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Is Citi Engaging in Criminal Abuses of Servicemen Student Loans?

Mortgage services were found to be failing to reduce interest charges to 6% and foreclosing on military personnel who were deployed.

Given all the varieties of bank-perpetrated mortgage fraud that have come to light in recent years, one that got comparatively little attention were abuses under the Servicemembers Civil Relief Act. SCRA shields active duty servicemen cannot be the target of civil until their tour of duty has been completed. That means, among other thing, bankruptcies, foreclosures and even divorces are put on hold. Recent amendments include capping the interest rate on most types of debt at 6%.

Despite the clear provisions of the law, mortgage services were found to be violating on a widespread basis, both by failing to reduce interest charges to 6% and on foreclosing on military personnel who were deployed. 6000 servicemembers were plaintiffs in a suit against one bank, JP Morgan. JP Morgan settled pronto recognizing that this was a potential PR disaster in the making. The Department of Justice launched an investigation (violations of the SCRA are criminal). But of course, no one was prosecuted. The DoJ included a settlement of the SCRA in its mortgage settlement earlier this year. And as Dave Dayen (who has been all over this story) wrote a couple of weeks ago, it appears that this settlement isn’t producing much in the way of restitution to harmed servicemen. Well played, banks!

I caught an item on Consumerist earlier this week which raises the question: are there other systematic SCRA violations that have yet to come to light? The Consumerist piece is about Benjamin, who is serving in Afghanistan. He obtained forbearance on his student loan when he received mailed Citi a copy of his orders, which specified that he would serve a minimum of two years. Now that two years are up, Citi has sent him letters demanding that he prove he is still in service.

This may sound reasonable, but it isn’t. As the soldier has tried explaining repeatedly, and Citi pretends not to get, orders are in effect until new orders are issued. As BankersOnline explains:

What is “Active Duty” Under the SCRA?
Typically we focus on customers who are members of the Army, Navy, Air Force, Marine Corps, or Coast Guard on active duty, and members of the National Guard called up to active duty for more than 30 consecutive days under Title 32 USC. Section 101 of the Servicemembers Civil Relief Act refers to Section 101(a)(5) of Title 10, United States Code (USC) to help define who qualifies for protection as a “servicemember.” ….

Protections for those serving under Section 101 of the SCRA, (the five services, the National Guard under Title 32, the Public Health Service Officers, and National Oceanic & Atmospheric Officers) begin on the date of entry into military service, ands ends on the date on which the servicemember is released or dies while in military service.

So while it might be acceptable for Citi to send a note saying, “Ahem, if you’ve been discharged and you don’t let us know, we’ll do all sorts of awful things to you.”

But it turns out Citi has absolutely no reason to be bothering soldiers on duty. Per Wikipedia:

Courts will generally require litigants to provide proof that an individual is not on active duty before adverse action is taken, i.e. foreclosures, garnishments, attachments, evictions, and judgments. It is important to note that the benefits conferred upon servicemembers extend after active duty. Verification of active military duty may be achieved on-line. If the individual’s social security number is unknown, the government site will not provide a response; however, there are a few commercial sites on the internet that are able to conduct the verification for a fee.

In the highly unlikely event that Citi doesn’t already have Benjamin’s social security number, I’m sure he’d be delighted to provide it to get off their back.

Benjamin has been dealing with Citi via e-mail and phone (and enlisting the help of folks state side) for over two months. This means the odds are good that his student loans is now being charged at its previous interest rate.

While this is clearly only one instance, big banks like Citi are not set up to do anything in a one-off manner. The dunning letter was auto-generated; the bank deemed his active duty to have ended (based on an inability to understand the word “minimum”); it pretends to be unaware of the fail-safe way to verify whether Benjamin is on duty, which is by checking with the active duty database. At Consumerist, one commentor described how Citi also regularly tells grad students who are in school that their loans are in repayment when the bank clearly knows they are in school, forcing them to play a “show me the documents” game. So it is not implausible that they are engaged in the same bad behavior with active duty servicemen, in clear violation of the law.

If so, I hope a class action attorney gets his hands on Citi and makes them pay, big time. It would be better if someone sent the executive who approved this dunning scheme to jail, but since the Obama Administration has decided that big bank employees never commit crimes, we’ll have to hope for costly and embarrassing litigation.

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