Jesus died for your sins and William Steinsmith, MD, reads the New York Times so you don’t have to. He signs his emails “bbhaywood” in homage to William “Big Bill” Haywood, leader of the Wobblies —the International Workers of the World— whose goal was “one big union.” We agree with Big Bill that one big union is the practical answer to our world of unfairness and pain, and we appreciate Dr. Steinsmith’s clipping service. His comment in boldface precedes the Times piece he’s sharing.

This semi-privatization of V.A. services is one of many examples of entrepreneurial capitalist leaching of government transfer payments to the needy… whether pretended or authentic. The laboriously bureaucratic process of medical qualification for a Social Security disability pension has spawned juicy rackets whose mission is solicitation and facilitation of applications. — bbhaywood

With every slip and fall, every bruise and ache, the reality set in: Henry Schaffer, 86, could no longer live on his own. So his daughter, Kristi, began searching for a retirement home — and the money to pay for it.

At Aspen View, a senior living complex in Billings, Mont., a lawyer accredited by the Department of Veterans Affairs delivered what seemed like good news: Mr. Schaffer, a World War II veteran, could probably qualify for a generous V.A. benefit. For a few thousand dollars, the man would help veterans like Mr. Schaffer get one.

“My dad kept on asking me, ‘Don’t you think this is too good to be true?’ ” Ms. Schaffer recalled. To assure him, she pointed to the lawyer’s V.A. credentials.

It was only after Mr. Schaffer had moved in that they learned the truth: He did not qualify at all. Ms. Schaffer says her father now worries that he will be evicted. He can afford only about half of his monthly bill.

The benefit, known as the Veterans Pension program, can be worth more than $20,000 a year to war veterans who are disabled or over age 65. But it is open only to those with an annual income of less than $12,465 for a veteran with no dependents — and Mr. Schaffer collects more than that in Social Security.

More money is available for veterans who are unable to cook or bathe on their own, but Mr. Schaffer, while he needs some help, didn’t qualify for that, either.

As baby boomers head toward retirement — worrying not only about their financial futures, but also their parents’ — a cottage industry has sprung up around the pension program.

Lawyers, financial advisers and insurance brokers have formed a lucrative alliance with retirement communities and assisted living facilities to extract many billions of taxpayer dollars from the V.A., according to interviews with state and federal authorities, as well as a review by The New York Times of hundreds of legal documents and client contracts.

Questionable actors are capitalizing on loose oversight to unlock the V.A. money and enrich themselves, sometimes at veterans’ expense. The V.A. accreditation process is so lax that applicants provide their own background information, including any criminal records. But the V.A. has only four full-time employees evaluating the approximately 5,000 applications that it receives annually. Once people get the V.A.’s stamp of approval, they rarely lose it, even if a customer complains or regulatory actions mount. Last year, the V.A. revoked its accreditation for two of its more than 20,000 advisers.

Some advisers sell financial products like annuities and trusts that are meant to mask veterans’ assets or income — arrangements can tie up family money for years or even decades. Others circumvent V.A. rules and charge hundreds or even thousands of dollars for advice that may — or may not — help veterans qualify. Still others offer to train lawyers and advisers about the workings of the V.A.

Echoes of Past Cases

The development recalls the array of questionable business practices involving seniors and Medicaid. Indeed, many of the firms that zeroed in on those programs in the past have recast themselves as V.A. specialists. More than 200 firms nationwide now focus on V.A. retirement benefits, according to the Government Accountability Office.

The V.A. accreditation allows someone to prepare benefits applications on veterans’ behalf. In theory, federal rules ban these advisers from charging for that service. In practice, elder-care lawyers say, many get around the rules, win veterans’ trust and then pitch costly products and services.

“The agency needs to take a closer look at who they are accrediting,” said Daniel Bertoni, the director of disability issues at the Government Accountability Office, which issued a critical report on the V.A. in August. “It gives the air of a stamp of approval from the agency that has been paying their checks for many years.”

Randal Noller, a V.A. spokesman, said the agency planned to review advisers’ training materials and perform more robust background checks “as necessary.”

“We realize there are some areas in the program that we could improve to ensure that individuals who obtain and maintain V.A. accreditation are qualified,” Mr. Noller said.

And based on the accountability office’s recommendations, the V.A., Mr. Noller said, has already begun enacting fixes to its program. Among them, the V.A. will more robustly verify seniors’ financial information and change applications to spot veterans who have disguised their assets in order to qualify.

