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Financial Services Law Insights and Observations

CFPB reports on debt trends for young veterans leaving service

Federal Issues CFPB Servicemembers Credit Report Consumer Finance

Federal Issues

On November 9, the CFPB released a report highlighting credit record trends for young enlisted servicemembers during the first year after separation. According to the CFPB, a large number of these servicemembers become delinquent on debt payments or have severe derogatories appear on their credit records around the time they leave active duty. The report analyzes a sample of 10,872 servicemembers and finds that, for servicemembers who serve at least 7 months, “delinquencies and defaults are between two and 10 times more like to appear on a credit record in the six months after separation as compared to the six months before.” In addition, servicemembers who have negative outcomes show declines in their credit scores just after separation, with recovery not occurring until at least one year after leaving the military. Credit score declines are most severe for those who serve between 7 and 35 months as well as “for those who exit with a Near prime credit score or below, as opposed to a Prime score or better.” Among other things, the report focuses on several categories of young veterans and identifies the following three types of credit accounts to be the most likely sources of delinquencies and defaults: auto loans, credit cards, and personal or retail installment loans. The report also addresses several credit outcomes: credit scores, third-party collections debt (medical and non-medical debt), 90-day delinquencies, and severe derogatory outcomes. While the report’s data does not specifically indicate reasons for a servicemember’s separation, the Bureau reports that part of the cause may be attributed to financial difficulties, and that assisting servicemembers make better financial decisions may increase retention for service branches.