A-19296, AUGUST 9, 1927, 7 COMP. GEN. 98

A-19296: Aug 9, 1927

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WORLD WAR ADJUSTED COMPENSATION - LOANS TO VETERANS - INTEREST WHERE A NOTE EXECUTED BY A VETERAN AS EVIDENCE OF A LOAN MADE TO HIM BY A BANK ON THE BASIS OF HIS ADJUSTED-SERVICE CERTIFICATE PROVIDED THAT INTEREST WAS TO RUN "FROM MATURITY. " INQUIRY OF THE BANK IS REQUIRED TO ASCERTAIN THE ACTUAL AMOUNT RECEIVED BY THE VETERAN. SHOULD NOT BE QUESTIONED UNLESS OTHER EVIDENCE OF RECORD INDICATES THAT THE AFFIDAVIT IS FALSE OR FRAUDULENT OR WAS MADE UNDER A MISAPPREHENSION OF THE REQUIREMENTS OF LAW. WHILE THE LOAN VALUE OF THE ADJUSTED-SERVICE CERTIFICATE PRIOR TO THE DEATH OF THE VETERAN WAS $111.08. THE NOTE PRESENTED BY THE BANK FOR REDEMPTION IS IN THE AMOUNT OF $107.52. THE NOTE IS THEREBY VOIDED IN SO FAR AS THE GOVERNMENT IS CONCERNED.

A-19296, AUGUST 9, 1927, 7 COMP. GEN. 98

WORLD WAR ADJUSTED COMPENSATION - LOANS TO VETERANS - INTEREST WHERE A NOTE EXECUTED BY A VETERAN AS EVIDENCE OF A LOAN MADE TO HIM BY A BANK ON THE BASIS OF HIS ADJUSTED-SERVICE CERTIFICATE PROVIDED THAT INTEREST WAS TO RUN "FROM MATURITY," INQUIRY OF THE BANK IS REQUIRED TO ASCERTAIN THE ACTUAL AMOUNT RECEIVED BY THE VETERAN, IN ORDER TO DETERMINE THAT THE AMOUNT OF THE NOTE DID NOT INCLUDE INTEREST FOR THE LIFE OF THE NOTE IN EXCESS OF THAT AUTHORIZED BY THE STATUTE, AND ALSO TO DETERMINE ON WHAT AMOUNT THE GOVERNMENT SHOULD COMPUTE INTEREST FROM MATURITY TO THE DATE OF THE CHECK ISSUED TO THE BANK IN REDEEMING THE NOTE. STATEMENTS CONTAINED IN AFFIDAVITS OF BANK OFFICIALS THAT NO FEE OR OTHER COMPENSATION, EXCEPT INTEREST AT THE PROPER RATE, HAS BEEN CHARGED, SHOULD NOT BE QUESTIONED UNLESS OTHER EVIDENCE OF RECORD INDICATES THAT THE AFFIDAVIT IS FALSE OR FRAUDULENT OR WAS MADE UNDER A MISAPPREHENSION OF THE REQUIREMENTS OF LAW.

ACTING COMPTROLLER GENERAL GINN TO THE DIRECTOR, UNITED STATES VETERANS' BUREAU, AUGUST 9, 1927:

CONSIDERATION HAS BEEN GIVEN TO YOUR LETTER OF JULY 20, 1927, AS FOLLOWS:

UNDER DATE OF JANUARY 8, 1927, THE FIRST NATIONAL BANK OF LINTON,INDIANA, MADE A LOAN TO JOE LOGSDON (DECEASED), XC-678425, ON HIS ADJUSTED-SERVICE CERTIFICATE AS SECURITY, AND WHILE THE LOAN VALUE OF THE ADJUSTED-SERVICE CERTIFICATE PRIOR TO THE DEATH OF THE VETERAN WAS $111.08, THE NOTE PRESENTED BY THE BANK FOR REDEMPTION IS IN THE AMOUNT OF $107.52, WITH INTEREST AT THE RATE OF 6 PERCENT PER ANNUM "FROM MATURITY," MAKING IT APPEAR THAT THE BANK DISCOUNTED THE VETERAN'S NOTE OR COLLECTED INTEREST IN ADVANCE.

