgage Services' illegal policy 
demanding that orders--that did not even exist-- be submitted before 
protection would be accorded him. Saxon continually attempted to impose 
on the servicemember a requirement from one section of the SCRA 
(Section 527's requirement to submit a copy of the orders) in a case 
arising under another section of the Act (Section 533). The Supreme 
Court in Conroy v. Aniskoff, 507 U.S. 511 (1993) has ruled that the Act 
is a ``carefully reticulated'' statute. Congress is presumed to know 
what it enacts and requirements of one section of the Act cannot be 
superimposed on another section of the Act. If Congress wants to amend 
the law, fine--but the creditors do not get to decide when a 
servicemember is protected. The Congress has already made that 
decision.
    One simple illustration suffices to show why an SCRA compliance 
policy that requires submission of orders before section 533 
protections are accorded is invalid. Suppose a servicemember had a 
mortgage that had an interest rate below 6 percent. In such a case, the 
servicemember would not be entitled to any relief from his or her 
mortgage company and might go off to war without ever notifying the 
mortgagee of anything. Thereafter, if the mortgage obligation went into 
default (the reason for the default is completely immaterial), it would 
be preposterous for a mortgage company--claiming that it could 
foreclose non-judicially because the mortgagor had never sent in a copy 
of his or her orders--to conduct a non-judicial foreclosure and then 
sell the property. Such a violation of 50 U.S.C. App.  533 would be 
viewed as a travesty, and would have taken place because the creditor 
failed to take the minimal time required to ascertain the active duty 
status of the mortgagor.
    The Department of Defense, through the Defense Manpower Data 
Center, maintains a publically accessible Web site (https://
www.dmdc.osd.mil/appj/scra/scraHome.do) where anyone can check the 
active duty status of a person with only a name, Social Security number 
and date of birth (or just a name and either a Social Security number 
or a date of birth). Every creditor is going to have a Social Security 
number on a mortgage debtor to issue the certification of the amount of 
interest paid at year end for income tax returns. It takes only a few 
seconds to type in the necessary search data and about 5 seconds for a 
certificate to pop up on the computer screen advising if the person is 
on active duty and, if so, what branch, the initial date of active duty 
and, if the person has been released from active duty within the past 
366 days, the date of last active duty. The process is so simple that 
there is no excuse whatsoever for a creditor not ascertaining the 
military status of a debtor before any non-judicial mortgage 
foreclosure proceeding is commenced.
    I have permission from several clients to mention their names and 
briefly describe their battles with mortgage companies. I represented 
Sergeant John Savage of North Carolina several years ago in a suit 
against a major lender that had lowered his interest rate on his 
request and sent him a letter advising him of the new, lower monthly 
payment. He left for Iraq and every month his wife sent in the new 
payment, the payment center returned the check with a notation that 
they did not accept partial payments. After several months, the 
mortgage company posted a notice of non-judicial foreclosure on the 
door of their home. When Mrs. Savage came home from her job at Wal-
Mart, she found their teenage son curled up on the front porch 
inconsolable after he had seen the foreclosure notice and believed the 
family was about to become homeless--all because their father had 
answered his country's call to arms. While we got the foreclosure 
stopped, the bank did not clean up Sergeant Savage's credit and when he 
returned--injured and partially disabled--he was unable to borrow any 
money to restart his small business. All because the payment center of 
the bank did not get the word from the legal department.
    Chief Warrant Officer 2d Class Chip Pickett of Arizona had me on 
his speed dial from Iraq. When he was not flying helicopter missions in 
combat, he was doing battle with Bank of America which, although they 
had coded his mortgage as SCRA protected, for unknown reasons kept 
referring it to a non-judicial foreclosure four different times over an 
8-month period. Every time Chip would call, I would have to stop 
everything I was doing and contact Bank of America to get the same 
wrong answer--``The house is not going to be foreclosed upon. Uh-oh, 
wait a minute. We'll need to contact that law firm and stop the 
foreclosure sale set for tomorrow.'' Frustrating does not begin to 
describe how the process made me feel. To think that anyone deployed 
overseas could handle these types of problems is ridiculous. Moreover, 
Chip's mind was diverted from the one thing we really wanted him to be 
concentrating on--flying his aircraft safely and effectively. This is a 
combat effectiveness issue if ever there was one.
    The banks are going to have to improve their internal 
communications and implement SCRA compliance policies that actually 
comply with the law. If regulators are going to audit SCRA compliance, 
this Committee must make sure the auditors understand what they are 
supposed to be looking for. Most regulators came from the banking 
industry, and I have low confidence in their understanding of what ``no 
non-judicial foreclosures'' actually means.

2. Education of Servicemembers on Rights and Responsibilities
    The SCRA already requires education of all new servicemembers on 
their rights and responsibilities under the SCRA. However, young people 
tend to hear what they want to hear. They hear about 6-percent interest 
rate caps and tune out the part about ``pre-service obligations.'' They 
hear ``SCRA-protected'' and some of the troops mistakenly think that 
means they can stop making their monthly payments.
    The sources of good, reliable information on the SCRA are almost 
too many to count. Within the DoD, the Military OneSource Web site has 
accurate and understandable information about SCRA and specifically how 
to deal with mortgage problems available within two clicks of the mouse 
when on their site. I have reviewed the materials and they are quite 
good.
    Every post, base and station with a Legal Office has trained Legal 
Assistance officers available for assistance. Through the training 
these judge advocates, civilian attorneys and paralegals receive at the 
Service JAG Schools, they are able to assist in contacting creditors, 
drafting correspondence and giving advice to servicemembers on SCRA 
matters. Financial counseling is available at most of the larger 
installations, and those counselors know to send the servicemembers to 
the Legal Office when the situation calls for it.
    The American Bar Association's Legal Assistance to Military 
Personnel Committee holds quarterly meetings at military installations 
around the country. Generally, a 1-day continuing legal education 
seminar, always featuring SCRA instruction, is conducted for local 
members of the bar as well as military attorneys. Through the ABA's 
Military Pro Bono Program, hundreds of qualified attorneys around the 
country have volunteered to assist servicemembers (E-6 and below) in 
civilian legal matters in court, including SCRA issues.
    Since many of the SCRA's protections apply primarily to Reserve and 
Guard members (who generally have more pre-service obligations than 
active duty servicemembers), the judge advocates for those units are 
especially well aware of the SCRA's protections and their members' 
responsibilities. Many of those units draft the notices to creditors 
required by section 527 for the members and have form letters available 
for that purpose.

3. Training for the Banking and Credit Industry on SCRA
    I am not aware of what types of seminars bank compliance officers 
conduct or attend to ensure compliance with the SCRA. Based on 
depositions we have taken in the Hurley case, the two compliance 
officers offered as experts by one of the defendants were simply not 
competent to interpret the SCRA. The SCRA specialists with the mortgage 
servicing company demanded copies of Sergeant Hurley's orders and did 
not afford him SCRA protection when he did not submit orders (which did 
not then exist). In their depositions, they acknowledged that they had 
never read the SCRA, did not understand how it worked, and only knew 
that they had a compliance policy that started with the words ``the 
member is responsible for submitting his orders and no SCRA protection 
will be granted until the bank has reviewed the orders and determined 
that SCRA protections should be in effect,'' or words to that effect.
    Bank regulators should receive training in the SCRA and then devise 
audit criteria for the banks under their supervision and control to 
ensure that the Act--both as to requests for interest rate relief and 
as to protection of servicemembers from non-judicial foreclosure and 
default judgments--was being followed. A ``one size fits all'' SCRA 
compliance policy does not exist. Different sections of the Act require 
different efforts by the banks to provide SCRA compliance.

