CBS and NBC Nightly News are both doing research for pieces about financial institutions targeting veterans and military retirees to offer them lump-sum payments for future government benefits. Notice, I didn't use the term "scam." The Minneapolis Pioneer Press also published an article, 6/8/03, about the same practice (See article at the end of this email.)

This same practice surfaced back in 1991, and we distributed a news release to help educate veterans, you and your fellow employees.

Bottom line: This is not actually illegal, but we want vets to be well informed before making a decision.

There may be circumstances when a veteran might decide -- despite the high cost -- that the best thing he or she can do at the time is to obtain a lump-sum payment (e.g., surgery for child). However, VA itself is prohibited by law from selling a veteran's VA benefits to a third party, or paying benefits to anyone other than a veteran, a family member or guardian. General Counsel testified before the Senate Committee on Veterans' Affairs on May 2, 2002, and basically said that once funds are paid to a beneficiary, except where the veteran has been found mentally incompetent, VA lacks the ability to oversee how those funds are used. While we would certainly counsel veterans, their dependents and survivors to very carefully consider the full ramifications of assigning their benefits, we believe they should be free to decide how best to manage their own personal finances.

A few fairly safe talking points:

• VA's concern is for the best interest of veterans
• VA would caution veterans who are contacted by companies offering this option to recognize that they would not get the full benefit from their VA compensation or pension payments.
• While it's tempting to get a large lump sum, some of the poorest veterans who can least afford this arrangement might regret the decision later on.
• Hopefully all veterans will carefully examine any such offer before making a decision.
• Avoid any characterization that the activity is illegal.

Minneapolis (MN) Pioneer Press, 6/8/03

BANKING: Predatory lenders aim for veterans

BY ROBERT K. HEADY

Columnist

Those of us who are military veterans are now facing another attack, from scam artists who promise "quick cash" lump sums in exchange for signing over our monthly payment benefits from Uncle Sam.

Sometimes it's called "advance funding" or "veterans benefits buyouts." With these deals, the veteran can be ripped off to the tune of tens of thousands of dollars, paying interest rates as high as 50 percent or 100 percent. In many cases, the lending outfits are near military bases or advertise in official-sounding newspapers such as Army Times. On the Internet, their official-looking ads may even show a waving American flag or military insignia, hinting at some affiliation to con the unwary.

National Consumer Law Center, a Boston- and Washington, D.C.-based non-profit that works with Congress, claims such predatory loans are illegal. In fact, Sens. Bill Nelson, D-Fla., and John McCain, R-Ariz., want to make the practice punishable by stiff fines and jail time.

Here's how bad it can get, according to congressional records and NCLC's just-released 66-page report, "In Harm's Way - At Home":

One vet, Michael Elliott, needed money. Then he saw a C&A Financial Programs ad in Navy Times. C&A gave him $15,000 cash in exchange for three years' worth of $900-a-month payments from his Navy retirement check. That's $32,400 over three years for the 15 grand.

But Elliott had to pay C&A Financial $631.18 from that sum for insurance in case he died. Plus, C&A took the first two months' payments from the lump sum, leaving only $12,568.82. The math worked out to an annual interest rate of over 63 percent. Months later, Elliott asked for a payment moratorium and was told that if he tried that, he'd hear from C&A's attorney. Right now he's getting legal advice.

Sen. Nelson's office says "dozens of companies are engaged in the business." They're first cousins to the familiar "payday loan" operation, where the outfit gives you $100 cash if you postdate a $150 check that's cashed later on your pay date. But if you can't cover the check for a year, the annual interest rate can run up to more than 700 percent.

NCLC analyzed several cases for the House Veterans' Affairs Committee. For example:

The veteran receives $6,000 initially, then at the lender's option two separate loans for an additional $13,500. The three loans carry rates of 106.21 percent, 92.22 percent and 79.82 percent. The veteran receives a total of $19,500 and pays back $36,638.

Why do scammers target military people? Simple. Many are low-income (always the most targeted group); and veterans and active military have steady checks coming in. Even with laws like the Fair Credit Lending Act, more needs to be done, amplified and clarified.

Vets need to shop before they borrow, such as at a credit union, read before they sign, ignore the obvious rip-offs and ask their state's attorney's office for help if they need to know their legal rights.

Terry Schow

Director, Division of Veterans Affairs
550 Foothill Dr # 202
SLC Ut 84108
fax 801 326 2369
ph 801 326 2372
toll free 1800 894 9497