For the advisers and retirement homes, the attractions are clear. The V.A. program paid $5.1 billion to 514,000 veterans or their survivors this year, up from $3.4 billion in 2007, according to the Department of Veterans Affairs. The number of veterans or their spouses receiving the aid and attendance benefits, the stipend for assisted living, has surged by 30 percent — leaping to 206,000 in 2012, from 158,000 in 2006.

Holding out the prospect of the V.A. benefit can mean the difference between a vacancy and a paying customer — an advantage that V.A. specialists trumpet in advertisements. “Recession proof your law practice,” Academy of VA Pension Planners, of Roswell, Ga., says on its website.

Yet some warn that the V.A. program, which is meant to help the poorest veterans, will be strained as a growing number of seniors are steered toward it.

Without changes, the program is a “magnet for rip-offs and waste,” Senator Ron Wyden, Democrat of Oregon, said during a hearing convened last year by the Senate’s Special Committee on Aging.

The goal is often to coax seniors like Mr. Schaffer into paying for services or investments and, in the process, signing contracts that lock them into long-term living arrangements, according to elder-care lawyers and interviews with more than three dozen veterans. The veterans spoke on the condition that they not be named because they did not want their financial problems made public.

While many veterans — technically eligible or not — secure the benefit, others do not. And if a benefit fails to materialize, the financial consequences can be catastrophic.

“When I die, I am going to be buried as a pauper,” said Harvey Schneider, 78. Mr. Schneider, a Korean War veteran, said he moved to Windlands South, a senior complex in Nashville, after being told that he would qualify for the V.A. benefit. He did not, and now owes more than $17,000 to Holiday Retirement, the national chain that operates Windlands South and 300 other complexes around the country, including Aspen View.

Holiday Retirement, which is controlled by a large private investment company, says it no longer allows veterans specialists to host benefit seminars at its facilities.

“Holiday has a longstanding commitment to honoring and supporting veterans,” said Jamison Gosselin, Holiday’s vice president for marketing. He said that Holiday, which is “home to more than 120,000 veterans and surviving spouses,” donated $1.2 million to an Outward Bound veterans program last year, with another $1.2 million pledged this year.

Finding a Home

At Aspen View, rent runs about $2,800 a month, excluding extras. That put Aspen View out of reach for Mr. Schaffer, who receives about $1,600 a month in Social Security, his daughter, Kristi, said.

But in early 2011, Douglas Ocker stood in the facility’s airy dining room wearing a Hawaiian shirt and explained to the Schaffers and other prospective residents how they might afford a place like Aspen View: the V.A. benefit. Mr. Ocker, a lawyer in Corpus Christi, Tex., often charges nearly $4,000 for his services, according to a review of client contracts.

While Ms. Schaffer acknowledges that Mr. Ocker gave no assurances that her father would qualify, she said his accreditation by the V.A. swayed the family to let her father move in. She said her father blamed her for his financial straits; the two are not on speaking terms. Mr. Schaffer declined to comment for this article.

“I don’t fall for this kind of thing,” Ms. Schaffer said. But of Mr. Ocker she said: “he was blessed by the department,” meaning the V.A.

Mr. Ocker did not return telephone calls and emails seeking comment.

Banking on a Benefit

Across the country, state officials say, there are hundreds of veterans just like Mr. Schaffer — older Americans vulnerable to financial players who hold out the V.A. benefit as an answer to myriad economic worries.

Many firms seem to promise that they will secure benefits for people whose income would otherwise make them ineligible, state authorities say. Many of the financial products they pitch fall into a gray area in the Veterans Pension program.

Under the current rules, the V.A. does not have the explicit authority to reject veterans who transfer or disguise assets before applying. By contrast, Medicaid and other federal programs aimed at helping the poorest Americans have a so-called look-back provision to guard against such financial sleight of hand. Transferring assets to qualify for V.A. benefits, while technically legal, can choke off Medicaid and other supports seniors might need, financial planners warn. For its part, the department says it supports legislation that would enact a look-back provision.

“Nationwide, there should be widespread alarm that a growing number of veterans are being scammed and manipulated,” said Terry Schow, who retired as the director of the Utah Department of Veterans Affairs earlier this year.

Many of the supposedly asset-shielding maneuvers make little sense for seniors. In some cases, people in their 70s or 80s can lock up money in trusts or annuities for 20 years or more. If they die, the assets remain out of reach to their spouses and families.