4. Recommendations for Amendments to the SCRA
    I recommend the following technical amendments to the SCRA:

    1.  Amend 50 U.S.C. App.  597a of the SCRA to provide that no 
action brought to enforce a member's rights or obtain damages as a 
result of SCRA violations shall be subject to a mandatory arbitration 
clause in the contract or other obligation that gives rise to the suit.
    2.  Amend section 305 of the SCRA (50 U.S.C. App.  535) to (a) 
clarify that an order to a servicemember to move from off-base into on-
base quarters qualifies as a grounds to terminate a lease earlier than 
its term, and (b) that the term ``permanent change of station'' has the 
definition found in the Joint Federal Travel Regulations (which would 
include ETS moves, and retirement moves).
    3.  Further amend section 305 of the SCRA (50 U.S.C. App.  535) to 
delete subparagraph (i), and move that language to section 101 (50 
U.S.C. App. 511). The broader definition of ``military orders'' should 
apply to all sections of the SCRA in which a servicemember is required 
to submit copies of military orders to a creditor or other obligee. 
Many times, the individual servicemember's orders are not cut and 
published until he/she has either actually gone on a deployment or is 
so close to departure that other matters are more pressing than getting 
copies of orders to creditors. If the general definitions in the SCRA 
of ``military orders'' and ``CONUS'' were included in section 101, 
commanders would be able to write letters certifying the upcoming 
active duty status of a member of the Guard or Reserve (or active 
force) so that creditors' demands for copies of military orders could 
be deemed satisfied. This has been a huge issue in Hurley v. Deutsche 
Bank Trust Co. Americas, since the bank's defense was that Sergeant 
Hurley did not supply a copy of his individual military orders to the 
mortgagee and the bank therefore did not extend to him SCRA protection 
against non-judicial foreclosure of his mortgage. Of course, Congress 
has differentiated between a case in which the soldier requests 
interest rate relief under 50 U.S.C. App.  527 (and is required to 
submit a copy of his military orders) and a situation in which a 
mortgagee wishes to proceed non-judicially to seize property and 
foreclose on a mortgage (in which case under 50 U.S.C. App.  533, 
there is no obligation on the part of the servicemember to do anything 
to be protected). However, the vast majority of banks have one SCRA 
compliance policy and it is geared to interest rate relief requests. 
Therefore, anything Congress could do to satisfy the requirement of 
submission of military orders (including changing the definition of 
what qualifies as ``military orders'' under the SCRA) would be helpful.
    4.  Amend section 203 of the SCRA (50 U.S.C. App.  523) to clarify 
that an early pre-payment penalty on a mortgage is included within the 
coverage of that section and providing that if it is necessary for a 
servicemember to obtain a court order to force a creditor to waive an 
early pre-payment penalty for a mortgage when the pre-payment is a 
result of either a deployment in excess of 180 days or a PCS move, the 
creditor shall be liable for the reasonable attorneys fees and costs 
incurred by the servicemember to obtain such a court order.
    5.  Amend the SCRA to clarify that the Act applies to the debts and 
obligations of limited liability companies and Subchapter S 
corporations, including property taxes owed by those entities, when the 
company/corporation is wholly owned by the servicemember or the 
servicemember and a spouse and, in the case of debts other than taxes, 
the servicemember is personally liable on the debt, either as a co-
maker or as a guarantor. (Property taxes will never be a personal 
liability of the servicemember who owns the business, but loss of the 
business due to a tax sale will obviously adversely impact the 
servicemember, so the protections of the SCRA should be extended to tax 
debts of businesses wholly owned by the servicemember.)
    6.  Amend section 201(b)(2) of the SCRA (50 U.S.C. App.  
521(b)(2)) to provide that the reasonable fees of the attorney 
appointed by the court to represent the servicemember shall be taxed as 
costs of court.
    7.  Amend the SCRA to add a provision that the expiration dates of 
any license or certification issued by any State or Federal agency 
(including driver's licenses, nurses' licenses, contractors' licenses, 
etc.) shall be extended to a period that is 90 days after the release 
from active duty of a servicemember. Additionally, add a provision to 
exempt from the requirements of continuing legal or medical education 
levied by any State or Federal agency, bar or medical association any 
servicemember who is serving in a legal or medical billet and is 
deployed outside the CONUS for 180 days or more during the year.
    8.  Amend section 303 of the SCRA (50 U.S.C. App.  533(b) and (c) 
to extend the protection against non-judicial foreclosures from 9 
months to 12 months. That would bring the SCRA mortgage protection 
provision in line with the extension of the interest rate cap of 6 
percent for mortgage debt found in Section 207 of the SCRA (50 U.S.C. 
App.  527). As it is now, the protection against non-judicial mortgage 
foreclosure extends for 9 months but the interest rate protection 
extends for 12 months after release from active duty. Making the two 
periods different by 3 months makes no real sense. The extension 
periods should be the same.

    There is one other action this Committee could recommend that would 
be invaluable in trying to promote understanding of and compliance with 
the SCRA. When the SCRA was enacted in 2003, the Government Printing 
Office printed the entire text of the Act in a single document. Since 
that date, because of numerous minor and some major amendments, the GPO 
has not reprinted the SCRA in a single document. It would be most 
helpful for servicemembers, practitioners and those responsible for 
compliance with the Act to have access to a single document (that did 
not require a subscription to LEXIS-NEXIS of Westlaw to obtain) where 
the complete text of the Act, current through the end of the 111th 
Congress, could be found in readily available format.
    I appreciate the opportunity to have submitted this testimony to 
the Committee and would be happy to entertain any questions the Members 
or their staffs might have. Please address any questions to me at 
[email protected].

            Respectfully submitted,

                                                 John S. Odom, Jr.,
                                               Colonel, USAF (Ret.)

                                 
                   Statement of Hon. Silvestre Reyes,
          a Representative in Congress from the State of Texas

    I want to thank Chairman Miller and Ranking Member Filner for 
calling this hearing and bringing this important issue before the 
Committee. Since the Civil War we have recognized the importance of 
providing financial protection to the men and women who serve our great 
Nation. Our Soldiers, Sailors, Airmen, and Marines risk their lives 
protecting our freedom; the least we can do is protect them from the 
financial hardships that may result from their time in combat.
    As a veteran of the Vietnam War, I saw firsthand the financial 
uncertainty that comes with being deployed. Every day that a 
servicemember is away, their loved ones worry about their safety. 
Equally concerning to the deployed servicemember is the financial 
wellbeing of the family they left behind. It is imperative that we 
provide them protections that ensure their fiscal security.
    It is deeply concerning to me that we are here today because some 
of our Nation's largest financial institutions have failed to afford 
these great men and women the protections provided by this Congress--
this is both unpatriotic and shows a lack of respect for their service. 
It is my hope that the information provided in today's hearing will 
allow us to ensure that this does not occur again in the future.

                   MATERIAL SUBMITTED FOR THE RECORD

                                     Committee on Veterans' Affairs
                                                    Washington, DC.
                                                  February 15, 2011

Naomi Gendler Camper
Managing Director and Head of Federal Government Relations
JPMorgan Chase
601 Pennsylvania Ave., NW
Washington, DC 20004

Dear Naomi:

    In reference to our Full Committee hearing entitled ``Allegations 
Regarding the Servicemembers Civil Relief Act,'' that took place on 
February 9, 2011, I would appreciate it if you could answer the 
enclosed hearing questions by the close of business on April 1, 2011.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax at 202-225-2034. If you have any questions, please 
call 202-225-9756.

            Sincerely,

                                                         BOB FILNER
                                          Ranking Democratic Member
JL:ds
                               __________
                                           Debevoise & Plimpton LLP
                                                      New York, NY.
                                                      April 1, 2011

The Honorable Bob Filner
Ranking Democratic Member
House Committee on Veterans' Affairs
335 Cannon House Office Building
Washington, D.C. 20515

    Hearing Questions Regarding the Servicemembers Civil Relief Act

Dear Congressman Filner:

    I am writing on behalf of JPMorgan Chase (``Chase''), in response 
to your letter to dated February 15, 2011, enclosing questions arising 
out of the February 9 hearing on the Servicemembers Civil Relief Act 
(``SCRA'').

    1. How often does the bank perform audits to check for this type of 
problem?

    Chase Home Lending has recently enhanced its processes to attempt 
to ensure that: (1) the correct interest rate and fees are applied to 
SCRA-protected loans; and (2) no foreclosures against SCRA-protected 
servicemembers go forward. A number of these enhancements involve 
frequent reviews and quality checks to ensure that Chase's processes 
comply with the SCRA. So, for example, there are now daily reviews of 
the entire set of SCRA-protected loans to ensure fee, subsidy and rate 
protections are in place. Similarly, Chase now conducts several checks 
at various stages prior to and subsequent to foreclosure referral to 
determine whether a borrower is protected by the SCRA.
    Chase's Internal Audit department will periodically review Chase's 
procedures for compliance with SCRA requirements. The Internal Audit 
department is currently conducting a review of the existing processes, 
and will conduct a full audit of the enhanced processes in the coming 
year.

