Breakthrough

Adm. Mike Mullen wants to change the equation between commands and sailors in financial straits

By AMY KLAMPER, Seapower Correspondent

The Navy’s senior uniformed leader is encouraging the service’s commanding officers to foster a climate of support and acceptance among sailors and Marines who find themselves victims of predatory lenders — including those who could lose their security clearances, and ultimately their jobs, as a result.

Although the number of sailors and Marines who have lost or been denied security clearances due to financial concerns has soared in recent years, Pentagon and Navy leaders are only beginning to grasp the underlying issues that drive sailors and their families to so-called payday lenders.

Seapower reported in June that many Navy and Marine Corps families were being hit hard financially because they took out loans at interest rates averaging about 400 percent from payday lenders that proliferate near military installations. Many were unable to pay and rolled the amounts due into even larger loans, driving themselves deeper into debt.

What is worse, some military people discovered that there is a “double whammy” attached to their problems. Financial indebtedness is a rationale for revocation or denial of a security clearance. In recent years, thousands of sailors in dire financial straits lost their clearances, placing their Navy careers in jeopardy. As a result, some are reluctant to seek the Navy’s help to resolve their financial problems, creating a communications gap between the Navy and some of its people.

A Navy Petty Officer 1st Class in Norfolk, Va., with a high security clearance told Seapower in June why he was reluctant to tell his command about his problems: “I’ve been in the Navy for 15 years. If I lose my clearance, I basically lose my job.”

Adm. Mike Mullen, chief of naval operations, said he sympathizes with sailors who fear life-altering repercussions if they seek help with a financial crisis. In a recent statement to Seapower, he urged his commands to help allay such anxieties.

“I understand the fear to step forward with a financial problem, but we’ve got to break through that,” Mullen said. “We’ve got to make sure sailors and family members know the chain of command — the entire command support team — is there to help them. In fact, we need to make sure they consider the command the first place to go, not the last.”

Mullen said the latter is a leadership issue he expects Navy commanders to address.

“I’ve made it clear — as has the chief of naval personnel [Vice Adm. John C. Harvey Jr.] — that we expect commands to foster the kind of climate where people feel empowered to come forward with these types of issues,” Mullen said. “There’s a lot to be said for open dialogue and constant contact with your people. Good leadership can solve a lot of problems.”

Last year alone, 1,999 Navy and Marine Corps security clearances were revoked or denied due to financial problems. Between fiscal 2000 and fiscal 2005, a total 5,482 security clearances were denied or revoked due to financial concerns.

Navy Capt. TJ Dargan, chief of staff for Navy Region Northwest, said security clearance guidelines “are pretty black and white” when it comes to addressing financial concerns.

“But I always told my people if you have a problem with a payday lender, come forward and I will not hold that against you in terms of your security clearance,” Dargan said, referring to his tenure as a commanding officer. “I had an every-day, all-day amnesty if sailors came to me first — I was not going to submit the paperwork.”

Unfortunately, if the Navy found that a sailor or Marine was in considerable debt during a routine security clearance update, Dargan said there was little he could do.

“I will tell you that no sailor ever came forward to me personally,” he said, adding that many did come through the Navy-Marine Corps Relief Society (NMCRS), a charitable organization that provides financial and other assistance to naval personnel and their families.

“But that is what I told my people, and that is what I’ve told other commanding officers, and whether they’re going out and telling their people, I don’t know, but that’s part of the education we think is a healthy discourse in the spirit of [Mullen’s] comments,” Dargan said.

Some commanding officers, however, may not be so understanding.

“There are still some old salts out there who say, ‘How could you be so dumb?’” said retired Navy Capt. Bill Kennedy, director of NMCRS Naval Station Mayport, Fla. “We try to educate the commands and let them know that if they have people out there in need we can help.”

Sailors and Marines who do find their security clearances under official scrutiny may appeal to the Navy’s Central Adjudication Facility, or CAF.

Each of the services and Defense Department agencies maintains a CAF, which use federal guidelines established in an executive order to determine whether to revoke or deny a security clearance. Pentagon officials say such decisions ultimately are left to the individual discretion of the CAF.

“They look at the whole person,” said Cindy McGovern, an official with the Defense Security Service, which adjudicates personnel security clearances for contractor civilians employed in jobs that require access to classified information. “It depends on a specific guideline, but there is some discretion.”

McGovern said the CAF examines the extent of the financial crises and how recent the problem might be, as well as its severity.

“They are supposed to look at all the factors, at the person in total — did you bounce checks back in college or did you declare bankruptcy last week — it’s all supposed to be looked at in context,” she said.

But even some seemingly dire situations financial problems might not always lead to the loss of a security clearance.

“There are cases where people have declared bankruptcy and are in process of cleaning it up — and they don’t lose their clearance,” McGovern said. “There is some wiggle room, yes.”

