[H. R. 15589, Seventy-first Congress, third session]

A BILL To provide for the payment to veterans of the cash surrender value of their adjusted service certificates

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That Title V of the World War adjusted compensation act is amended by adding at the end thereof a new section, to read as follows:

"SEC. 509. (a) The Administrator of Veterans' Affairs is authorized to pay to any veteran to whom an adjusted-service certificate has been issued, upon application by him (with or without the consent of the beneficiary), the cash surrender value of the certificate. The cash surrender value of the certificate shall be the basic surrender value as defined in subdivision (b) of this section, with adjustments made thereto as provided by subdivision (c) of this section.

"(b) The basic surrender value of the certificate shall be the amount of the adjusted-service credit of the veteran, increased by 25 per centum, plus interest at 4 per centum per annum, compounded annually, from the date of the certificate to a date to be determined by the administrator, which date shall precede by not more than thirty days the date of the check issued to the veteran in payment. "(c) If a loan has been made upon the certificate under section 502 then"(1) If the principal and interest on or in respect of the loan have not been paid in full by the veteran (whether or not the loan has matured), the administrator shall, on request of the veteran, pay or otherwise discharge the unpaid principal and interest and deduct from the basic surrender value the amount of the unpaid principal and interest, except that for the purposes of such deduction, in determining the amount of such unpaid interest, the entire amount of interest on or in respect of the loan shall be computed at 4 per centum per annum, compounded annually, in lieu of the rate fixed in the note or prescribed in section 502.

"(2) If any of the interest has been paid by the veteran, there shall be added to the basic surrender value, on request of the veteran, the amount, if any, by which the interest paid by the veteran (prior to the date of application under this section) on or in respect of the loan exceeds the entire amount of interest on or in respect of the loan computed at 4 per centum per annum, compounded annually.

"(d) No payment shall be made to a veteran under this section until the certificate is in the possession of the Veterans' Administration and all obligations for which the certificate was held as security have been paid or otherwise discharged. Upon the payment to the veteran of the cash surrender value the certificate and all rights thereunder shall be canceled."

Senator WATSON. Not knowing until yesterday that I would be required to start the hearings, I have not read these bills and therefore have not mapped out any plan; especially not knowing whether the committee would want to proceed until hearings have been held on the other side. Inasmuch as you have decided to go ahead with the hearings anyhow, without waiting for the hearings to be held by the House beginning on Thursday of this week, in what order would the committee prefer to proceed?

Senator HARRISON. Why not have the head of the Veterans' Service explain the matter to us? General Hines is present. Senator WATSON. If we could determine which bill we wanted to take up, then the proponent of that bill could give his view of it. Senator COUZENS. Might I suggest that General Hines go ahead and tell us the merits of these respective bills?

Senator WATSON. Are you familiar with the different bills, General Hines?

General HINES. Yes, I am, and if you wish me to proceed I will do so.

Senator BARKLEY. I am the only member of this committee who has introduced a bill of this sort, and of course we will have to consider the whole subject, but if you are going to take up some one bill as a basis for discussing the whole subject, I should like to have my bill considered.

Senator LA FOLLETTE. I think it would be a wise thing simply to discuss this general subject, and let those who want to make statements make them, concerning any or all of the bills.

Senator GEORGE. And then consider any special bill later?

Senator LA FOLLETTE. Yes.

Senator WATSON. Ordinarily It looks to me as if the proponents of the bills should give their reasons first.

Senator CoUZENS. I think inasmuch as General Hines has read these bills and can tell us about them, it would be better to hear him. Senator WATSON. Have you read all of the bills, Senator Barkley? Senator BARKLEY. Yes; but I think it would be perfectly foolish to try to discuss one bill separate and apart from all of them. They are somewhat alike, and I think we might very well discuss the general subject.

Senator CoUZENS. Let General Hines tell us his view of them.

Senator CONNALLY. As I have said, I am going to introduce one similar to the one introduced in the House by Representative Garner, and I should like to have that bill before the committee at this time. Senator WATSON. Very well. General Hines, you may come around and take a seat at the table opposite the committee reporter, and proceed in your own way.

STATEMENT OF BRIG. GEN. FRANK T. HINES, ADMINISTRATOR OF VETERANS' AFFAIRS, WASHINGTON, D. C.

General HINES. Mr. Chairman and gentlemen of the committee, I believe it would be advisable before I take up the several bills which have come to the attention of the Veterans' Administration, to give the committee some basic information on just what this proposition is. Senator WATSON. Very well. You may proceed.