    2. How many families have not received a refund yet?

    Chase Home Lending has now sent approximately 6,000 refund checks 
to SCRA borrowers. In almost all of these cases, Chase paid the 
servicemembers more than double the amounts of the estimated 
overcharges or fees. The review of borrowers' files is ongoing, and 
Chase expects that it may identify additional accounts where it 
mistakenly overcharged servicemember borrowers or charged SCRA-
protected borrowers fees. However, Chase has now sent refund checks to 
all servicemembers it has identified as being entitled to a refund for 
overcharges or fees, with the exception of a small number of borrowers 
with whom it is in active litigation.

    3. In what situations does JPMorgan Chase deny access to a 
borrower's account?

    It is Chase policy to discontinue account statements to borrowers 
with whom it is in litigation.

    4. You recently established a team dedicated to servicing home 
loans to military personnel in South Carolina. How will their training 
differ from your previous training? What type of checks and balances 
are you establishing to prevent this from happening again?

    One of the issues with Chase Home Lending's SCRA processes was that 
there were errors in the reading of military orders. To address this, 
the initial set-up of SCRA loans has now been consolidated in a single 
unit in Florence, South Carolina; new personnel have been installed to 
manage this process; and enhanced training has been given to these 
employees. Former members of the military are involved in this process 
to assist Chase in interpreting military orders from each branch.
    The majority of the Special Loans SCRA team was initially trained 
in October/November 2009 when the SCRA function for the combined Chase 
mortgage portfolio was transitioned to Florence, South Carolina. 
Additional training was conducted in March and April 2010. In addition, 
during weekly staff meetings, review and training for unique military 
orders or nuances in order interpretation is a standing agenda topic. 
On average, each individual on this team has reviewed hundreds of 
military orders over the last 12 months.
    The review of the orders, which is a manual process, also is now 
subject to additional quality control; an additional Chase employee 
reviews each order to ensure that the protection periods have been 
properly identified. In addition, when SCRA protection has been 
claimed, denial of SCRA protection requires senior manager sign off.
    Another issue with Chase's SCRA processes was the calculation and 
accounting for the SCRA interest rate. Now, 100 percent quality control 
has been put in place around the calculation of and accounting for the 
interest rate.
    To address the customer service issues, Chase has created a 
dedicated hotline for military customers staffed by personnel trained 
on SCRA compliance issues. This customer service hotline is open 24 
hours a day, 7 days a week. These same personnel will provide customer 
service to any military borrower who calls Chase's general customer 
service line.

    5. Under protections against foreclosure of mortgages under title 
50, section 533, the SCRA does not require that servicemembers provide 
military orders. Does JPMorgan Chase require servicemembers to submit 
military orders to provide these protections?

    Chase does not require servicemembers to submit military orders 
before Chase provides the protections of SCRA section 533 against 
foreclosure. Chase now has procedures in place to check the Department 
of Defense Web site to verify military status at multiple stages of the 
foreclosure process to ensure that it does not foreclose on a 
servicemember who is protected by SCRA or the Housing and Economic 
Reform Act (``HERA'').

    6. There have been a number of families who were foreclosed. Does 
JPMorgan Chase correct their damaged credit reports?

    Chase Home Lending is currently assessing and correcting the credit 
reporting of servicemembers to whom it sent refund checks and those 
upon whom it wrongfully foreclosed. Currently, all credit reporting is 
suppressed for SCRA loans during the SCRA protection period.

    7. Please state how many executive vice presidents there are at 
JPMorgan Chase.

    JPMorgan Chase has 20 Executive Vice Presidents at the corporate 
level. Stephanie Mudick is one of these Executive Vice Presidents, and 
is a member of JPMorgan Chase's Executive Committee, which comprises 55 
senior officers who lead its businesses and functions.
    Please do not hesitate to contact me at (212) 909-6947 if you have 
any additional questions.

            Sincerely yours,

                                                 Andrew J. Ceresney

cc: Chairman Jeff Miller

                                 

                                     Committee on Veterans' Affairs
                                                    Washington, DC.
                                                  February 15, 2011

The Honorable Robert M. Gates
Secretary
U.S. Department of Defense
The Pentagon
Washington, DC 20301-1155

Dear Mr. Secretary:

    In reference to our Full Committee hearing entitled ``Allegations 
Regarding the Servicemembers Civil Relief Act,'' that took place on 
February 9, 2011, I would appreciate it if you could answer the 
enclosed hearing questions by the close of business on April 1, 2011.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax at 202-225-2034. If you have any questions, please 
call 202-225-9756.

            Sincerely,

                                                         BOB FILNER
                                          Ranking Democratic Member
JL:ds

                               __________
                    Hearing Date: February 09, 2011
                            Committee: HVAC
                       Member: Congressman Filner
                        Witness: Colonel Shumake
                            SCRA Protections

    Question 1: When did you become aware that JPMorgan Chase was 
violating protections afforded under the SCRA?

    Answer: I received a call from a Senate Veterans' Affairs staffer 
on January 13, 2011, asking if I had heard about a class action lawsuit 
involving JPMorgan Chase, one that may have involved interest rate cap 
issues. I had not, but indicated I would check with my contacts in the 
American Bankers Association. I did and soon received a call indicating 
that representatives from JPMorgan Chase would be contacting me 
shortly. I received a call from JPMorgan Chase on January 14, 2011. 
They explained the law suit and admitted that they had incorrectly 
calculated interest rate rates for many servicemembers. They also 
indicated they had improperly foreclosed on the homes of 15-20 
servicemembers. They outlined the steps they were taking to correct 
their errors and provided a hotline number established for 
servicemembers.

                            Information Flow

    Question 2: Did JPMorgan Chase reach out to inform you of these 
violations or did you become aware through the various media outlets?

    Answer: I received a call from JPMorgan Chase officials on January 
14, 2011. This was the Friday before the Today show reported the story 
the next Monday morning.
                Financial Institutions Violating the Law
    Question 3: Are you aware of any other financial institutions that 
may be currently violating the law?

    Answer: Although the Department of Defense is aware of allegations, 
and provides legal assistance to servicemembers and their families 
regarding their rights under the SCRA, the Department does not 
investigate private companies' compliance with the SCRA.
    The Department of Justice may have more specific information on 
violations of the SCRA.
    I have attached a complaint in an ongoing class action suit against 
Citibank alleging violations of the interest rate cap provision of the 
SCRA. The Department does not take a position about the merits of this 
case.