IN YOUR DECISION DATED FEBRUARY 23, 1927 (A-17406), IN ANSWER TO QUESTION FIVE, YOU STATED THAT "SUCH DISCOUNTS IN ADVANCE WOULD AMOUNT TO AN INDIRECT METHOD OF INCREASING THE LEGAL RATE OF INTEREST NOT AUTHORIZED OR SANCTIONED BY THE STATUTE," AND IN YOUR DECISION OF MARCH 16, 1927 (A- 17406-RECONSIDERATION), IN ANSWER TO QUESTION FOUR, YOU HELD THAT WHERE THE RATE OF INTEREST CHARGED EXCEEDS THE RATE SPECIFIED IN THE ACT, THE NOTE IS THEREBY VOIDED IN SO FAR AS THE GOVERNMENT IS CONCERNED.

THERE ARE ATTACHED PHOTOSTATS OF THE NOTE AND AFFIDAVIT SUBMITTED BY THE BANK IN THE ABOVE CASE, AND YOUR DECISION IS REQUESTED AS TO WHETHER THIS BUREAU SHOULD REDEEM SUCH NOTE WITHOUT QUESTION OR SHOULD INQUIRE OF THE BANK THE AMOUNT OF CASH ACTUALLY TURNED OVER TO THE VETERAN ON THE LOAN, THE AMOUNT OF INTEREST CHARGED THE VETERAN, AND THE DATE OF PAYMENT OF SUCH INTEREST, FOR THE PURPOSE OF DETERMINING WHETHER OR NOT THE LEGAL RATE OF INTEREST WAS EXCEEDED. IN THIS CONNECTION YOUR ATTENTION IS INVITED TO THE FORM OF PROMISSORY NOTE EXECUTED IN THIS CASE, WHICH IS DIFFERENT FROM THE FORM OF NOTE APPEARING ON U.S. VETERANS' BUREAU FORM 6615, AND WHICH APPEARS TO BE THE CUSTOMARY FORM OF NOTE IN COMMERCIAL USE WHEN ACCOMPANIED BY COLLATERAL SECURITY.

YOUR DECISION IS ALSO REQUESTED AS TO WHETHER OR NOT THE BUREAU SHOULD ACCEPT NOTES PRESENTED BY BANKS FOR REDEMPTION WHERE ADJUSTED SERVICE CERTIFICATES HAVE BEEN GIVEN AS SECURITY PURELY ON THE BASIS OF THE AFFIDAVIT STATING THAT NO FEE OR OTHER COMPENSATION, ETC., EXCEPT INTEREST AT THE PROPER RATE HAS BEEN CHARGED, WHEN THE TERMS EXPRESSED IN THE NOTES DO NOT CONFORM TO THE AFFIDAVITS OR THE FULL TERMS OF THE LOAN ARE NOT EXPRESSED IN THE NOTE ITSELF OR OTHERWISE. INASMUCH AS THE BANKS IN THE MAJORITY OF CASES MADE LOANS ON ADJUSTED SERVICE CERTIFICATES PRIMARILY FOR THE PURPOSE OF ASSISTING VETERANS AND WITHOUT ANY EXPECTATION OF UNUSUALLY PROFITABLE REMUNERATION, I FEEL THAT YOU WILL AGREE WITH ME THAT THE GOVERNMENT SHOULD BE AS LIBERAL AS POSSIBLE IN INTERPRETING THE PROVISIONS OF THE LAW WITH THE VIEW TO REIMBURSING BANKS WHICH MADE LOANS IN GOOD FAITH AND SHOULD REFRAIN FROM RESORTING TO MERE TECHNICALITIES AS GROUNDS FOR REFUSING TO REDEEM LOANS SO MADE.

ANSWER 5 IN DECISIONS OF FEBRUARY 23, 1927, 6 COMP. GEN. 546, 549, AND MARCH 16, 1927, 6 ID. 579, 581, TO WHICH YOU REFER, HOLDING THAT COLLECTION OF INTEREST BY A BANK IN ADVANCE ON A VETERAN'S NOTE WAS NOT AUTHORIZED UNDER THE STATUTE, WAS PREDICATED ON THE CONDITION STATED IN THE QUESTION SUBMITTED, VIZ,"WHERE SUCH ACTION RESULTS IN BRINGING THE ACTUAL INTEREST RATE IN EXCESS OF THE MAXIMUM," FOLLOWED BY AN ILLUSTRATION, ON THE BASIS THAT THE EXCESS INTEREST WAS EQUIVALENT TO THE COLLECTION OF "OTHER COMPENSATION" WITHIN THE MEANING OF THE PROHIBITION IN SECTION 502 (H) OF THE STATUTE.

