Financial Considerations

A sampling of recent Defense Office of Hearing and Appeals (DOHA) security clearance cases showed that about 50 percent of clearance denials involved “Financial Considerations.” This was two times greater than the second most frequently listed issue for clearance denial.

Guideline F: Financial Considerations is one of 13 criteria listed in the National Security Adjudicative Guidelines. As with many of the other 12 criteria, financial problems are important because they are symptoms of underlying security concerns.  Excessive indebtedness increases the temptation to commit unethical or illegal acts in order to obtain funds to pay off the debts. Concealment of debt from family members is particularly significant because it is related to stress or desperation regarding debt and could lead to illegal or unethical acts.  For many people financial problems appear to be a result of carelessness and irresponsibility, as well as reckless behavior (e.g. excessive use of alcohol, drug abuse, and gambling), all of which are security concerns.  When irresponsibility is a cause of financial problems, Adjudicative Guideline E: Personal Conduct may also apply.  When reckless behavior is involved Guideline G: Alcohol and Guideline H: Drugs may apply as well.   For other people financial problems result from situations that are largely beyond their control.  It is noteworthy that most Americans who betrayed their country did it for financial gain—about half were motivated by a real or perceived urgent need for money and about half by personal greed.

Adjudicative Guideline F details nine potential disqualifying conditions. However, aside from compulsive gambling, deceptive or illegal financial practices, and unexplained affluence, potentially disqualifying conditions can generally be boiled down to one security concern—significant delinquent debt.  Although a high debt to income ratio is listed as a potentially disqualifying condition, it rarely comes into play absent any past or present delinquent debt.  Low credit scores are not listed as a potentially disqualifying condition, because factors other than delinquent debt affect credit scores.  In fact a FICO credit score does not appear on the credit report used for clearance purposes.

DELINQUENT DEBT

Delinquent debt is by far the most common financial concern. It can be complicated by other adjudicative concerns, such as carelessness, irresponsibility, drug abuse, and alcoholism. Unlike most other adjudicative criteria, financial indebtedness issues tend to be current problems, and therefore the most common mitigating factor, passage of time, does not apply.  In adjudicating such cases the following factors are taken into consideration:

• Cause of debt
• Response to debt
• Amount of debt

Cause of debt is generally more important than the amount of debt, because it reveals information about a person’s reliability, trustworthiness, and judgment. Of people who seek credit counseling, roughly 50 percent are due to irresponsibility, about 25 percent due to loss of income, about 10 percent due to divorce/separation; and about 10 percent due to unexpected medical expenses.If the debt was caused by irresponsibility (including compulsive or addictive behavior) that is likely to continue, the problem is magnified. If the debt occurred due to situations beyond the applicant’s control, and the applicant is handling them in a reasonable manner (including bankruptcy or debt consolidation), the significance of the problem is substantially reduced.

Response to debt is evaluated by the things people do (or don’t do) about delinquent debt. How people deal with debt is often a decisive consideration. Those who ignore their financial responsibilities may also ignore their responsibility to safeguard classified information. Classic indicators of irresponsibility and unethical behavior are:

• Changing addresses without notifying creditors
• Failure to take reasonable measures to pay or reduce debts
• Knowingly issuing bad checks
• Increased credit card use immediately before filing for bankruptcy

Surprisingly the word, “bankruptcy” does not appear anywhere in the Adjudicative Guidelines. This is because bankruptcy can be considered positive effort to get one’s finances under control. What is important is the underlying reason for the bankruptcy.Amount of debt focuses primarily on the delinquent amount, but total debt is also taken into consideration. Any significant delinquent debt is a security concern. For total debt there is a rule of thumb used by credit counselors—if an individual’s minimum monthly payments for consumer credit (excluding credit cards that are paid in full at the end of each billing cycle and mortgages on primary homes) totals more than 20 percent of monthly take-home pay, there is a financial problem. This does not apply to unmarried military personnel who live in barracks and eat in mess halls and others who are similarly situated. As mentioned before debt-to-income ratio is seldom considered unless there are significant past or present delinquent debts.

The Office of Personnel Management (OPM), which conducts 80 percent of all security clearance investigations, has used the following criteria for expansion of investigations for financial issues:

• Credit report reflects current delinquencies of a 120 days or more totaling at least $3,500 and any single account is $1,000 or more delinquent (including judgments and liens) or
• Bankruptcy within the past 2 years or
• Bankruptcy within the past 3 to 5 years with evidence of current credit problems.

This does not mean that delinquent debts totaling less than $3,500 are not adjudicatively significant, but it does suggest that, absent any aggravating circumstances or other security issues, the government is not overly concerned about small amounts of delinquent debts. OPM considers bankruptcy for case expansion purposes; it is only a trigger for further inquiry.  Bankruptcy is a legal means of resolving debts, except for taxes and student loans.

MITIGATING DELINQUENT DEBT

The following conditions generally mitigate the security concerning about delinquent debt and to the related personal conduct concerns listed under Guidelines E and F of the Adjudicative Guidelines.

Not Likely to Recur: Likelihood of recurrence is greatly reduced if the conduct occurred long ago, occurred under unusual circumstance, or was an isolated incident. Examples of these type of situations include, writing one or two clusters of unintentional insufficient fund checks, loosing track of a couple of bills as a result of relocating, or having “paid collection” accounts from a few years ago. Favorable changes in financial habits and lifestyle over a period of time can mitigate more serious past financial irresponsibility.  Formerly delinquent debts (delinquent debts that were eventually fully satisfied) are given more or less weight depending on the applicant’s more recent credit dealings.  The existence of current debt problems increases the significance of past debt problems.