                      UNITED STATES DISTRICT COURT
                          DISTRICT OF MINNESOTA

---------------------------------

                                 ---------------------------------------

FIRST AMENDED COMPLAINT        a Delaware corporation,

                                 ---------------------------------------
 501-596 was enacted in recogn
 i2. Both the letter and spirit
   of the SCRA acknowledge the
 sacrifice made by our military
men and women so as ``to provide
  for, strengthen, and expedite
  the national defense through
protection--to servicemembers of
the United States to enable such
 persons to devote their entire
 energy to the defense needs of
  the Nation. . . .'' 50 U.S.C.
           App.  502.
   3. Defendants, regrettably,
 have failed to honor the active
    duty status of America's
  fighting forces. Despite the
 prohibitions of SCRA, 50 U.S.C.
App.  501-596, Defendants have
   charged excess interest on
servicemembers' loans as well as
imposing a forbearance status as
a pre-condition to receiving the
 interest reduction. Defendants
   have illegally capitalized
   interest resulting from the
   mandatory forbearance they
   imposed on servicemembers'
 loans. They charged interest on
 the capitalized interest which
  raised the effective interest
        rate on the loan.
    4. Ms. Lyndsey M.D. Olson
   brings this class action on
   behalf of herself and other
       similarly situated
 servicemembers who have been or
 will be injured by Defendants'
  failure to promptly and fully
 comply with the requirements of
     SCRA without added pre-
           conditions.
 5. Ms. Lyndsey M.D. Olson (f/k/
a Ms. Lyndsey M.D. Kimber, f/k/a
  Lyndsey Margaret Davis) is a
Minnesota resident and a Captain
 in the Minnesota Army National
  Guard. She began a period of
  active duty on March 1, 2005.
   One year of her active duty
 service was spent in Iraq, from
     June 2008 to May 2009.
   6. Defendant Citibank, N.A.
  (``Citibank'') is a national
    commercial bank, with its
 principal place of business at
 3900 Paradise Road, Suite 127,
    Las Vegas, Nevada, 89109.
 7. Defendant Citibank (New York
  State) (``CNYS'') is or was a
 New York State chartered bank,
   with its principal place of
   business at 99 Garnsey Rd.,
Pittsford, New York, 14534. Upon
   information and belief, it
  merged with Citibank, N.A. in
         August of 2003.
  8. Defendant The Student Loan
 Corporation (``Student Loan'')
 is a Delaware corporation, with
 its principal place of business
    at 750 Washington Blvd.,
  Stamford, Connecticut, 06901.
  Upon information and belief,
 Defendant CNYS owned 80 percent
 of Student Loan's shares until
 its merger with Citibank, N.A.
    Also upon information and
     belief, Citibank and/or
 Citigroup sold its interest in
 the Student Loan Corporation at
        the end of 2010.
  9. At all relevant times, and
 at least until the end of 2010,
   all of the Defendants were
  wholly owned or controlled by
   Citigroup, Inc., a Delaware
 corporation with its principal
  place of business at 399 Park
   Avenue, New York, New York,
             10043.
10. Monthly statements and other
 correspondence received by Ms.
  Olson illustrate the closely
intertwined relationship between
the Defendants. For example, Ms.
 Olson's monthly statements were
 jointly captioned ``Citibank''
     and ``The Student Loan
   Corporation.'' Payments, in
  turn, were sent to ``Student
 Loan Corporation, c/o Citibank
 (Nevada), N.A.'' Letters to Ms.
  Olson were typically sent on
 Citibank letterhead, but stated
 ``CitiAssist student loans are
originated by Citibank, N.A. and
  assigned to The Student Loan
 Corporation.'' See Exh. 1. Pay
  Online statements referred to
``Citi.com,'' and indicated that
   all copyrights were held by
 Citigroup, Inc. (parent company
  of Student Loan and Citibank,
             N.A.).
   11. Ms. Lyndsey Olson is a
 ``servicemember'' as defined in
   the SCRA, 50 U.S.C. App. 
  511(1), and is in ``military
    service'' as defined in 
          511(2)(A)(i).
12. Defendants are ``creditors''
  for purposes of the interest
  rate limitation provisions of
 the SCRA, 50 U.S.C. App.  527.
  13. Plaintiff and each class
    member have a qualifying
 ``obligation or liability'' to
Defendants within the meaning of
   the SCRA, 50 U.S.C. App. 
             527(a).
       14. Defendants have
   systematically violated the
    interest rate limitation
   provisions of the SCRA, 50
      U.S.C. App.  527, by
 overcharging interest or by not
 crediting back correct amounts
   when they receive notice of
  military service status after
the commencement of the military
   service and/or active duty
 period (the phrases ``military
  service'' and ``active duty''
    are used interchangeably
  throughout this Complaint to
mean the period of time to which
          527 applies).
       15. Defendants have
systematically violated the SCRA
     by unilaterally placing
   Plaintiff's and each class
  member's loans in forbearance
  status as a pre-condition to
receiving the SCRA interest rate
           reduction.
 16. This Court has jurisdiction
 over this action pursuant to 28
         U.S.C.  1331.
 17. Venue in the United States
 District Court for the District
 of Minnesota is proper under 28
    U.S.C.  1391 because all
  Defendants routinely conduct
    business in the State of
 Minnesota, and thus can be said
 to ``reside'' here, and because
a substantial part of the events
 or omissions giving rise to the
 claims in this action occurred
   in the State of Minnesota.