Other firms profit by charging hefty fees. One Nashville law firm charges a “pre-filing consultation fee” of about $700. Mr. Ocker, the Texas lawyer, charged one client $3,247 in legal fees, according to a copy of a contract which said, “filing of the application with V.A. office (no charge).” Others charge a percentage of any monthly pension benefit that a veteran receives, according to copies of confidential customer contracts reviewed by The Times.

Every veteran that can qualify for a benefit represents another potential customer for retirement communities, a fact V.A. benefit specialists emphasize in marketing materials.

On its website, Veterans Financial, of Villanova, Pa., says that “free educational workshops” can be a critical element to “increase and maintain resident census.”

Emphasizing its success, the company says: “we have had more than 40,000 attendees at our workshops throughout the United States.” The Academy of VA Pension Planners, the Georgia firm, puts it more bluntly: “The financial benefit to your potential clients and residents helps your facility keep occupancy near or at 100 percent.”

The firms did not respond to requests for comment.

Holiday Retirement, the owner of Aspen View and Windlands South, has received complaints about its practices. In August, three elderly war veterans sued the company in Oregon state court, accusing Holiday of misleading them about the pension “as part of a scheme to increase occupancy rates and rental income.”

The suit, which is pending, claims the veterans learned that they would not qualify only after they moved in. In September, Holiday Retirement agreed to pay up to $3,500 to 163 veterans after Oregon accused the company of misleading the veterans about the pension benefit.

Empty Promises

Back in Nashville, Mr. Schneider said he had lost almost everything.

He said he was assured by a Holiday representative that he would quality for the V.A. benefit, prompting him to leave his trailer home in Florida and move to Tennessee, where he has family. His share of his first month’s rent, for January 2012, was $875, according to a copy of his contract. Mr. Schneider said he was assured that his contribution would shrink to approximately $40 a month once his V.A. benefit kicked in.

It never did.

“We denied your claim for pension benefits,” the V.A. informed Mr. Schneider in a letter dated Oct. 12, 2012. Mr. Schneider has since moved out of Windlands South. He is living alone in a small apartment.

“They did me wrong,” he said, “after everything I tried to do for my country.”

NY TIMES  April 27, 2013

<nyt_headline version=”1.0″ type=” “>Loans Borrowed Against Pensions Squeeze Retirees





To retirees, the offers can sound like the answer to every money worry: convert tomorrow’s pension checks into today’s hard cash.

But these offers, known as pension advances, are having devastating financial consequences for a growing number of older Americans, threatening their retirement savings and plunging them further into debt. The advances, federal and state authorities say, are not advances at all, but carefully disguised loans that require borrowers to sign over all or part of their monthly pension checks. They carry interest rates that are often many times higher than those on credit cards.

In lean economic times, people with public pensions — military veterans, teachers, firefighters, police officers and others — are being courted particularly aggressively by pension-advance companies, which operate largely outside of state and federal banking regulations, but are now drawing scrutiny from Congress and the Consumer Financial Protection Bureau.

The pitches come mostly via the Web or ads in local circulars.

“Convert your pension into CASH,” LumpSum Pension Advance, of Irvine, Calif., says on its Web site. “Banks are hiding,” says Pension Funding L.L.C., of Huntington Beach, Calif., on its Web site, signaling the paucity of credit. “But you do have your pension benefits.”

Another ad on that Web site is directed at military veterans: “You’ve put your life on the line for Americans to protect our way of life. You deserve to do something important for yourself.”

A review by The New York Times of more than two dozen contracts for pension-based loans found that after factoring in various fees, the effective interest rates ranged from 27 percent to 106 percent — information not disclosed in the ads or in the contracts themselves. Furthermore, to qualify for one of the loans, borrowers are sometimes required to take out a life insurance policy that names the lender as the sole beneficiary.

LumpSum Pension Advance and Pension Funding did not return calls and e-mails for comment.

While it is difficult to say precisely how many financially struggling people have taken out pension loans, legal aid offices in Arizona, California, Florida and New York say they have recently encountered a surge in complaints from retirees who have run into trouble with the loans.

Ronald E. Govan, a Marine Corps veteran in Snellville, Ga., paid an interest rate of more than 36 percent on a pension-based loan. He said he was enraged that veterans were being targeted by the firm, Pensions, Annuities & Settlements, which did not return calls for comment.

“I served for this country,” said Mr. Govan, a Vietnam veteran, “and this is what I get in return.”