General HINES. Gentlemen, may I first review the whole proposition, in a general way: In 1925 Congress, after considerable deliberation, decided to enact what is known as the adjusted compensation bill. The basis of the adjustment was to authorize $1 a day for each day's service in the United States, and $1.25 for each day's service overseas. Taking that, then, as the basic credit, there was added to the amount 25 per cent. The total amount, then, the basic credit, I mean, plus 25 per cent, was used as a single net premium to fix the maturity value of the adjusted-service certificate, or what would come nearest to an endowment policy, payable in 20 years. This credit not to exceed $500 for the man who served only in the United States and $625 for the man who served overseas.

Certain men who served were excluded. In other words, the bonus was only available up to and including the grade of captain. Those veterans who had received the $60 bonus were excluded, that is, to that extent. That was taken into account as an adjustment. Congress authorized the issuance to all veterans whose basic credit exceeded $50 these certificates. Those veterans whose credit was less than $50 or equal to $50, were paid in cash.

From the enactment of the measure up to the present time we have issued to all veterans 3,498,376 certificates, having a face value of $3,528,022,777.

The average value of each certificate is $1,008.47. The average age and I should explain right there that these certificates con

templated that taking the basic credit plus 25 per cent as a single premium, there would be purchased for the man at his age this endowment policy. So the age is a factor in the certificates as to their amount. The average age stamped on each certificate was 33.3 years. We have estimated that the number of veterans eligible to receive certificates is 3,651,314.

In other words, there has been excluded for various reasons as you gentlemen will see, the difference between approximately four and a half million men who served and the number that are eligible for certificates; this takes into account of course those whose service was less than 110 days, and where payment was made in cash to the veteran. Also those veterans who at the time this act was passed had died or were killed in action. Of course in those cases the payments were made to their dependents.

Senator CouZENS. There is a difference there between those who applied for certificates and those eligible to apply. Now, how many did not apply for certificates who were eligible to do so?

General HINES. Well, up to this time we calculate that 3,651,314 are eligible, and applications have been received from 3,777,243. In other words, that indicates that more have applied than are eligible. But we know that there are included in the latter number some who were not in the same eligibility that I have given as the first figure. You see we feel that there must be about 153,000 veterans who have not applied up to this time.

Senator HARRISON. Let me get, if I can, just the number that are excluded. How many are excluded by virtue of the $50 provision? General HINES. The difference between the total number in service, 4,500,000, and the 3,651,314 that I just mentioned.

Senator COUZENS. About 850,000 of them?

General HINES. Yes.

Senator SHORTRIDGE. Have you the amount of money paid in the way of cash payments?

General HINES. Yes. The number of veterans to whom cash settlements were made is 128,362. The value of the cash settlements made to veterans was $4,131,639.57. Veterans' cases settled by payment to beneficiaries—that is, for those veterans who had died or were killed in action-meant payments to 108,980 beneficiaries. The settlements made in this manner by payments to dependents, and less than $50 in cash, amounts to $185,252.96. Payments to beneficiaries in quarterly installments—that is, those payments are made quarterly up to the face value of the certificate and they amount to $32,619,482.79. Then the $60 payment under section 608 World War adjusted compensation act that is, the $60 bonus-we paid $2,761,440.25. The number of certificates since issuance that have matured is 100,403. The amount of those certificate in dollars and cents is $101,254,270. So that we have in force to-day, which is for the consideration of the Congress, 3,397,973 certificates, having a face value of $3,426,768,507. Senator CONNALLY. You mean by that figure at maturity value. When you say face value, you mean value in 1945?

General HINES. Yes. But that is also the value that is on the certificate.

Senator SHORTRIDGE. If they were paid to-day the certificates would call for that amount?

General HINES. If payment were made at face value as against their present worth.

Senator THOMAS of Idaho. What would their present worth be under this plan?

General HINES. Might I lead up to that, Senator Thomas? I think I can give it to you in the order I have it here so that it will be better understood, and it will be the last figure.

Senator THOMAS of Idaho. All right.