  18. The Servicemembers Civil
 Relief Act was signed into law
 by President George W. Bush on
December 19, 2003. The SCRA is a
  revision of the Soldier's and
  Sailor's Civil Relief Act of
    1940 (``SSCRA''), and was
 intended, in part, to ease the
  economic and legal burdens on
  military personnel called to
 active-duty status in Operation
         Iraqi Freedom.
 19. National Guard and National
 Air Guard personnel on duty for
     training or other duty
authorized by 32 U.S.C.  502(f)
at the request of the President,
     for or in support of an
operation during war or national
    emergency declared by the
 President or Congress are also
 covered by the SCRA, 50 U.S.C.
      App.  511(2)(A)(ii).
    20. Among the protections
     granted to active-duty
servicemembers under the SCRA is
a 6 percent per year cap on most
 interest-bearing debts incurred
before the start of active duty.
   Thus, for example, if a new
  active-duty servicemember has
  pre-existing credit card debt
 incurring interest at an annual
 percentage rate (``APR'') of 21
 percent, the SCRA would require
 the credit card issuer to lower
    the APR on that debt to 6
percent per year throughout that
 servicemember's time of active
 duty. Interest must be forgiven
   in excess of  6 percent per
    year, not just deferred,
pursuant to SCRA, 50 U.S.C. App.
           527(a)(2).
 21. The servicemember must give
  written notice of the active
 duty status in order to obtain
 the 6 percent per year interest
    rate. The written notice,
however, can be given anytime up
to 180 days after the end of the
   servicemember's active duty
period. SCRA  527(b)(1). If the
 notice is given after the start
 of the active duty period, then
  the creditor must apply the 6
 percent per year retroactively
to the start date of active duty
   service. Id at  527(b)(2).
  22. The United States Supreme
  Court has held that the SSCRA
   must be read ``with an eye
  friendly to those who dropped
  their affairs to answer their
      country's call.'' Le
MaiT1, 333
  U.S. 1, 6, 68 S. Ct. 371, 373
             (1948).
23. The SCRA limits the interest
 rate to be charged to a maximum
 of 6 percent per year. Nowhere
  does the language of the Act
    permit capitalization of
  interest (i.e. adding unpaid
     accrued interest to the
   principal balance and then
charging interest on the total).
 Also, nowhere does the language
  of the Act permit compounding
 interest (ie. charging interest
     upon previously accrued
           interest).
  24. Federal courts have long
   recognized that compounding
  results in a higher effective
         interest rate.
  25. Federal courts have long
 recognized that capitalization
   of interest also leads to a
 higher effective interest rate.
26.  527 of the SCRA limits the
 interest that can be charged to
  ``6 percent per year,'' which
   means the interest must be
 calculated based on the simple
        interest method.
 27. In the absence of explicit
      language in a statute
   authorizing compounding of
    interest, the creditor is
   limited to simple interest.
28. Similarly, contract law also
    follows the rule that the
   contract must specifically
  authorize compounding, and in
the absence of explicit contract
 language, the creditor can only
      use a simple interest
          calculation.
 29. In the alternative, even if
SCRA were silent as to method of
 interest calculation, which it
 is not, if the underlying note
 does not explicitly provide for
 compounding or capitalization,
      the creditor cannot,
    unilaterally, compound or
      capitalize interest.
 30. Also, where a loan contract
 does not specifically authorize
     (1) placing the loan in
      forbearance, and (2)
   capitalization of interest
 accrued during the forbearance
  period, the creditor may not
  unilaterally change the loan
   terms and impose mandatory
    forbearance or capitalize
   interest accrued during the
       forbearance period.
  31. When a servicemember does
    not specifically agree to
  placement of his or her loan
  into forbearance status, the
  creditor may not unilaterally
 place the loan into forbearance
   status and then capitalize
   interest accrued during the
       forbearance period.
  32. The SCRA does not allow a
 creditor to unilaterally impose
 mandatory forbearance status on
 a servicemember's loan and then
 capitalize the unpaid interest
    simply as a result of the
 servicemember exercising his or
 her right to the 6 percent per
     year interest rate cap.
Furthermore, such actions by the
 creditor violate the spirit of
  the SCRA, a law that must be
 read liberally and with an eye
 friendly toward servicemembers.
 33. Ms. Olson first joined the
Minnesota Army National Guard in
 January 2001. In 1998, she had
 earned a bachelor's degree from
 Stephens College, in Columbia,
      Missouri, majoring in
 philosophy, law, and rhetoric.
  In order to finance her final
   year of college, Ms. Olson
  applied for an $8,000 private
 student loan through Defendant
 Citibank's CitiAssist program.
   On July 16, 1997, Ms. Olson
    received notice that her
 application had been approved,
 and she received her loan funds
 in two equal distributions, one
 on July 16, 1997, and the other
 on August 25, 1997. See Exh. 2.
   34. Ms. Olson began making
 regular payments on her student
 loan in December 1998, and has
  never incurred a late payment
  fee. The interest rate on her
    loan is variable, and has
 fluctuated between 4.25 percent
 and 9.25 percent. As Ms. Olson
  sought further education, her
   loan periodically went into
  forbearance while she was in
 school. During these periods of
    forbearance, the interest
    payments on her loan were
    capitalized, meaning the
  interest that accrued during
these periods of forbearance was
 ultimately added to Ms. Olson's
       principal balance.
 35. In 2000, Ms. Olson enrolled
 in Hamline University School of
 Law in St. Paul, Minnesota with
 the hope of serving as a Judge
Advocate (``JAG'') in the United
    States Armed Forces after
   graduation. When Ms. Olson
   graduated in 2003, she was
  primary editor of the Hamline
      Law Review. Following
  graduation, she attended the
U.S. Army Judge Advocate General
   School in Charlottesville,
            Virginia.
 36. Ms. Olson began her active
duty on March 1, 2005. On May 6,
 2008, Ms. Olson received orders
deploying her to Iraq in support
 of Operation Iraqi Freedom. She
  was stationed in Balad, Iraq,
       where she served as
  International Law Officer and
  Brigade Trial Counsel to the
  34th Combat Aviation Brigade.
 She returned from Iraq in June
  2009 and was stationed at the
U.S. Army Judge Advocate General
   School in Charlottesville,
   Virginia to obtain her LLM
 degree. She finished her degree
          in May, 2010.
 37. On May 26, 2006, Ms. Olson
 notified Defendants in writing
   that she had been called to
active duty, and enclosed copies
   of her orders. See Exh. 3.
  Approximately 5 months later,
 Defendant Citibank notified her
 by letter that it had received
  her correspondence and would
 limit her interest to 6 percent
   per year as required by the
    SCRA. The letter went on,
    however, to state that an
   (unrequested and mandatory)
   forbearance was also being
  ``granted'' on her loan, and
that any accrued interest during
 this time would be capitalized
 when her forbearance ended. See
   Exh. 4. Defendants took the
 above actions unilaterally. Ms.
   Olson did not agree to the
       forbearance or the
   capitalization of interest.
   38. When Ms. Olson informed
   Citibank of her active duty
status, she did not request that
    her account be placed in
  forbearance status. See Olson
 letter dated May 26, 2006, Exh.
   3. Instead, contrary to the
   SCRA, Citibank placed it in
  forbearance status on its own
 without her request or consent.
   When she called Citibank to
  advise them that she did not
   want her account placed in
forbearance status, she was told
   it was Citibank's policy to
  place accounts in forbearance
     status in order for the
  servicemember to receive the
  SCRA interest rate reduction,
and that Citibank would not give
 her the rate reduction without
       that status change.
39. Ms. Olson requested to speak
   to a manager regarding this
  policy and was told the same
             thing.
 40. The SCRA does not allow any
 conditions, other than what is
  stated in the statute, to be
    placed on an active duty
servicemember's right to receive
   an interest rate reduction.
    41. The vast majority of
servicemembers deployed overseas
    and in combat zones, have
  limited, or no, access to the
 Internet for purposes of going
  online and making payments on
 their account, and instead rely
  on ``auto pay'' to have their
  bills paid on a monthly basis
 while they are on active duty.
   Ms. Olson's loan was on the
 automatic student loan payment
service prior to being placed on
  this mandatory forebearance.
    42. The consequences of a
   servicemember's loan being
 placed in mandatory forbearance
status include: (a) being denied
  access to the autopay option,
 through which the servicemember
   could have made payments in
   order to continue reducing
principal during the active duty
period, (b) the servicemember no
 longer receives monthly account
 statements in the mail while in
 forbearance, (c) both of which
   result in most active duty
    servicemembers not making
 regular payments while they are
  deployed because of the added
   effort they must commit to
        making a payment.
  43. Fewer payments being made
  during the forbearance period
   leads to a larger amount of
 interest capitalized and added
 to the principal balance at the
   end of the servicemembers'
    active duty and when the
 forbearance status is lifted by
   Defendants. This results in
    higher compounded and/or
effective interest rates, to the
servicemembers' detriment and to
    the Defendants' benefit.
  44. Defendants are aware that
      requiring active duty
    servicemembers to go into
 forbearance status in order to
receive their SCRA interest rate
    reduction will result in
    Defendants being able to
  capitalize higher amounts of
   interest at the end of the
 active duty period, compared to
if forbearance status were not a
          requirement.
   45. If Defendants wished to
  offer forbearance status for
neutral reasons, they could have
 simply made it optional, rather
 than a pre-condition to obtain
    the benefits of the SCRA.
 46. Although Ms. Olson sent her
 notice of active duty status to
  Citibank on May 26, 2006, and
  despite Citibank's duty under
 the SCRA to cap her interest at
 6 percent per year, statements
 sent by Defendants Citibank and
  The Student Loan Corporation
  plainly show that Defendants
 continued to charge interest in
    excess of 6 percent. For
 example, Ms. Olson's statement
 from November 2006 showed that
    Defendants were charging
interest at an annual percentage
 rate of 9.25 percent. See Exh.
               5.
 47. Citibank eventually changed
 the interest rate to 6 percent
 on the December 2006 statement
   and stated that it kept the
 interest rate at 6 percent (or
 lower based on the market rate,
 since Ms. Olson's loan carried
an adjustable rate), thereafter.
 Pursuant to the SCRA, Citibank
 was required to credit back to
Ms. Olson the excess interest it
 charged her, going back to the
  beginning of her active duty
   period, i.e. March 1, 2005.
 However, the online statements
    for the months following
   Defendants' November letter
 (Exh. 4) do not show Defendants
  credited back any interest to
   Ms. Olson's account for the
 previous months of overcharges.
   There is no evidence in the
 online account information that
 the interest was credited back.
     In the alternative, if
  Defendants credited back any
 interest, the amount of excess
interest it credited back to Ms.
Olson's account was insufficient
  to remedy the overcharges for
        the prior months.
48. In the years prior to filing
this action, Ms. Olson requested
a copy of her account history on
 several occasions to determine
whether Citibank had charged the
  correct interest on her loan
   pursuant to the SCRA and/or
    whether it credited back
 overcharged interest. Citibank
sent Ms. Olson a payment history
at two different times. See Exh.
  6 and Exh. 7. The two account
   histories do not match each
  other. In fact, the histories
  contain inconsistent entries.
See e.g. the ``Interest decrease
for servicemembers'' entry dated
  11/08/2006 for the amount of
 $733.30 on Exh. 6, and compare
  with the entries for the same
  time period on Exh. 7, where
  such an interest decrease is
            missing.
49. Furthermore, the two account
histories described above do not
  match the loan information on
her monthly statements. See e.g.
    The monthly statement for
 November 2006, Exh. 5, shows a
 principal balance of $9,789.05,
  and the loan history, Exh. 6,
for 11/08/2006 shows a principal
 balance of $8937.49. These and
 other inconsistencies made Ms.
Olson's efforts to ascertain the
  exact amounts Defendants were
charging her (or crediting back,
    as the case may be) very
difficult. These inconsistencies
     also make it easier for
  Defendants to disguise excess
 interest being charged despite
     the SCRA prohibitions.
 50. On several occasions prior
  to the filing of this action,
  Ms. Olson also requested, by
telephone and in writing, a copy
of her note or loan agreement to
 be sent to her. Citibank (South
Dakota), N.A. sent her a copy of
  her application rather than a
  formal note or contract. See
        Loan Application
  (``Application'') attached as
             Exh. 8.
 51. She later wrote to Citibank
   to specifically request the
 ``Note'' referenced in the copy
 of the Application it sent her.
   See Exh. 9. By letter dated
   December 30, 2009, Citibank
  stated there was no ``Note,''
  and that her entire agreement
  was the Application. See Exh.
10. (``Thank you for your recent
correspondence to Citibank, N.A.
    regarding your CitiAssist
    loan(s). The copy of the
  application is also a copy of
  the promissory note. They are
   one in [sic] the same.'').
  Plaintiff, therefore, assumes
   the Application is the only
remaining existing agreement for
repayment of this loan. See Loan
 Application attached as Exh. 8.
  52. The Application does not
 contain any provision allowing
 Defendants to compound interest
  on her loan, which means that
her loan agreement is for simple
     interest. Furthermore,
     Defendants' own monthly
 statements confirm on the back
 of the statements that interest
   is calculated based on the
    ``simple daily interest''
             method.
  53. Likewise, the Application
 does not contain any provision
     allowing Defendants to
      capitalize interest.
 54. Defendants took Ms. Olson's
 loan off mandatory forbearance
 status sometime in early 2010.
 After Defendants took her loan
      off forbearance, they
  capitalized accrued interest
  (added it into her principal
 balance) and began charging her
  monthly interest on the new,
 inflated principal balance. Ms.
  Olson is still making monthly
   payments on a balance that
    reflects and includes the
 capitalized interest resulting
 from the mandatory forbearance
imposed on her account. Also, as
   a result of the capitalized
    interest, and thus higher
  principal balance, the amount
   Ms. Olson owes Citibank is
 higher than it would have been
    had the interest not been
 capitalized. Therefore, due to
  the combination of mandatory
    forbearance and resulting
 capitalized interest, Ms. Olson
  paid (and is still paying) a
 higher effective interest rate
 due to Defendants' violation of
              SCRA.
55. Upon information and belief,
  Defendants have been and are
 capitalizing and/or compounding
   interest on servicemembers'
     loans where a SCRA rate
  reduction was requested, thus
 resulting in effective interest
rates in excess of 6 percent per
              year.
56. Ms. Olson brings this action
   pursuant to Fed. R. Civ. P.
23(a), b(2), and b(3), on behalf
     of the following Class:
        All servicemembers who,
      within the statute of
  limitations, were in military
service, as defined in 50 U.S.C.
   App.  511(2), and who (a)
     carried obligations or
    liabilities to Defendants
 bearing interest in excess of 6
    percent; (b) provided the
  written notice to Defendants
    regarding their period of
military service before 180 days
 after the end of their military
    service; and (c) who were
     overcharged interest in
 contravention of 50 U.S.C. App.
  527(a), and/or were put into
     forbearance status as a
   condition of receiving the
   interest rate cap under 50
      U.S.C. App.  527(a).
        Plaintiffs specifically
     exclude from the class:

