WASHINGTON — The Obama administration seized on a rare case of bipartisan consensus Thursday — the need for strong consumer protections for members of the military — to pressure Senate Republicans to confirm Richard Cordray as director of the Consumer Financial Protection Bureau.
On Capitol Hill, Holly Petraeus, who heads a small office inside CFPB dedicated to protecting service members, testified that her work is being hamstrung by the vacancy at the top of the bureau. Because it lacks a director, CFPB is not yet allowed by law to supervise payday lenders, private student loan companies and other non-bank lenders that might take advantage of members of the military and their families.
"I'm very eager for the day when our non-bank supervision team can, if I can use an analogy, stop circling the airfield and get permission to land, and start their work," Petraeus, the wife of CIA Director David Petraeus, told the Senate Banking Committee. "Confirm a director for us."
Later in the day, the White House held a conference call with reporters pushing the same message. Stephanie Cutter, an assistant to President Obama, noted that 44 Republican senators have vowed to block any nominee to head the CFPB unless the White House agrees to changes in the bureau's structure.
"Military families need to know that Republican senators are blocking the one person who can help them," Cutter said.
Under the Dodd-Frank Act, the CFPB was given jurisdiction over banks and nonbanks alike. But a provision of the law prevents the new agency from exercising any new powers over nonbanks until a Senate-confirmed director is in place. Republicans have refused to confirm a new agency head until the Obama administration replaces its director with a five-member commission and gives federal banking regulators more veto power over the CFPB's decision.
Testimony at the Senate hearing highlighted a variety of lending practices that witnesses said are predatory and are often marketed to military families.
Despite some success in recent years in curtailing payday lending to members of the military, witnesses voiced concern that some firms have simply changed their loan terms so that they don't fit the definition of a payday loan.
Retired Navy Admiral Steve Abbot serves as president of the Navy-Marine Corps Relief Society, a non-profit charity that serves active-duty and retired members of the military. He said that his organization's assistance to those stuck in the payday loan trap fell from $1.4 million in 2006 to $168,000 so far in 2011, coinciding with enactment of the Military Lending Act in 2007, which caps interest rates on certain loans at 36%.
"That is very good news," he said, before adding the caveat that: "Financial institutions have found loopholes in the regulations, and new predatory lending practices have arisen which continue to victimize our clients."
Some online payday lenders avoid state regulations by locating off-shore and by hiding behind anonymous web address registrations, he said.
Petraeus agreed that payday lending remains a big concern, even if it sometimes goes by a different name.
"I went online yesterday and I searched the search term 'military loans,' and I got 9,980,000 hits," she said. "And the top two search terms that came up were 'military loans bad credit,' which was almost 2 million, and 'military loans no credit check,' also two million."
"So there's obviously a ton of people out there who are managing to exist outside the protections of the Military Lending Act, and it's a problem."
Petraeus said that as more members of the military return home from deployments in Iraq and elsewhere, they will be looking to use their education benefits under the GI Bill. Those returning service members are being targeted in marketing by for-profit colleges that in many cases do not offer the best educational opportunities, she said.
"And we have been talking to them — again, hopefully to make it more transparent when you look at a college — what is its track record, what is the default rate on loans for its graduates, what is its accreditation," said Petraeus, who is charge of six employees as the head of CFPB's Office of Servicemember Affairs.
The hearing also touched on concerns about lending by banks and credit unions to members of the military.
In response to a question by Sen. Kay Hagan, D-N.C., Abbot said that overdraft fees assessed by banks and credit unions are the top problem he sees in his work.
"Banks and credit unions on and near military bases continue to charge exorbitant and multiple fees associated with overdraft protection," he said. "And it's the magnitude of the fees that they pay. … Common overdraft fees range from $25 to $35 per transaction."
Sens. Jon Tester, D-Mont., and Robert Menendez, D-N.J., both asked witnesses about banks violating the Servicemembers Civil Relief Act, a 2003 law that prevents mortgage servicers from foreclosing on active-duty members of the military while they are deployed overseas.
Petraeus noted that under law, members of the military are not required to tell their lenders that they are going on duty; instead, lenders are required to check a database to make sure they are complying with the law.
"Obviously there are servicers who are not doing that before going to foreclosure," she said.
Only one Republican on the Senate Banking Committee, Sen. Richard Shelby of Alabama, asked questions at Thursday's hearing. His GOP colleagues who chose not to attend may have perceived that the hearing was part of a political strategy by Democrats to pressure Republicans on Cordray's nomination.
The Obama administration kept up the pressure in their conference call with reporters.
During that call, administration officials declined to comment on the possibility of a recess appointment of Cordray. They said that the Senate has an opportunity to confirm the former Ohio attorney general as head of the CFPB before it goes into recess at Christmas.
And the White House showed no sign of being willing to compromise with Senate Republicans on their demands for changes to the structure of the CFPB.
Speaking of President Obama, Cutter said, "He'll continue to oppose any efforts to weaken the CFPB."
