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Officials Blast Military Life Sales Problems

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The U.S. Government Accountability Office has published a report that is drawing fresh attention to complaints about abusive sales of financial services products to military personnel.[@@]

The GAO officials found that many young service members who have just begun their service or who have just completed basic training are buying expensive, outdated products, and that some of those service members believe the Pentagon or their branch of the military has endorsed the products.

Many of the products, including life insurance policies, securities and life products marketed as securities, come with high initial fees, officials write in their report.

The product designs are supposed to encourage service members to keep the products for many years, but, in reality, the service members hold only about 10% to 40% of the products for the full term, GAO officials estimate.

Many of the insurance products sold include an “automatic premium payment” system. Under that system, the issuer starts using any built-up policy value to extend coverage automatically if the holder stops making payments, officials write.

The automatic payment system often uses up any savings that product purchasers have managed to accumulate, officials write.

The Senate Banking, Housing and Urban Affairs Committee reviewed the report Thursday.

“The need for definitive action to protect service members appears to be overdue,” Richard Hillman, a GAO managing director, told senators at the hearing.

“Quite simply, the GAO’s findings are troubling.” said Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee.

Many senators at the hearing praised S. 418, a bill introduced by Sen. Michael Enzi, R-Wyo., that would attempt to increase communications between state regulators and the military, create a registry of agents and brokers reprimanded for engaging in abusive or deceptive sales practices, and clarify the authority of state insurance regulators over insurance sales made on military bases in their states.

Enzi and Sen. Paul Sarbanes, D-Md., complained about the failure of Congress to act on the military base financial services sales issue in the past.

The Army covered the topic in a report released in 1997, and the inspector general at the Defense Department discussed abusive products and sales practices in a 1998 report.

“Most of the reputable firms don’t engage in these abuses,” but the companies that do “cast a dark cloud” over the financial services industry, Sarbanes said.

For lawmakers who claim to respect the military and military personnel, “it seems to me that one way to show that respect is to move aggressively against these abuses,” Sarbanes said.

The American Council of Life Insurers, Washington, did not present testimony at the hearing, but it issued a statement emphasizing its support for H.R. 458, a military financial services bill that the House passed in June.

Links to video of the hearing and written versions of the witnesses’ statements are on the Web at


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