American Financial Services Association

CFPB Report Examines Servicemember Debt

Blog Posts

CFPB Report Examines Servicemember Debt

The Consumer Financial Protection Bureau (CFPB) yesterday (November 9) released a report showing that a “sizeable fraction of young enlisted servicemembers go delinquent on debt payments or have severe derogatories (for example, defaults) on their credit record around the time they leave active duty.”

The report, entitled Debt and Delinquency After Military Service looked at auto loans, revolving credit accounts and “personal or retail installment loans,” as well as medical and non-medical debt. It found that servicemembers that serve for at least seven months are between two- and ten-times more likely to have delinquencies or defaults on their credit reports in the six months after leaving active service compared to the six months before.

“As a result of these negative outcomes, servicemembers’ credit scores decline just after separation, and do not recover for at least one year after leaving the military,” the Bureau report found. “The drop is most severe for those with tenures between seven and 35 months and for those who exit with a Near Prime credit score or below, as opposed to a Prime score or better.”

The Bureau noted that the data cannot explain what causes the observed patterns of delinquency and default. “Publicly available statistics suggest medical and less-than-honorable discharges are not common enough to explain delinquency and default among young veterans. Employment rates and average income of young veterans in the first year after service may explain some of the patterns, but ultimately the root causes remain important open questions for further study.”

AFSA agrees that further study may be warranted and would be happy to work with the Bureau to help explain what may cause these observed patterns.

November 10th, 2020 by