      a. Defendants' employees,
 officers, directors, or heirs.
      b. Loans of servicemembers
for whom Defendants successfully
   proved the servicemember's
 financial ability to repay loan
  did not change as a result of
 active duty status, pursuant to
         SCRA  527(c).
     c. This Court, this Court's
 direct family members, and this
       Court's personnel.

 57. This class action satisfies
all requirements of Fed. R. Civ.
  P. 23(a), (b)(2), and (b)(3),
  including, but not limited to
    numerosity, commonality,
    typicality, adequacy, and
          predominance.
 58. Numerosity: Consistent with
  Fed. R. Civ. P. 23(a)(1), the
 proposed class ``is so numerous
 that joinder of all members is
impracticable.'' At present, the
  United States of America has
approximately 1.4 million active-
 duty servicemembers. Defendants
  comprise some of the largest
   lending institutions in the
   country. Class members will
     number in at least the
 thousands. Detailed information
 on the Class can be ascertained
  through the review of account
      records maintained by
 Defendants, publicly available
    records, and appropriate
    discovery. Joinder of the
      numerous active-duty
    servicemembers who carry
  obligations or liabilities to
  Defendants and who Defendants
violated their SCRA rights would
        be impracticable.
       59. Commonality and
 Predominance: Common questions
 of law and fact exist as to all
    members of the class and
 predominate over any questions
   affecting solely individual
 class members. These questions
            include:

        Whether Defendants are
 improperly processing military
  service notices received from
   active-duty servicemembers;
        Whether Defendants are
 failing to reduce to at least 6
   percent the annual rates on
servicemembers' interest-bearing
 obligations or liabilities, or
 failing to forgive the correct
amounts of such excess interest;
        Whether Defendants are
 improperly compounding interest
     on servicemembers' loan
          obligations;
       Whether the SCRA allows
    compounding of interest;
        Whether Defendants are
      improperly requiring
 servicemembers' loans to be put
  into forbearance status as a
 condition of receiving the SCRA
    interest rate reduction;
        Whether Defendants are
 improperly capitalizing excess
  interest on accounts that it
  places into forbearance; and,
         Whether Defendants'
capitalization of unpaid accrued
   interest from the mandatory
 forbearance period violates the
  spirit or letter of the SCRA.

  60. Typicality: The claims of
  Plaintiff, the proposed Class
 Representative, are typical of
  the class claims, in that (a)
Plaintiff incurred an obligation
   or liability to Defendants
 bearing interest in excess of 6
 percent per year; (b) Plaintiff
  requested in writing that her
  rate be reduced to at least 6
percent per year pursuant to the
SCRA; (c) Defendants instead put
     her loan into mandatory
  forbearance status, failed to
 reduce her interest rate to at
  least 6 percent per year, and
instead overcharged interest (or
 did not credit back the correct
  amount of interest); and (d)
  Defendants capitalized unpaid
 accrued interest at the end of
    the mandatory forbearance
             period.
  61. Adequacy: Consistent with
    Fed. R. Civ. P. 23(a)(4),
   Plaintiff ``will fairly and
adequately protect the interests
of the class.'' Plaintiff has no
adverse or conflicting interests
 to the proposed class members.
    She has retained counsel
  competent and experienced in
 complex class action litigation
    who possess the necessary
     financial resources to
    adequately and vigorously
   litigate this class action.
 62. Superiority: A class action
    is superior to all other
 available methods for the fair
  and efficient adjudication of
 this controversy since joinder
 of all members is impractical.
 Prosecution of separate actions
   by individual class members
would create an inherent risk of
    inconsistent and varying
     adjudications, with the
     concomitant risk of the
  establishment of incompatible
  and conflicting standards of
     conduct for Defendant.
    Furthermore, the damages
  suffered by individual class
  members are relatively small,
such that the expense and burden
 of individual litigation makes
it impossible for members of the
  class to individually redress
   the wrongs done to them. In
 addition, servicemen and women
who are class members should not
  be devoting time, energy and
 attention away from service to
  this Country in being bogged
 down by tracking the amount of
    interest charged on their
 accounts while on active duty,
    or by litigation of same.
   Moreover, due to the vastly
unequal market power between the
 parties, and the fact that many
  class members are in ongoing
   lending relationships with
 Defendants, a class action may
 be the only way, as a practical
 matter, that their claims will
 be adjudicated. Plaintiff knows
of no difficulty that would make
   a class action in this case
          unmanageable.

  63. Plaintiff re-alleges all
    other paragraphs of this
           Complaint.
64. Defendants' policy requiring
 class members' loans to be put
  into forbearance status is an
  illegal pre-condition to the
  servicemembers receiving the
  SCRA interest rate reduction.
65. The SCRA does not allow such
        a pre-condition.
66. As a result of the mandatory
     forbearance status, the
 servicemembers have additional
     burdens placed on them
  &&&&&&&&&&&&&&&&&&&&&n their
   loans while on active duty.
  67. These additional burdens
include: (a) being denied access
 to the autopay option, through
 which the servicemember could
 have made payments in order to
   continue reducing principal
 during the active duty period,
(b) the servicemember no longer
    receives monthly account
 statements in the mail while in
 forbearance, (c) both of which
   result in most active duty
   servicemembers not making
payments while they are deployed
because of the added effort they
must commit to making a payment,
      (d) more active duty
servicemembers having increased
  interest to pay at the end of
  their active duty period as a
  result of making no, or few,
     payments while they are
    deployed, and (e) higher
  likelihood of having a larger
 amount of interest capitalized
 and added to their principal at
  the end of their active duty
 when the forbearance status is
             lifted.
    68. Defendants' mandatory
  forbearance policy should be
    declared an illegal pre-
   condition to receiving the
    benefits of the SCRA, and
  Defendants should be enjoined
  from continuing said policy.
    69. Defendant's policy of
 compounding and/or capitalizing
 interest on the obligations of
     the Plaintiff and other
 sevicemembers entitled to the
   benefits of the SCRA is not
      allowed by the SCRA.
    70. Defendants' interest
       compounding and/or
    capitalization should be
declared illegal, and Defendants
should be enjoined from doing so
 on those obligations protected
          by the SCRA.
   71. Defendants' practice of
   capitalizing unpaid accrued
        interest into the
 servicemember's principal loan
 balance when combined with the
      practice of mandatory
 forbearance is in violation of
  the spirit and letter of the
   SCRA and should be declared
illegal. Furthermore, Defendants
should be enjoined from engaging
    in such illegal practice.

