New York Attorney General Eric Schneiderman is investigating whether banks are illegally foreclosing on U.S. soldiers, the Financial Times reports.
The probe, part of Schneiderman's broader inquiry into allegations of foreclosure fraud in the state, follows the release of data by the U.S. Office of the Comptroller of the Currency earlier this month indicating that 10 major lenders may have broken the law in foreclosing on roughly 5,000 active-duty military personnel.
Under the 2003 Servicemembers Civil Relief Act (SCRA), banks are restricted from seizing the homes of soldiers serving overseas. The law also requires lenders to obtain court approval before evicting servicemembers and limits the interest rate financial firms may charge for credit-card debt soldiers incurred before joining the military or after starting active-duty, among other protections. As one lawmaker told the FT's Shahien Nasiripour:
"It is hard to see this as anything except a flagrant disregard for a law that has been on the books continuously since the first world war," said Brad Miller, a Democratic congressman from North Carolina, in reference to previous versions of the 2003 legislation. "If you're in harm's way in our nation's military, you can devote your whole energy to our nation's service without worrying what's happening in a courthouse back home."
Several big banks have been implicated in illegal foreclosures against servicemembers this year. In May, Bank of America (BAC) agreed to pay $20 million to settle a federal lawsuit charging that the company's Countrywide unit had unlawfully foreclosed on some 160 soldiers.
Also this spring, Fannie Mae (FNMA) and Freddie Mac (FMCC) also have been accused of improperly rejecting soldiers for mortgage relief.to pay $56 million after admitting that it wrongly foreclosed on 18 servicemembers, including soldiers who had been injured in the field. It also acknowledged violating the SCRA by charging 4,500 servicemembers interest rates and fees exceeding the law's 6 percent cap.
Schneiderman: "Widespread failure" to follow SCRA
In fact, as the OCC data suggests, the number of U.S. soldiers whose homes have been illegally seized may be much greater. The head of the Service Members Law Center, an advocacy group that advises military personnel and veterans on their legal rights, told the FT that "banks may be undercounting" possible foreclosures against servicemembers.
Banks may have little to fear from the OCC, which has long acted more as a booster for the financial industry than a regulator. But aggressive state legal officials like Schneiderman are another story.
In a joint op-ed with Delaware Attorney General Beau Biden, the New York AG wrote in Politico earlier this month that "There has... been widespread failure to adhere to the requirements" of the SCRA. Schneiderman also has declined to join a proposed state and federal settlement with leading banks over their "robo-signing" practices that would give loan servicers broad legal immunity from future charges.
Another concern for banks: Holly Petraeus. The wife of CIA chief David Petraeus, a four-star general who formerly led the U.S. war effort in Afghanistan, she heads the office within the new Consumer Financial Protection Bureau that focuses on shielding soldiers from financial abuse. She told a House panel earlier this year in a hearing on SCRA violations:
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.
Banks face legal and PR nightmare
Action by Schneiderman and the CFPB to crack down on financial firms for illegally kicking soldiers to the curb also would put pressure on the Justice Department to launch its own investigation. The agency has drawn considerable fire for failing to criminally prosecute financial executives involved in the housing crash.
But the latest revelations of possible abuses against servicemembers show that the problem may be far more widespread than previously thought. And the legal, not to mention ethical, issues here could hardly be any clearer.
No surprise there. If the robo-signing scandal has proved anything, it's that foreclosure fraud is systemic. From this perspective, illegal evictions of soldiers are part of a much larger problem.