While regulators have stepped up efforts to protect servicemembers from financial fraud, auto financiers are looking for ways to attract more military personnel to their customer ranks.
“If you don’t learn anything else in the military, you learn commitment, loyalty, and dedication,” said Kerry O’Connor, co-founder of Starting Point Foundation, a group that helps military personnel transition back to civilian life. “If you could have anything in your customers, that’s what you want. Servicemembers are some of the most brand-loyal people in the universe. It makes sense to earn their trust and keep it.”
To that end, lenders like Chase Auto Finance, Navy Federal Credit Union, and Toyota Financial Services have bolstered programs that cater to the military demographic. For instance, in January, TFS and sister company Lexus Financial Services launched the “Welcome Home Special APR Program,” which offers rates as low as 0.9% and rebates as high as $750 to qualifying military personnel and inactive reserves.
TFS is marketing the program on 35 bases, running newspapers ads in base publications and posting banners and billboards on base. In the past nine months, the Toyota Motor Corp. captive has marketing auto loan products on more than 60 military bases, said Karen Ideno, the captive’s chief marketing officer, during a session at the recent American Financial Services Association’s vehicle finance conference.
TFS is also working to enhance communication channels ― web, digital, and mobile ― to ensure awareness and education to military ― and civilian ― consumers, Ideno said.
Meanwhile, Chase Auto’s parent company, JPMorgan Chase & Co., has centralized military-focused events and communications across all lines of business, said Nate Herman, the bank’s chief administrative officer for military and veterans affairs.
Military lending has been a primary focus of the Consumer Financial Protection Bureau. Last year, the agency formed the Office of Servicemember Affairs, headed by Holly Petraeus, to protect service members and their families from financial fraud. In August 2011, the Federal Trade Commission hosted a two-day seminar to hash out auto finance issues affecting military personnel and focus on improving financial education to the demographic.
Just last month, the CFPB, along with state attorneys general and the Department of Defense, created a database of companies and individuals that repeatedly target military members with predatory personal loan services. The program, called the Repeat Offenders Against Military (ROAM) Database, will maintain information on formal actions taken against perpetrators of financial schemes targeting the servicemembers, veterans, and their families.
“The ROAM database will help law enforcement crack down on frauds that cross state lines,” said CFPB Director Richard Cordray in a Jan. 25 statement. “ROAM is a huge step forward in our mission to improve consumer protection for the military community.”
In addition to improving financial education for servicemembers and paying close attention to the heightened regulatory environment, auto financiers have implemented servicing procedures geared specifically for military customers.
“You have to service them in a unique way,” said Dave Ledwell, assistant vice president of consumer lending at Navy Federal Credit Union. “They are mobile, and they don’t always have control over their own destiny.”
Ledwell manages Navy Federal’s $8.7 billion consumer loan portfolio, which includes auto, personal, and federal education loans, among other products.
With military personnel, auto financiers must be prepared to deal with issues that occur with soldiers stationed abroad. “You have to establish servicing that allows for the 3 a.m. phone call,” Ledwell said. “You have to establish servicing that allows them to take their vehicle overseas.”
Of course, lenders like Navy Federal take into account the potential that the assets they’re underwriting may be headed to far-off countries. “That is an issue,” he said. “You have to price to it, too.”
For lenders, the key to ensuring repayment is to make sure the customer understands the policies that govern taking vehicles overseas. And should servicemembers take vehicles abroad against corporate policy ― which some will do, Ledwell said ― be prepared to communicate with their families. “The customer may be in Afghanistan, and you have to deal with their spouse,” he said. “You have to be flexible enough to do that.”
Chase’s Herman reiterated the importance of implementing policies to protect collateral. “If you’re really serious about [a military lending program], you have to build those networks to control collateral overseas,” he said.
Another issue that military lenders must recognize is that servicemembers may respond to queries differently than their non-military counterparts. “You have to understand that how they think is slightly different than how they think in the civilian sect,” said O’Connor of Starting Point Foundation. “Sometimes how you ask questions has to be counter-intuitive. In the military, there is a premium on answering questions in a concise manner ― yes or no. You’re going to have to draw them out.”
The bottom line, according to Navy Federal’s Ledwell: “Military lending can be very profitable if properly structured,” he said. “A lot of military people are looking for a financial home. They will reward you if you provide a home with the proper service.”