Posted on 12/28/2004 6:43:33 PM PST by neverdem
Kevin D. Jones, a retired Army veteran, was desperate for money. He wanted to get his wife out of the Philippines quickly after her home had been destroyed in a bombing. But she was being delayed as she waited for immigration papers to come through that would allow her to join him in North Carolina.
His military contacts, cultivated during a 25-year career that included duty in Bosnia and Kosovo, helped speed the paperwork. And a Florida financial services company that he had found through an advertisement in The Army Times helped him raise the money to fly to Manila, resettle his in-laws and return home with his wife.
He was too frantic, he said, to consider the cost of that money. But it was steep. In exchange for $19,980 after fees and insurance, Mr. Jones signed over his $1,000-a-month military pension for the next five years, a total of $60,000. That is the equivalent of paying interest at a rate of 56 percent a year.
Federal law prohibits retired military people from signing over their future pension payments to others. The companies offering these deals say they are arranged to avoid that restriction. But two federal bankruptcy judges ruled this year that deals like Mr. Jones's, in which veterans in need of quick cash give up their future pensions for a small fraction of their value, do in fact violate that law.
But the law has not been enforced or consistently interpreted. Indeed, the Defense Department's payroll centers routinely handle the paperwork that diverts the pension payments, even though veterans are warned "to exercise caution in these arrangements," a Pentagon spokeswoman said.
As a result, a small but persistent band of financial companies using military-sounding names continue to offer these so-called pension advances to retired military people over the Internet and in military newspapers.
Consumer lawyers are getting calls from people facing lawsuits and bankruptcy after signing over future pension payments to these companies. No one is certain how many veterans have been affected, but the potential market is substantial. In the last year, roughly 1.7 million military retirees received about $33 billion in pension payments from the Pentagon.
None of these practices are a surprise to either the Pentagon or to Congress. In September 2002, the Senate passed a bill that would have penalized companies offering military pension advances, but the effort stalled in the House. Veterans' groups have warned members about these deals. And in May 2003, the National Consumer Law Center, a nonprofit group in Boston that has worked on consumer protection issues for more than 35 years, condemned the cash advances as illegally disguised loans that do not comply with federal truth-in-lending laws.
Despite these warnings, neither the Pentagon nor Congress has clearly defined these deals or decided which laws apply to them.
The Pentagon does not see pension advances as examples of retirees signing away their future pensions, which it acknowledged would be illegal. Instead, to the Pentagon, "these agreements appear to be loans based on retired pay as collateral," said Lt. Col. Ellen Krenke, a spokeswoman for the Defense Department.
The companies making the pension advances, however, flatly deny that they are loans of any kind.
In contrast to the enforcement gap that arises from these dueling definitions, Congress adopted rules a year ago to protect veterans' disability payments from deals like these. Now, Senator Bill Nelson, the Florida Democrat who co-sponsored that law, is "shaking the tree" at the Defense Department "to get some idea of what's going on," a senior aide to Senator Nelson said recently.
In October, the National Consumer Law Center organized a band of lawyers, including the former governor of Georgia, to file a suit that seeks to confirm the fundamental illegality of buying out military pensions through arrangements like the one Mr. Jones made.
"It seems like this practice falls between the cracks of what the military and the veterans' organizations normally deal with," said Steve Tripoli, a consumer advocate with the Boston group.
The group's class action on behalf of three plaintiffs, filed in federal court in Atlanta, names as defendants C & A Financial Programs of Stuart, Fla., and Advanced Funding Inc., a Maryland company that acted as a broker for C & A.
Those were the companies Mr. Jones dealt with during his family crisis in July 2001, when his in-laws were caught in the cross fire of sectarian violence that had plagued their hometown in the Mindanao province in the Philippines. In August 2003, after repaying $26,000, he directed the Pentagon to stop sending his pension to the Florida company because, he said, he needed the money to support his wife and newborn son. C & A responded by going to court in its hometown in Florida to sue him and a number of other veterans.
Like Mr. Jones, the plaintiffs in the consumer law center's case signed on for pension advances whose repayment terms, expressed as annual interest rates, ranged from 45 percent to 76 percent.
The suit argues that these deals are actually disguised loans that failed to comply with federal truth-in-lending laws and state interest-rate caps, said Stuart Rossman, the litigation director at the center. "But if I'm wrong," he added, "then it's an assignment of a military pension, and that violates the law, too"
Teri Belcher, a lawyer for Advanced Funding, of Glen Burnie, Md., said the company would not comment on the case.
Leif J. Grazi, a lawyer for C & A in Stuart, said that the company had not offered any new military pension deals for several years because it did not find them profitable. But its existing deals are neither improper loans nor illegal pension assignments, he said. "We are just purchasing a stream of payments," he said, adding that other companies were probably handling the business C & A had turned away.
"If the sale of these assets is improper, why is it that the United States allows them to advertise on the Internet and in the military newspapers?" Mr. Grazi said. "You'll see a million ads every month."
Roy Barnes, the former Georgia governor who has joined the suit against C & A, also wonders why the Defense Department allows pensions to be diverted to third parties - and, in fact, handles the paperwork for the payroll deductions, called allotments.
"The easiest way to cut off these companies is for the Defense Department to stop those allotments," Mr. Barnes said. "That would get their attention."
The fundamental issues raised in the suit against C & A and Advanced Funding have not deterred other companies engaged in this business.
Carl Bachmann founded and runs Veterans First Financial Services in Battery Park, Va., which also offers military pension advances. The suit would not affect his business, he said, because his company offered better terms and clearer disclosure than did the companies cited in court. "There is a right way to do this business, and a wrong way to do this business," Mr. Bachmann said. But there is no doubt, he said, that the business itself is not prohibited by military pension laws.
