Buyout scheme deprives vets of larger part of benefits

By Johnny Brannon
Advertiser Staff Writer

Unscrupulous financial agencies are targeting retired and disabled veterans with a benefits buyout scheme that amounts to legal loan sharking, authorities say.

"It's not illegal, but it's despicable," said Department of Veterans Affairs spokesman Fred Ballard. "They target people who really need the money and that's the sad part."

Typically, veterans are offered a lump sum and must use their benefits to pay it back over a certain number of years at sky-high interest rates, leaving them with just 30 to 40 cents for every dollar they're entitled to in benefits.

The scheme has not been aggressively marketed in Hawai'i but has been a problem elsewhere and is offered through the Internet, Ballard said.

According to the VA inspector general, one Mainland veteran reported receiving a payout of $73,000 in exchange for 10 years of benefits that would total more than $256,000 — which meant the annual interest rate exceeded 44 percent.

The firms exploit various loopholes to keep the schemes technically legal, such as characterizing the arrangements as "buyouts," instead of loans, to avoid violating usury laws that ban excessive interest rates, according to investigators.

And since veterans cannot directly assign benefits to a third party, the companies set up joint bank accounts with them to gain access to the money once the checks are deposited.

To secure the loans, veterans must usually sign over a home or other property as collateral, and also name the company their life insurance beneficiary.

Reach Johnny Brannon at 535-2431 or jbrannon@honoluluadvertiser.com.