Still, most sailors and Marines are loath to come forward and admit financial crises on their own. In recent years, the nonprofit NMCRS has seen an increase in the number of sailors and Marines in need of financial relief, according to Andy Leech, director of NMCRS Naval Station Everett, Wash. But he said sailors with something to lose generally do not obtain help from his organization.

“I had a guy in here last week, he didn’t know NMCRS existed, but we got his command involved and the next day we wrote a check or two and got him out of it,” Leech said. “Another sailor came in and we tried to get his command involved and he said ‘I’ll have to think about that,’ and of course we never got a call back.”

Liz Kosse, director of NMCRS Bremerton, Wash., said the recent push among Navy leaders to address the payday lending issue has, in some ways, become a double-edged sword.

“What has happened is we’ve kind of driven this underground in that the more education and more information we put out there, the more reluctant and embarrassed our sailors are to admit they have a payday loan,” she said. “And the ones that have a security clearance are the last ones you’re ever going to hear from.”

Kosse said those sailors and Marines will do everything in their power to stay on top of their payday loans in an effort to keep them secret.

“So they won’t pay the mortgage, the rent, the other bills in order to get that payday loan to go through,” she said. “People are more worried about having that payday check bounce than having food on the table.”

Kosse, in part, blames the state of Washington’s so-called “military best-practices” laws, which prevent a payday lender from contacting a service member’s chain of command in an effort to collect on a loan.

“So the military feels a little more comfortable going to them knowing that if they get in trouble they can’t contact the command,” she said. “All it’s done is to help the industry get more military victims.”

In San Diego, payday lenders routinely charge 460 percent in annual interest rates to service members. Gen. Michael R. Lehnert, commanding general, Marine Corps Installations West, said he has seen rates as high as 920 percent being legally charged to Marines in Southern California.

“Service members go into a cycle of debt,” he told a San Diego community group in July. “Ultimately, because we expect our Marines to be financially responsible, their ability to re-enlist, compete for good jobs and keep a security clearance is affected.”

Lehnert said military leaders have a responsibility to educate service members and their families about sound money management.

“We are doing that,” he said. “We are using our base papers, information campaigns and personal intervention to tell them that there are alternatives to the payday lending institutions.”

In August, the Defense Department delivered a report to Congress detailing the devastating effects of payday lenders on the nation’s military. The Pentagon report calls on lawmakers to implement an annual interest rate ceiling of 36 percent on payday loans to service members, restrict automatic payday loan rollovers and increase mandatory loan disclosure requirements.

According to the report, the payday loan industry has grown exponentially in the last few years, reaching $40 billion in volume in 2005.

In September, two bills addressing these and other predatory lending practices were circulating in Congress, though supporters of the legislation said the payday loan industry is lobbying hard against the bills.

In his written statement, Mullen said he is as deeply troubled by the growing use of predatory loans among Navy personnel as he is by the underlying financial problems that drive sailors and their families to use them.

But Mullen said he is unsure whether the Navy knows enough about these underlying causes to come up with any specific policy fixes.

“I do know we need to learn more,” Mullen said, adding that he is interested in gaining a better understanding of the level and quality of financial training and awareness throughout the Navy.

“Where is it good? Where is it not? What must we do to make sure everyone has a common understanding of sound personal finance management?” Mullen said. “This is where I want the institutional focus to be right now.”

In the meantime, the Navy is working with some community groups in an effort to draw lawmakers’ attention to the predatory lending issue.

One such group is led by Jim Nall, owner of Paladin Data Systems Corp., Poulsbo, Wash., who has formed an informal group of local business leaders to lobby state and federal lawmakers on behalf of the community against the payday loan industry.

Nall, who is a board member of the Puget Sound Naval Bases Association, became an ardent opponent of payday lenders when he and his wife began working with a nonprofit organization and had an unsigned check stolen from them and cashed at a nearby payday loan store.

“We wondered how they could do that,” he said. “That’s how we entered into this fray of what’s going on in this community with some of our lower income folks.”

Nall said one of the group’s primary goals is to convince state lawmakers to pass legislation that would eliminate payday lenders in the state.

“We need to get rid of these guys, or at least regulate them down to a 36 percent [annual percentage rate],” Nall said, though he admits it’s a daunting task.

“The [payday loan] industry has convinced a lot of these people down in [the Washington state capitol of] Olympia that they are actually providing a needed service to these low income folks,” he said. “But we’re getting a lot more of the state reps to listen now, and the community and the Navy have joined arm and arm.”

In his statement, Mullen praised the Navy’s efforts in the state of Washington to work with the business community in an effort to convince legitimate lending institutions to provide reasonable, short-term loans to junior sailors.

Dargan said the effort thus far has been focused on area credit unions and their potential to offer short-term, low-interest loans to sailors and Marines.

But even if these efforts prove successful, a tremendous challenge remains: the convenience of payday loans.

“On a Friday night, if a sailor wants to hit the town, it’s awfully tempting,” he said. “The convenience aspect is something that’s hard to beat.”