  7. Plaintiff re-alleges all
    other paragraphs of this
           Complaint.
  7. The Servicemembers Civil
  Relief Act,  U.S.C. App. 
 527(a)(1) provides that ``[a]n
 obligation or liability bearing
 interest at a rate in excess of
   6 percent per year that is
 incurred by a servicemember, or
    the servicemember and the
 servicemember's spouse jointly,
 before the servicemember enters
 military service shall not bear
 interest at a rate in excess of
  6 percent per year during the
  period of military service.''
 74. Ms. Olson's private student
   loan is an ``obligation or
 liability'' which qualifies for
an interest rate reduction under
   the SCRA, 50 U.S.C. App. 
             527(a).
  75. Plaintiff made a written
  request for an interest rate
  reduction to Defendants, and
  enclosed a copy of the orders
   calling her to active duty.
   76. Despite written notice,
 Defendants nonetheless charged
 interest on Ms. Olson's student
 loan in excess of 6 percent per
 year, in violation of the SCRA.
77. Upon information and belief,
 when Defendants do decrease the
   interest rate to 6 percent
   sometime after the military
  service period has begun, the
amount of interest credited back
 to the servicemember's account
  (as required by the SCRA) is
   incorrect, resulting in an
      interest overcharge.
    78. The capitalization of
  interest raises the effective
      interest rate on the
      servicemember's loan.
    79. When a servicemember
 requests the 6 percent per year
 cap per SCRA, Defendants place
  the servicemember's loan into
 mandatory forbearance and then
 capitalize any unpaid interest
   that is accrued during the
servicemember's military service
      period. The mandatory
    forbearance and resulting
 capitalization of such interest
 violates the spirit and letter
of the SCRA protections afforded
  to the servicemembers of this
            country.
  80. Servicemembers, including
  Ms. Olson, are damaged by the
 capitalized interest resulting
 from the mandatory forbearance,
     as well as the interest
    Defendants charge on that
  capitalized interest for the
  remainder of the life of the
              loan.

  81. Plaintiff re-alleges all
    other paragraphs of this
           Complaint.
 82. Defendants' conduct alleged
 in this Complaint results in an
unjust enrichment and gives rise
  to a claim for money had and
 received. Defendants have taken
undue advantage of Plaintiff and
 the other members of the Class.
 83. Defendants are indebted to
the Plaintiff and the Class in a
 certain sum ``for money had and
  received by the Defendant for
   the use of the Plaintiff.''
  84. Defendants have collected
sums of money from Plaintiff and
  the Class members under such
circumstances that in equity and
    good conscience it cannot
  retain, which in justice and
     fairness belongs to the
  Plaintiff and the Class. The
excess interest above the amount
 allowed by the SCRA retained by
 Defendants is illegal and does
    not belong to Defendants.
   85. In an unjust enrichment
  claim, the emphasis is on the
 wrongdoer's enrichment, not the
 victim's loss. In particular, a
   person acting in conscious
   disregard of the rights of
  another should be required to
  disgorge all illegal amounts
  retained because disgorgement
    both benefits the injured
     parties and deters the
 perpetrator from committing the
  same unlawful actions again.
 86. As a result of Defendants'
 actions, described above, they
     have unjustly enriched
  themselves at the expense of
    Plaintiff and the Class.
     87. As a result of the
  foregoing, Plaintiff and the
Class were deprived of money and
suffered the loss alleged above.
 WHEREFORE, Plaintiff, on behalf
    of herself and all others
similarly situated, respectfully
  requests the following relief
        from this Court:

 1. Certify this case as a class
action on behalf of the proposed
    Class as defined herein;
     2. Appoint Plaintiff Ms.
   Lyndsey M.D. Olson as class
         representative;
    3. Appoint the undersigned
   counsel as counsel for the
             Class;
 4. Grant judgment on Count I in
   favor of the Plaintiff and
 Members of the Class declaring
 Defendants' policy of mandatory
 forbearance as a pre-condition
   of obtaining the lower SCRA
 interest is illegal, and enjoin
  Defendants from continuing to
impose it as a mandatory policy.
 5. Grant judgment on Count I in
 favor of Plaintiff and Members
 of the Class declaring illegal
     Defendants' practice of
     compounding interest on
  obligations protected by the
 SCRA and enjoin Defendants from
   continuing such practices.
 6. Grant judgment on Count I in
 favor of Plaintiff and Members
 of the Class declaring illegal
     Defendants' practice of
    capitalizing interest on
  obligations protected by the
 SCRA in combination with their
policy of mandatory forbearance,
   and enjoin Defendants from
   continuing such practices.
 7. Grant judgment on Count I in
 favor of Plaintiff and Members
     of the Class and enjoin
  Defendants from discontinuing
 their automatic payment service
   option when servicemembers
  exercise their rights to SCRA
          protections.
 8. Grant judgment on Count I in
 favor of Plaintiff and Members
     of the Class and enjoin
  Defendants from discontinuing
 their mailed monthly statements
  when servicemembers exercise
      their rights to SCRA
          protections.
    9. Grant judgment against
 Defendants on Count II in favor
 of the Plaintiff and Members of
     the Class finding that
Defendants violated the SCRA and
awarding damages in an amount to
         be determined;
   10. Grant judgment against
 Defendants on Count II in favor
 of the Plaintiff and Members of
    the Class and recast and
recalculate Plaintiffs' loans as
    if interest had not been
  capitalized at the end of the
  mandatory forbearance period.
   11. Grant judgment against
 Defendants on Count III for the
 amount in which Defendants were
   unjustly enriched by way of
     their illegal actions;
     12. Enter an injunction
   prohibiting Defendants from
 placing servicemembers' loans
 into mandatory forbearance and
then capitalizing unpaid accrued
   interest from the period of
        military service.
     13. Enter an injunction
   prohibiting Defendants from
 charging and collecting illegal
     interest in the future;
 14. Award the Class prejudgment
interest at the applicable rate;
 15. Award the Class all direct
    and consequential damages
         allowed by law;
  16. Award the Plaintiff Class
  all appropriate equitable and
       injunctive relief;
  17. Award the Plaintiff Class
   their reasonable costs and
       attorney fees; and
   18. Grant any other further
   relief that the Court deems
        appropriate.6621
   Plaintiff and the Plaintiff
  Class demand a jury trial in
  this action for all claims so
            triable.

         2,L0,tp0,p8,8/
Respectfully Submitted,

Dated: January 11, 2011                               Crowder Teske, P.L.L.P.

                                   ------------------------------------
                                      William H. Crowder (MN # 0020102)
                                         Vildan A. Teske (MN # 0241404)
                                          Marisa C. Katz (MN # 0389709)
                                     222 South Ninth Street, Suite 3210
                                           Minneapolis, Minnesota 55402
                                              Telephone: (612) 746-1558
                                                    Fax: (651) 846-5339

                                       Richard J. Fuller (MN # 0032669)
                                                           Attorney at Law
                                    4005 Fourth Street South, Suite 202
                                           Minneapolis, Minnesota 55415
                                              Telephone: (612) 294-2600
                                                    Fax: (612) 294-2640

                                   Martin A. Carlson (MN # No. 0299650)
                                                                       Law Offices of Martin A. Carlson, Ltd.
                                                      247 Third Ave. S.
                                           Minneapolis, Minnesota 55415
                                              Telephone: (612) 359-0400
                                                    Fax: (612) 341-0116

              ATTORNEYS FOR PLAINTIFF LYNDSEY M.D. OLSON,
                       AND THE CLASS VERIFICATION
    Lyndsey M.D. Olson being first duly sworn on oath, states that she 
has read this Complaint, 
t&&&&&&&ters herein are true 
and accurate, and to those matters pled upon information and belief, 
they are accurate to the best of her information and belief.

                                   ------------------------------------
                                                                       Lyndsey M.D. Olson

Signed and sworn to before me

this ___ day of ______, 2011.

--------------------------------
 -
Notary Public

                       SCRA Protections Education

    Question 4: Does the Department of Defense work with financial 
institutions to educate them on the SCRA protections?

    Question 4(a): If yes, how?