Executives at Structured Investments Company, which offers pension advances through a unit called Retired Military Financial Services, said they were not familiar with the consumer law center's case. But Steven P. Covey, a managing member of Structured Investments, said that Retired Military's business model was legal and that its rates were reasonable.
"Firms that charge outrageous interest rates and take advantage of financially unstable pensioners are completely at the other end of the spectrum from our company," he said. "We look for a long-term relationship with our pensioners."
Some bankruptcy judges have upheld the right of Structured Investments to claim future military pension payments. But none of those judges addressed how their decision squared with federal statutes - Sections 701 and 101 of Chapter 37 of the United States Code - that prohibit assignments of future military pensions.
Judge Arthur B. Federman of Bankruptcy Court in Kansas City, Mo., observed in a footnote to a July 2002 decision that there were "limitations on an individual's ability to assign his or her right to receive monthly pension benefits," citing the law governing military pensions. But the debtor did not raise the argument, the judge said, "and the court will not address it."
Two other bankruptcy judges, in cases decided this year, did address the special nature of military pensions, and in those cases Mr. Covey's company lost.
Judge James G. Mixon in Little Rock, Ark., ruled in July that the sale of future military pension payments was "specifically prohibited by federal law," which, he said, "unambiguously provides" that any such assignment is invalid.
And in August, Judge Philip H. Brandt in Tacoma, Wash., ruled that the company's claim on a retired Navy enlisted man's pension violated the federal pension statutes. While the company's contracts say the deal is not an assignment, Judge Brandt wrote, "in the words of Gabby Hayes, 'Sayin' it don't make it so.' "
But most veterans cannot afford to challenge the companies' claims in court, especially when the court is far from their homes, said Lynn Drysdale, a member of the plaintiffs' team suing C & A and a staff lawyer at Jacksonville Area Legal Aid. Instead, they wind up paying default judgments without ever making the argument that the debts were illegal and therefore uncollectible, she said.
That is what happened to Edgar J. Basford III, known as Jack, who retired from the Navy as a senior chief petty officer in 1993. In May 2001, facing divorce expenses, he got $26,000 from C & A, after fees and insurance, in exchange for signing over his $1,242-a-month Navy pension for five years, a total of $74,520. After repaying almost $35,000, he fell behind on the debt and was sued for the rest of the money.
"I didn't have the money to fly down to Florida to defend myself," Mr. Basford said. The $46,000 judgment the company obtained was the sole reason he filed for bankruptcy last June, he said. But he did not challenge the legality of the debt and wound up agreeing to pay $500 a month to C & A for more than seven years.
Mr. Jones, who now lives in Eldridge, Iowa, said newly retired veterans like himself were especially vulnerable to a marketing approach that relies on reassuring names like Retired Military Financial Services and advertisements in publications that veterans trust, like The Army Times.
Moreover, said Mr. Jones, who joined the Army at age 18, "you spend your whole life in a culture where everything is grounded in clear procedures and high standards," and where instructions are followed without question. "But in the civilian world, you have to question everything - everything."
Now, he added, "I'm learning that."
This is almost like those car title loans where they jack the interest up because you need money.
The NYT didn't publish stories like this when The Rapist was President.
Vet bump
IT IS NOT A PENSION!!!! It is Military Retirement Retainer Pay! Just goes to show you that the NYT reporter doesn't know $hit from shinola.
The Army Times is not a military newspaper. It is a private, for profit newspaper.
Exactly...and it is owned by leftists.
Could someone please explain to me just one thing:
Why can't this guy or any other soldier do what the hell he wants with his money?
If I win the lottery and I want to take a lump sum instead of a yearly payout, I can. Surely it would be fair to allow any soldier to do the same. Heck, I would gladly take an advance check right now in exchange for a FULL release of all my future Social Security payments after I retire.
car loan is an understatement, this is down right sleazy.
The individuals who sign these contracts knowing full well what it is going to cost them deserve what they get. Kinda like me signing a $1500 per month mortgage note knowing that after about a year and a half i wont be able to make payments anymore. Or the gold brick who buys a new Cadillac and after a year defaults on the payments and continues to drive it until the repo man catches up with him...............
I also have absolutely no tolerance with our liberal bankruptsy laws that allow individuals to purchase half million dollar homes, buy new cars every 2 years and live the life of Riley until their debt catches up with them.. Meanwhile i'm still driving a 9 year old car, making my house payments and living the life Riley's poor neighbor.........
Buyer Beware!
"Meanwhile i'm still driving a 9 year old car, making my house payments and living the life Riley's poor neighbor........."
I know how you feel. I drive a 95' Jeep and pay off the credit card bill every month. We finally bought my wife a new car but paid cash and got a really good deal. I keep bitching about the mortgage so my wife printed out a credit report for our area. The average family here has $8000 in credit card debt and owes $200,000 on their home. I don't feel so bad now. Guess I'll just keep being a cheapskate.
It is sleazy. Unfortunately, these kinds of things always manage to slip through the cracks. One should know that signing away any future pension benefits is a bad thing. Period. Needing money or not.
May I presume you have not had the pleasure of "space available" health services yet then??
LOL boy oh boy, you got a surprise coming.
I agree. First the government is telling us that we should be able to do what we want with our Social Security, because we're smart enough to know. So they don't think this kind of thing will ever happen. It's called FREE CHOICE.
No they don't. Fraud is being committed.
It's fraud.
What's the difference.
Ping
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