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To manage the impact of financial stress on individual performance, the Defense Department dedicates precious resources to improving financial literacy, so service members know the dangers of notorious no-credit-check loans.
“The financial well-being of service members and their families is one of the Department’s top priorities,” said Andrew Cohen, the director of financial readiness in the Office of the Deputy Assistant Secretary of Defense at the Pentagon.
But debt collectors are gaining ground. Last quarter, debt collection complaints by U.S. military service members increased 24%, and attempts to collect on “debts not owed” surged 40%. Complaints by service members against debt collectors for deceptive practices ballooned from 1,360 in the fourth quarter of 2023 to 1,833 in the first quarter of 2024.
“There’s a connection between the financial readiness and the readiness of a service member to perform their duty,” said Jim Rice, Assistant Director, Office of Servicemember Affairs at the Consumer Financial Protection Bureau. Laws exist to protect the mission readiness of U.S. troops from being compromised by threats and intimidation, but debt collectors appear to be violating them at an alarming pace.
“If they’re threatening to call your commander or get your security clearance revoked, that’s illegal,” says Deborah Olvera, financial readiness manager at Wounded Warriors Project, and a military spouse who’s been harassed herself by a collection agency that tried to extort money from her for a debt she didn’t owe. But after she requested the name of the original creditor, she never heard from them again.
“The financial well-being of service members and their families is one of the Department’s top priorities.” —Andrew Cohen, Director of Financial Readiness at the Pentagon
Under the Fair Debt Collection Practices Act, it’s illegal for debt collectors to threaten to contact your boss or have you arrested because it violates your financial privacy. The FDCPA also prohibits debt collectors from making false, deceptive, or misleading representations in connection with the collection of a debt, even for borrowers with bad credit scores.
But according to the data, debt collectors are increasingly ignoring those rules. “Debt collection continues to be one of the top consumer complaint categories,” said a spokesperson at the Federal Trade Commission. The commission released a report earlier this year revealing that consumers were scammed $10 billion in 2023, a new benchmark for fraud losses.
In his book Debt: The First 5,000 Years, David Graeber argues that debt often creates a relationship that can feel more oppressive than systems of hierarchy, like slavery or caste systems because it starts by presuming equality between the debtor and the creditor.
When the debtor falls into arrears, that equality is then destroyed. This sense of betrayal and the subsequent imbalance of power leads to widespread resentment toward lenders.
Most Menacing Loan Messengers
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The debt collector reportedly harassing military service members most was Resurgent Capital Services, a subsidiary of collection giant Sherman Financial Group. The company tacks on accrued interest and junk fees and tries to collect on debts purchased for pennies on the dollar from cable companies, hospitals, and credit card companies, among others.
Sherman Financial Group is run by billionaire Benjamin Navarro, who has a reported net worth of $1.5 billion, according to Forbes. Sherman Financial also owns subprime lender Credit One Bank and LVNV Funding, which outsource collections to Resurgent Capital.
According to CFPB data, the second worst offender is CL Holdings, the parent company of debt-buyer Jefferson Capital Systems. The company has also been named in numerous complaints to the Better Business Bureau for alleged violations of the FDCPA, such as failing to properly validate debts or update credit reports with accurate information.
Under the leadership of CEO David Burton, Jefferson Capital Systems is a wholly-owned subsidiary of CompuCredit Corporation, which markets subprime credit cards under the names Aspire, Majestic, and others.
The third most referenced debt collector is publicly traded Portfolio Recovery Associates [NASDAQ: PRAA], which was forced to pay $27 million in penalties for making false representations about debts, initiating lawsuits without proper documentation, and other violations. Portfolio Recovery Associates is run by CEO Vikram Atal.
Fourth place for alleged worst offender goes to Encore Capital Group [NASDAQ ECPG], which was required to pay $42 million in consumer refunds and a $10 million penalty for violating the Fair Debt Collection Practices Act. Encore collects under its subsidiary Midland Credit Management Group.
These debt collectors all operate under a veritable shell game of company and brand names, almost none of which are disclosed on their websites, sending consumers on a wild goose chase to try and figure out how they’re related to each other. But despite their attempts to hide their tracks behind a smoke screen of subsidiaries, a leopard can’t change its spots, and the CFPB complaint database makes it harder for them to try.
Loan Harassment Hotspots
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Although widely considered a consumer-friendly state, complaints spiked most in California, which saw a 188% increase in complaints filed from the fourth quarter of 2023 to the first quarter of 2024. California is home to 157,367 military personnel, making it the most populous state for active-duty service members.
The second-largest increase in debt collection complaints was in Texas, which saw a 66% jump from the fourth quarter of 2023 to the first quarter of 2024. The U.S. Department of Defense reports 111,005 service members stationed in the Lone Star State, which is the third-most populous state for active-duty military.
The rising trends do not correlate to the number of military personnel by state. Complaints against debt collectors in Virginia, the second most populous state with 126,145 active duty personnel, decreased by 29% in the same quarter-over-quarter period. And complaints filed quarter-over-quarter in North Carolina, the fifth most populous state with 91,077 military personnel, decreased by 3% in the same period.