THE PRESENT NOTE MADE BY JOE LOGSDON DOES NOT SHOW NECESSARILY THAT THE BANK COLLECTED IN ADVANCE AN AMOUNT OF INTEREST WHICH WOULD BRING THE ACTUAL INTEREST RATE IN EXCESS OF THE MAXIMUM. THE FACT THAT INTEREST WAS TO RUN ONLY "FROM MATURITY" WOULD SEEM TO INDICATE THAT EITHER THE AMOUNT OF $107.52 WAS NOT THE AMOUNT ACTUALLY RECEIVED BY THE VETERAN, OR THAT THE BANK, ACTING ON THE ERRONEOUS ASSUMPTION THAT $111.08, THE LOAN VALUE OF THE CERTIFICATE, WAS THE TOTAL AMOUNT THAT COULD BE COLLECTED FROM THE VETERAN AT DATE OF MATURITY OF THE NOTE, DEDUCTED INTEREST IN ADVANCE ON THAT AMOUNT. IF THE FORMER--- THAT IS, IF THE AMOUNT OF $107.52 INCLUDES INTEREST DURING THE LIFE OF THE NOTE--- THE GOVERNMENT SHOULD KNOW THE CORRECT AMOUNT ACTUALLY RECEIVED BY THE VETERAN IN ORDER TO COMPUTE INTEREST THEREON FROM MATURITY UNDER SECTION 502 (C) OF THE STATUTE, AS INTEREST UNDER THAT SECTION FROM MATURITY UP TO THE DATE OF THE CHECK ISSUED TO THE BANK SHOULD NOT BE COMPUTED ON INTEREST CHARGED THE VETERAN BY THE BANK DURING THE LIFE OF THE NOTE. IF THE LATTER, THE GOVERNMENT SHOULD KNOW THAT FACT AND THE ACTUAL AMOUNT RECEIVED BY THE VETERAN IN ORDER TO DETERMINE WHETHER EXCESS INTEREST WAS CHARGED OR COLLECTED. COURSE, IT MAY BE THAT THE BANK ACTUALLY CHARGED NO INTEREST DURING THE LIFE OF THE NOTE, IN WHICH EVENT THE NOTE SHOULD BE REDEEMED. BUT IN VIEW OF THE DOUBT IN THE MATTER THE NOTE SHOULD NOT BE REDEEMED WITHOUT FURTHER INVESTIGATION AND THE BANK SHOULD BE ADVISED OF THE REQUIREMENTS OF LAW WITH REGARD TO THE RATE OF INTEREST AUTHORIZED.

WITH REFERENCE TO YOUR QUESTION AS TO THE ACCEPTANCE OF THE AFFIDAVIT SUBMITTED BY THE BANK, I HAVE TO ADVISE THAT THE STATEMENTS CONTAINED IN SUCH AFFIDAVITS SHOULD BE QUESTIONED ONLY WHERE OTHER EVIDENCE OF RECORD INDICATES THAT THE AFFIDAVIT IS FALSE OR FRAUDULENT OR MADE UNDER A MISAPPREHENSION OF THE REQUIREMENTS OF LAW. IN SUCH CASES THE NOTE SHOULD NOT BE REDEEMED UNLESS AND UNTIL FURTHER INVESTIGATION PROVES THE AFFIDAVIT TO BE TRUE AND THAT AS A MATTER OF FACT THE BANK DID NOT ACTUALLY CHARGE OR COLLECT A FEE OR OTHER COMPENSATION FOR THE LOAN. TRIVIAL MATTERS OF FORM, INCONSEQUENTIAL ERRORS OR OMISSIONS, OR TECHNICALITIES SHOULD NOT BE CONSIDERED SUFFICIENT TO DENY THE BANK'S CLAIM.

THE NOTE MADE BY JOE LOGSDON SHOULD NOT BE REDEEMED UNTIL FURTHER INVESTIGATION HAS BEEN MADE AS ABOVE INDICATED.