Pension Scam Dupes Military Vets

(CBS)  Retired Navy man Mike Elliott and his family needed some extra cash to make ends meet.

When Elliott saw an ad in the newspaper The Navy Times offering fast cash in exchange for military pensions, he thought he'd found his answer, reports CBS News Correspondent Bobbi Harley.

"We took the bait. That's what it amounts to," Elliott says now.

Elliott was paid $15,000 after signing a contract to turn over his $900 a month military pension for three years.

But Elliott told CBS' Harley, taking the lump sum in exchange for his monthly payments was no bargain. As Elliott found out, deals advertised as sales transactions, like the one he read about in The Navy Times, really work like high interest loans.

"My attorney figured out the interest rate. It's a 77 percent interest rate annual percentage. Seventy-seven is horrendous," Elliot said.

Elliott's attorney Lynn Drysdale, a consumer fraud attorney, said the deal is a rip-off and called the high interest rate "obscene."

Harley asked Drysdale why the companies placing the ads don't call the system a loan.

"Well, they could if they were being honest, but they don't want to," Drysdale said. "In my opinion … it's a criminally usurious loan."

Consumer advocates and veterans groups have been warning against these lump sum payments for military pensions, calling them outright scams, saying they don't make financial sense, and more than that, warning they are probably illegal.

Steve Tripoli is a consumer advocate at the National Consumer Law Center, and has been working with federal lawmakers to get the deals outlawed.

"They are just plain bad deals," Tripoli said. "What makes them illegal is that this is an assignment of veterans benefits and assigning veterans benefits is illegal under federal law."

The companies continue to argue these are not loans but legal transactions.

Dave Faraldo, who runs a local relief society for the Navy and Marine Corps says the deals anger him, because his organization offers zero percent loans to military families.

"Federal legislators need to step in and make sure the interest rates being charged are fair and reasonable," Faraldo said.

Elliott says he now feels ashamed, and even stupid for having been duped by the ad. But he wants others to hear about them and avoid falling into the same trap.

He warns fellow veterans, if they sign away their pension, they might just be buying into a false financial fix.