General HINES. These certificates, in addition to carrying with them the payment upon maturity of a given value, and payment to dependents if the veterans die, carried a provision whereby a loan could be made after the certificate had been in force two years. The loan values were in this form, and I will give you an example of the case of one of the certificates as it appears for a veteran 34 years of age: At the second year the loan basis per dollar of certificate is 0.08806, each year increasing, so that in effect we would have as a loan value in any given year approximately 90 per cent of the reserve of the certificate. I will make that a little clearer as I take up the individual certificate, but of all the certificates now outstanding the loan value amounts to $730,905,000. The average loan value of the unmatured outstanding certificates is $216.76. The average amount of indebtedness principal outstanding against certificates pledged for loans, that is, those that have been borrowed on up to date, is $181.64. The number of outstanding loans made by the bureau on adjusted service certificates, and these loans I might say have been made from the United States Government insurance fund, is 1,384,036 veterans, and the amount loaned to that number of veterans is $267,840,734.44. Senator WALSH of Massachusetts. What is the percentage of the face value?

General HINES. Approximately 221⁄2 per cent of the face value. The total indebtedness outstanding to the United States Government life insurance fund on loans made on these certificates is $267,840,734.44.

Senator WATSON. What is that?

General HINES. In other words, the amount of money that has been loaned to veterans out of the Government's insurance fund, which is its fund on Government insurance belonging to some 675,000 veterans, we have loaned on those certificates from the time that Congress authorized loans to be made from that fund, coincident with loans made by banks, of $258,131,516.40. Then with interest included up to date of $9,709,218.04, gives a total of $267,840,734.44. Now, Senators will remember that originally it was contemplated loans on these certificates would be made only by banks. Soon after the act had been in effect there was considerable complaint on the part of veterans that they were unable to get loans from the banks, and that caused us to recommend to the Congress that the Government life insurance fund be permitted to loan along with the banks. So that in addition to what certificates are in the converted insurance fund, that is, on which we have made loans-and the banks also have made a number of loans-and we estimate that the number of outstanding loans made by banks is 140,000; and the amount of these loans approximately is $25,253,200. The law contemplates that when a veteran fails to pay his loan to a bank the bank will send his

loan to the Veterans' Bureau and it will be redeemed, by payment of the amount of the loan plus interest up to the date that check is issued to the bank.

Senator HARRISON. What is the interest charged now by the Government insurance fund and the bank; and is there any restriction on the banks?

General HINES. Yes; the law originally contemplated that the rate charged both by a bank and the Government would be 2 per cent above the Federal discount rate for 90-day paper. Congress then amended the act so that in no event would the rate of interest be more than 6 per cent on loans made from the Government life insurance trust fund.

Senator HARRISON. Is that what the Government is charging, 6 per cent?

General HINES. No, sir: not now.

Senator HARRISON. How much is being charged now?

General HINES. On the average it is around 5 per cent. I can give you the rates.

Senator HARRISON. All right.

Senator BARKLEY. Just before you give that: You said this $258,131,516.40 represented loans of about 20 per cent of the face value of the certificates.

General HINES. No; I didn't say loans. The loan value represents about 22 per cent. In other words, if all veterans borrowed it would be about that.

Senator BARKLEY. All right.

General HINES. At the present time, for instance, in the Boston district, if I may answer your question, Senator Harrison, the rediscount rate there is 41⁄2 per cent or I mean the rate charged would be 221⁄2 per cent plus 2 per cent. On New York it is 2 per cent plus 2 per cent additional, which would make a total of 4 per cent.

Senator HARRISON. It vacillates.

General HINES. Yes. Whenever a greater rate has been charged, then on the anniversary date of the certificate we automatically reduce the interest to the rate then in effect. Whether the veteran makes a new loan or not, we reduce his interest down to that. So that all veterans borrowing in the eastern district, where the rediscount rate is 2 per cent, we would have a rate of 4 per cent.

Senator HARRISON. What is it in the Atlantic district?

General HINES. For the Atlanta district on July 12, 1930, it was 51⁄2 per cent. On January 10, 1931, it was 5 per cent. That would mean that 3 per cent would be the Federal rediscount rate.

Senator LA FOLLETTE. What is the average rate that has been charged?

General HINES. The highest rate that could be charged now would be 6 per cent. But they are all down, so that the highest now is 51⁄2 per cent.

Senator WALSH of Massachusetts. it was over 6 per cent.

But there were times when

General HINES. Yes; of co irse there was a time when the rates ran over 7 per cent. But as cuts were made, and the anniversary of the loan came around, we automatically reduced the interest rate. We reduced all to 6 per cent, first, and then-well, if rates were above that, when Congress passed the bill limiting it to 6 per cent, it was cut down to 6 per cent.