When it comes to battling the fine print that rules the financial realm, the nation’s military families have been taking a beating.
And the government officials who were supposed to be protecting the solders have been MIA.
Earlier this summer I wrote about how members of the military mobilized in a losing effort to have the nation’s auto dealers covered by the newly created Consumer Financial Protection Agency.
The nation’s military was no match for the lobbying firepower of 18,000 well-organized car dealers.
Now, thanks to Bloomberg News, we’ve learned how top Obama administration officials signed off on a secret deal that allowed the country’s second biggest life insurance company to make millions of dollars off life insurance policies for the families of deceased veterans.
It turns out that in 1999, authorities made a verbal agreement with Prudential Life to allow them to withhold the lump-sum life insurance payments the company was supposed to hand over to some 6 million veterans’ families. Instead, the life insurer were permitted to offer the survivors a checkbook, which amounted to an IOU known as “retained-asset accounts.” Meanwhile, the insurer would deposit the lump sum into its own accounts earning eight times as much in interest from the settlements as they paid to the military families.
What’s worse, those accounts weren’t even insured by the Federal Deposit Insurance Corporation.
So what happened when the Obama administration discovered the shameful deal?
Remember, this wasn’t the Bush administration, that believed that the best way to protect consumers was to let financial institutions run amok. These were Obama people, who had been sobered up by the financial collapse, who knew the dangers that lurked when financial deals were done in the dark, who promised to toughen financial regulations.
Did the Obama administration jump in and call the whole disgraceful thing off? Hardly. Bloomberg found that Obama administration officials in 2009 turned what had been a verbal agreement into a written one. Though a committee filled with top administration officials, including Timothy Geithner, was supposed to be monitoring government life insurance programs, when the committee actually had a meeting, those officials didn’t bother to show up.
Since Bloomberg revealed the deal earlier this summer, more than 10 years after it was struck, elected officials have leaped into action to condemn Prudential’s actions and demand investigations. While the Obama administration didn’t make the original deal, they formalized it rather than calling it off. It’s another unfortunate example of the Obama administration going soft while the financial industry takes advantage of consumers.
But they have the opportunity to make it right. It will be tough. The administration would have to admit a mistake. As of June 30, Prudential had made $662 million in interest off the lump-sum settlements.
Prudential has offered a pathetic paternalistic excuse, saying the company was actually helping emotionally distraught families by withholding their money during their time of grief.
The Obama administration should demand that Prudential return that windfall to veterans’ families. The company can certainly afford it. It received $4.5 billion last December when it got out of a securities brokerage joint venture with Wells Fargo. Since posting a $1.6 billion loss in the fourth-quarter of 2008, the company has recovered nicely, posting seven quarterly profits, most recently for more than $1 billion. The company’s stock posted a whopping 64 percent gain last year. The company’s CEO, John Strangfeld, is doing OK too, with total compensation of $18.4 million in 2009, though that was down from his 2008 payday, which amounted to $21.6 million.
President Obama has taken some admirable steps to improve veterans’ care after years of Bush era neglect. He should do the right thing and make Prudential turn over the profits it made from the nation’s war dead to their families.