    Answer: Yes, as noted below:
    The Department of Defense (the Department) has no statutory or 
regulatory responsibility for training the credit or banking industry 
or any other entities on the SCRA. The Department has no enforcement 
mechanisms in this area either. That responsibility lies with the 
Department of Justice, Civil Rights Division.
    Nevertheless, important informal ties are in place and significant 
efforts are made to reach out to the business and legal communities to 
inform them about the laws that impact servicemembers.
    The Office of Legal Policy has also reached out to industry and 
taught at seminars for the Association of Military Bankers and the 
Association of Defense Credit Unions. These seminars have focused on 
new developments in the SCRA and the Homeowner's Assistance Program. 
Members of the Department of Defense's Financial Readiness organization 
in the office of the Assistant Secretary of Defense for Military and 
Community Policy also regularly participate in these same seminars.
    The American Bankers Association has regularly invited the Director 
of Legal Policy to participate in a live Webcast on the SCRA. This same 
program has also featured presentations by a representative from 
Military Community and Family Policy who have discussed military payday 
lending restrictions and other programs impacting the financial 
wellbeing of servicemembers.
    It was the informal ties between the Department and the American 
Bankers' Association that alerted the Department to the recent 
litigation involving JPMorgan Chase and allowed the Department to 
disseminate information about the lawsuit, including the JPMorgan Chase 
hotline for servicemembers, even before the story broke on national 
news.

    Question 4(b): Have any of these financial institutions ever 
included JPMorgan Chase?

    Answer: JPMorgan Chase had one registered listener for a September 
2007 Webcast that I presented through the American Bankers Association.
                            Rowles Situation
    Question 5: What role did the Department of Defense play in the 
Rowles situation?

    Answer: The Department played no role in this private litigation, 
and was not aware of it until January 13, 2011. The Department has, 
however, been involved with passing along information through legal 
assistance and financial counselor channels concerning the efforts of 
JPMorgan Chase to establish a hotline number for its military 
customers.

                         Foreclosure Statistics

    Question 6: Does the Department of Defense have any numbers of the 
families that face foreclosure issues?

    Answer: The Department of Defense does not have access to the 
numbers of servicemembers or their families facing foreclosure. However 
some data suggests trends.
    Despite what would seem to be aggravating factors of military life 
such as frequent moves, mobilizations and deployments, and fluctuating 
housing market conditions in areas where members might reside, recent 
statistical and anecdotal evidence does not show an increase in 
foreclosures or inability to make payments on primary residences:

                         Financial Information

    Question 7: Is the Department of Defense open to simplifying 
military orders or adding an extra page in easy to read language for 
financial institutions?
    Answer: Yes, the Department would be open to looking to see how 
this might be done and to working with the Committee to explore 
possible legislative authority that would simplify the process for 
financial institutions.

      The percentage of servicemembers responding to Department of 
Defense Status of Forces Assessment surveys from 1999 to 2010 who 
reported falling behind in their rent or mortgage in the past 12 months 
has consistently ranged from 3 to 5 percent.
      Military Services Personal Financial Managers have reported no 
significant increase in requests for foreclosure assistance.
      Military One Source reports that foreclosures are not in the top 
five reasons for requesting financial counseling, although information 
on ``home buying or renting/mortgages/refinancing'' is #5.
      The Department's Personal Financial Counselors have reported 
that less than 2 percent of servicemembers seeking direct support 
requested help with foreclosure.

    If indeed servicemembers are not suffering from foreclosure issues 
as acutely as might be expected based on nationwide trends, this might 
be explained in several ways. As of 2008, home ownership was at about 
67 percent nationwide, but only 25-34 percent of servicemembers owned 
homes. Thus homeownership across the military is about half that of the 
general population.
    Also, the Homeowners' Assistance Program (HAP) (42 USC  3374) 
appropriated $555M in 2009 as part of the American Recovery and 
Reinvestment Act to assist, among others, servicemembers relocating 
under permanent change of station (PCS) orders dated September 30, 
2010, or earlier. Another $300 was appropriated as part of the Fiscal 
Year 2010 National Defense Authorization to supplement the HAP. As of 
February 23, 2011, the program has assisted 4,825 claimants (the vast 
majority being servicemembers with PCS orders) at a cost of $725M (some 
of this money will flow back into HAP when the houses purchased by the 
government are resold to third party buyers). Another 4,580 claims are 
being evaluated for payment.

                                 

                                     Committee on Veterans' Affairs
                                                    Washington, DC.
                                                  February 15, 2011

Elizabeth Warren
Assistant to the President and Special Advisor
  to the Secretary of the Treasury
The Consumer Financial Protection Bureau
1500 Pennsylvania Ave., NW
Washington, DC 20220

Dear Elizabeth:

    In reference to our Full Committee hearing entitled ``Allegations 
Regarding the Servicemembers Civil Relief Act,'' that took place on 
February 9, 2011, I would appreciate it if you could answer the 
enclosed hearing questions by the close of business on April 1, 2011.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Debbie Smith by fax at 202-225-2034. If you have any questions, please 
call 202-225-9756.

            Sincerely,

                                                         BOB FILNER
                                          Ranking Democratic Member
JL:ds

                               __________
                     Committee on Veterans' Affairs
                     U.S. House of Representatives
               Post-Hearing Questions for Holly Petraeus
                     From the Honorable Bob Filner
       Allegations Regarding the Servicemembers Civil Relief Act
                            February 9, 2011

    1. What actions will the Consumer Financial Protection Bureau take 
when a servicemember makes a complaint about possible SCRA violations?

    The CFPB will create a process to refer SCRA complaints to the 
agencies that are authorized to enforce that law, which are the 
Department of Justice Civil Rights Division and, if the entity that is 
the subject of the complaint is a financial institution, the relevant 
prudential regulator. The CFPB will also create a system to inform the 
Department of Defense (DoD) of the complaint. Our policies for handling 
and referring SCRA complaints will continue to evolve as we work with 
other agencies to improve protections for servicemembers.

    2. What are some of the initiatives the Consumer Financial 
Protection Bureau has in place to provide financial education to 
servicemembers?

    The CFPB is still under construction and does not assume many of 
its powers until July 21, 2011. At this time we are focused on hiring 
staff and organizing the various divisions within the CFPB, one of 
which will be Consumer Education and Engagement. The Office of 
Servicemember Affairs (OSA) will be part of that division. At the 
moment the OSA is engaging the military community, to hear their 
thoughts on what the most effective financial education would be, 
through a series of roundtables and meetings at various military 
installations. We are also meeting with the DoD to learn what they 
already have in place. We are authorized to enter into agreements with 
the DoD and will work with them to be sure that they are reaching 
troops at ``teachable moments'' with the best financial education 
possible.
    In addition, while we are working on building the Consumer 
Education and Engagement division, we have posted links on our Web site 
to some of the best consumer financial education resources, under Get 
Help Now (www.consumerfinance .gov/get-help-now/).

    3. When do you expect your agency to be fully functioning?

    The CFPB will assume many of its powers on July 21, 2011. We are 
doing everything we can--in a thoughtful, deliberate way--to ensure 
that we are in a position to assume and exercise those powers in a 
responsible manner and to execute a smooth transition and startup. Once 
it is fully operational, the CFPB will be able to offer unique 
resources that will be able to assist servicemembers--particularly in 
regard to financial education--and it will work closely with DoD, DOJ, 
and other agencies to ensure compliance with the SCRA.

    4. What relationship do you expect to have with the Justice 
Department regarding SCRA?

    We intend to work closely with the Civil Rights Division at the 
Department of Justice (DOJ). Although the DOJ enforces the statute, the 
CFPB can help raise awareness of the law and its protections, both 
within the military community and within the financial community. In 
fact, we have already met with DOJ personnel to discuss their 
procedures for enforcing the SCRA. As noted above, we also plan to 
refer consumer complaints that allege a violation of the SCRA to the 
DOJ as well as any appropriate prudential regulator.

    5. What role should the Department of Defense play in SCRA 
violations?

    The DoD has an important role to play, as its legal assistance 
attorneys (Judge Advocates or JAGs) are often the first to hear about 
SCRA violations. JAGs can and should refer their clients to the DOJ and 
the U.S. attorneys who often handle the cases locally. DoD can also 
inform the OSA and DOJ about ways in which the law might be improved to 
better serve the military population.

    6. Do you believe that the [penalties for] SCRA violations should 
be strengthened? If yes, how?

    Whether the penalties or other remedies for SCRA violations should 
be increased is a question for Congress and legal experts.

    7. Do you believe that JPMorgan Chase is the only bank with SCRA 
violations?

    While there have been a number of financial companies subject to 
lawsuits or public investigations regarding alleged SCRA violations, it 
is not possible to anticipate the results of those proceedings.

                                 
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