Beyond Applicant’s Control: Financial problems often arise due to situations beyond a person’s control, such as unexpected medical debts, divorce, loss of income, victim of crime, bad investments, business downturn, and natural disasters.  In such situations if a person’s acts reasonably and responsibly (including bankruptcy, when necessary) to resolve their debts, the financial issue can be mitigated.  The debts do not have to be fully resolved at the time of adjudication, but there should be verifiable uninterrupted efforts toward this goal.  Being a victim of predatory lending practices, particularly involving subprime mortgages, appears to somewhat fall into the category of situations beyond an applicant’s control.  Much will depend on individual circumstances.  Applicants who are lawyers, accountants, and people with experience in the financial services industry will have difficulty convincing anyone that they were victims.

Counseling/Good Faith Effort to Repay: Conscientious participation in credit counseling or a debt consolidation program can significantly mitigate financial concerns. Without formal counseling consistent, systematic, good faith efforts to repay or otherwise resolve debts will have the same effect.

Disputed Debts: When business records, including credit reports, indicate that an applicant owes money, the burden of proof shifts to the applicant to disprove the claim. If an applicant has several sizeable credit accounts listed as “paid as agreed” and only one delinquent account, adjudicators are much more inclined to accept even minimal evidence from the applicant that the account information is erroneous.  Conversely, if an applicant disputes half of the accounts listed on their credit report, adjudicator will want to see convincing evidence to support the applicant’s claim.  Efforts to dispute erroneous credit report entries immediately after learning of them will also help to substantiate the applicant’s position.

Personal Conduct: When delinquent debt is cause by irresponsible or careless conduct, the potentially disqualifying factors under Guideline E: Personal Conduct will usually also be considered by adjudicators. These factors focus on trustworthiness, reliability, and judgment as they relate to the handling of financial matters.  To mitigate these concerns it is necessary to show a positive change in attitude regarding debt.  Such change needs to be shown through documented, consistent efforts to meet one’s financial obligations.  If it is obvious that an applicant is only taking such action because they know that it is required to obtain a security clearance, it will not convince an adjudicator that the problem is unlikely to recur after the clearance is granted.  Therefore, efforts to resolve financial problems should begin a reasonable amount of time prior to applying for a clearance.  What is reasonable varies greatly depending on individual circumstances.  Obviously the earlier corrective action is taken, the more likely the problem can be fully mitigated.  In some instances actions, such as credit counseling, initiated only a few months prior to applying for a clearance can substantially mitigate security concerns.

INTERIM CLEARANCES

Fully mitigating financial issues is significantly more difficult for interim clearances than for final clearances. For final clearances adjudicators consider all case information, including comprehensive investigative reports. If a Subject Interview was conducted as part of the investigation, the report will contain detailed explanation, documentation, and mitigation offered by an applicant. People do a much better job of providing mitigating information when given the opportunity to telling their story face to face with an investigator, particularly if the investigator is skillful in guiding the applicant through the interview and eliciting the pertinent facts. The investigator should be familiar with all mitigating conditions and know how to get the applicant to address each one without asking leading questions.

For interim security clearances, government officials must rely primarily on the clearance application form and a credit report. If an applicant completes a Questionnaire for National Security Positions (Standard Form 86—SF86) and provides only the information requested on the form, the form will contain very little mitigating information. To have mitigating information considered for an interim clearance determination, the information must be entered into the “Add Optional Comment” text field of the financial section of the electronic (e-QIP) version of the SF86. And, the information must directly address one or more of the mitigating conditions listed under Guideline F: Financial Considerations and, if appropriate, Guideline E: Personal Conduct of the National Security Adjudicative Guidelines.

WHAT TO DO IF YOU HAVE DELINQUENT DEBT

1. Get credit reports from all three national credit reporting companies and use the reports to make a list of all your creditors, but understand its limits. Things that sometimes don’t show up on a credit report include unpaid alimony, federal and state tax delinquencies, automobile leases, gambling debts, personal loans, pawnbroker loans, bad checks, and debts to doctors, dentists, hospitals, utility companies, and local stores. Occasionally account information on the wrong person appears on a report and frequently duplicate entries of the same account appear on a report. Some delinquent debts remain on credit reports for longer than 7 years. This often occurs when a debt is sold to a collection agency, and the collection agency uses the date it received the account. Bankruptcies usually remain on a credit report for 10 years. Although the clearance application form (SF86) only asks for 7 years worth of financial information; adjudicators may consider all financial information available to them. Some financial information that may not appear on your credit report can be collected by field investigators from court records, rental/utility records, personal references, real estate records, employment records, etc. For security clearance purposes just because a delinquent debt has disappeared from your credit report doesn’t mean that you are no longer responsible for the debt. Likewise, a debt that’s listed on your credit report as a “write off” doesn’t mean that you have been absolved of the debt.
2. Immediately take action to dispute any erroneous information.
3. Make at least minimum regular monthly payments to all creditors.
4. Contact those creditors that have unpaid claims against you, insure that the claims are legitimate, and set up a repayment schedule as soon as possible. Try to communicate in writing and keep copies of all correspondence. If you communicate by telephone, make a written record of the telephone call and include the date, name of the person you spoke to, and a gist of the conversation.
5. Seek credit counseling if necessary, preferably with and agency that is a member of the National Foundation for Credit Counseling. They may be able to negotiate better repayment terms and lower interest rates than you are able to obtain by yourself.
6. Don’t be afraid of bankruptcy if your situation warrants it. If you seek the services of a reputable credit counseling service first, they will advise you whether your situation can be resolved better through bankruptcy or debt consolidation.

By William H. Henderson

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