The third largest percentage increase in debt collection complaints was from service members stationed in Maryland, where alleged harassment reports jumped 112% from the fourth quarter of 2023 to the first quarter of 2024. Maryland ranks number 12 with just 28,059 active duty service members.
Fourth place goes to Ohio – the 28th most populous active-duty state – where complaints doubled, followed by Arizona – the 15th most populous military state – where complaints were up 70% in the same quarter-over-quarter period.
Billionaire Bets on Bad Credit
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In 2007, Congress passed the Military Lending Act to cap the cost of credit to a 36% annual percentage rate, inclusive of junk fees and late charges, for active duty military service members. That rate is still considerably higher than average credit card rates, which range from 8% for borrowers with excellent credit scores to as high as 36% for borrowers with bad credit. But lenders still get hauled into court for violating the MLA.
Don Hankey, the billionaire subprime auto lender who funded Donald Trump’s $175 million appeal bond, is among those violators. His company, Westlake Financial, which markets high-interest car loans for bad credit, has been sued twice by the Department of Justice for harassing military service members.
In 2017, the DoJ alleged Hankey’s Westlake Financial illegally repossessed at least 70 vehicles owned by military service members. Westlake Financial paid $700,000 to settle the charges. In 2022, Westlake Financial paid $250,000 for allegedly cheating U.S. troops out of interest rates they were legally entitled to.
Westlake Financial continues to receive complaints from military service members alleging abusive debt collection practices on its no-credit-check loans. A steady year-over-year increase in the number of complaints filed against Westlake Financial continued from 2020 to 2023. Consumer Financial Protection Bureau data shows a 13% increase in the number of complaints against the company from 2020 to 2021, a 28% increase from 2021 to 2022, and a torrential 119% surge from 2022 to 2023. The numbers suggest systemic complaint-handling processes and inadequate customer service resources.
Lenders Try to Shutter CFPB
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On May 16, 2024, a deceptively named predatory lending industry front group dubbed the Community Financial Services Association of America (CFSA) lost a legal attempt to defund the Consumer Financial Protection Bureau.
In an effort to deprive Americans of essential consumer protections, the lobby group argued that the Consumer Financial Protection Bureau’s funding structure was unconstitutional. But the Supreme Court denied its claim. In a 7-2 ruling, the Court held that the Consumer Financial Protection Bureau’s funding structure is indeed constitutional.
That means the Consumer Financial Protection Bureau cannot be defunded, but it does not mean the agency cannot be defanged. The New York Times suggested that Hankey’s incentive to finance Trump’s $175 million bond could have been a reciprocity pledge to neuter the Consumer Financial Protection Bureau if Trump wins the upcoming U.S. presidential election.
If Trump wins a second term, he could replace Consumer Financial Protection Bureau director Rohit Chopra, an American consumer advocate, with a predatory lending advocate.
In 2020, the Trump Administration secured a Supreme Court ruling that made it easier for the president to fire the head of the Consumer Financial Protection Bureau. The ruling struck down previous restrictions on when a president can fire the bureau’s director. Like other federal agencies, the Consumer Financial Protection Bureau has also been confronted for overstepping its bounds, pushing too far, and acting unfairly against entities it regulates.
Holidays, Interest Rates Not to Blame
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Seasonality and rising interest rates do not explain the increase in debt collection complaints from service members. The surge in complaints is not tied to predictable seasonal fluctuations or changes in interest rates.
The increase in debt collection complaints by service members may point to underlying systemic issues, such as aggressive and predatory debt collection practices that exploit the unique financial vulnerabilities of service members, who face frequent relocations and deployments.
Debt Complaints by Service Members
- From Q1 2021 to Q4 2022 Up 4%
- From Q4 2022 to Q1 2023 Up 6%
- From Q4 2023 to Q1 2024 Up 24%
The 24% spike in debt collection complaints exhibits no correlation to fluctuations in interest rates.
30-Year Fixed Mortgage Rates
- From 3.08% in Q4 2021 to 3.82% in Q1 2022
- From 6.66% in Q4 2022 to 6.37% in Q1 2023
- From 7.30% in Q1 2023 to 6.75% in Q4 2024
Pandemic stimulus checks were also not a factor. COVID-19 relief benefit checks went through three major rounds during the pandemic. The final round of Economic Impact Payments went out in March 2021.
To better understand the rising trend of debt collection complaints, we calculated the increase in the total number of complaints and the percentage increase quarter-over-quarter. For example, New Jersey has the second largest percentage increase in complaints quarter-over-quarter, but the total number of complaints increased by just 16.
Methodology
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The data for this study was sourced from the Consumer Financial Protection Bureau (CFPB) complaint database. The dataset specifically targeted complaints filed by U.S. military service members, identified using the tag “Servicemember” within Q4 2023 and Q1 2024.
Readers can find the detailed research methodology underlying this news story in the accompanying section here.
For complete results, see U.S. Troops Face Mounting Threats from Predatory Debt Collectors on BadCredit.org.