The allure of borrowing against pensions underscores an abrupt reversal in the financial fortunes of many retirees in recent years, as well as the efforts by a number of financial firms, including payday lenders and debt collectors, to market directly to them.

The pension-advance firms geared up before the financial crisis to woo a vast and wealthy generation of Americans heading for retirement. Before the housing bust and recession forced many people to defer retirement and to run up debt, lenders marketed the pension-based loan largely to military members as a risk-free option for older Americans looking to take a dream vacation or even buy a yacht. “Splurge,” one advertisement in 2004 suggested.

Now, pension-advance firms are repositioning themselves to appeal to people in and out of the military who need cash to cover basic living expenses, according to interviews with borrowers, lawyers, regulators and advocates for the elderly.

“The cost of these pension transactions can be astronomically high,” said Stuart Rossman, a lawyer with the National Consumer Law Center, an advocacy group that works on issues of economic justice for low-income people.

“But there is profit to be made on older Americans’ financial pain.”

The oldest members of the baby boom generation became eligible for Social Security during the recent housing bust and recession, and many nearing retirement age watched their investments plummet in value. Some are now sliding deep into debt to make ends meet.

The pitches for pension loans emphasize how difficult it can be for retirees with scant savings and checkered credit histories to borrow money, especially because banks typically do not count pension income when considering loan applications.

“The result often leaves retired pensioners viewed like other unqualified borrowers,” one of the lenders, DFR Pension Funding, says on its Web site. That, the firm says, “can make the ‘golden years’ not so golden.”

The combined debt of Americans from the ages of 65 to 74 is rising faster than that of any other age group, according to data from the Federal Reserve. For households led by people 65 and older, median debt levels have surged more than 50 percent, rising from $12,000 in 2000 to $26,000 in 2011, according to the latest data available from the Census Bureau.

While American adults of all ages ran up debt in good times, older Americans today are shouldering unusually heavy burdens. According to a 2012 study by Demos, a liberal-leaning public policy organization, households headed by people 50 and older have an average balance of more than $8,000 on their credit cards.

Meanwhile, households headed by people age 75 and older devoted 7.1 percent of their total income to debt payments in 2010, up from 4.5 percent in 2007, according to the Employee Benefit Research Institute.

Financial products like pension advances, which promise quick cash, appear especially enticing because their long-term costs are largely hidden from the borrowers.

Federal and state regulators are spotting fresh examples of abuse, and both the Consumer Financial Protection Bureau and the Senate’s Committee on Health, Education, Labor and Pensions are examining these loans, according to people with knowledge of the matter.

Though the firms are not directly regulated by states, officials from the California Department of Corporations, the state’s top financial services regulator, filed a desist-and-refrain order against a pension-advance firm in 2011 for failing to disclose critical information to investors.

That firm has since filed for bankruptcy, but a department spokesman said it remained watchful of pension-advance products.

“As the state regulator charged with protecting investors, we are aware of this type of offer and are very concerned with the companies that abuse it to defraud people,” said the spokesman, Mark Leyes.

Borrowing against pensions can help some retirees, elder-care lawyers say. But, like payday loans, which are commonly aimed at lower-income borrowers, pension loans can turn ruinous for people who are already financially vulnerable, because of the loans’ high costs.

Some of the concern on abuse focuses on service members. Last year, more than 2.1 million military retirees received pensions, along with roughly 2.6 million federal employees, according to the Congressional Budget Office.

Lawyers for service members argue that pension lending flouts federal laws that restrict how military pensions can be used.

Mr. Govan, the retired Marine, considered himself a credit “outcast” after his credit score was battered by a foreclosure in 2008 and a personal bankruptcy in 2010.

Unable to get a bank loan or credit card to supplement his pension income, Mr. Govan, now 59, applied for a payday loan online to pay for repairs to his truck.

Days later, he received a solicitation by e-mail from Pensions, Annuities & Settlements, based in Wilmington, Del.

Mr. Govan said the offer of quick, seemingly easy cash sounded too good to refuse. He said he agreed to sign over $353 a month of his $1,033 monthly disability pension for five years in exchange for $10,000 in cash up front. Those terms, including fees and finance charges, work out to an effective annual interest rate of more than 36 percent. After Mr. Govan belatedly did the math, he was shocked.

“It’s just wrong,” said Mr. Govan, who filed a federal lawsuit in February that raises questions about the costs of the loan.

Pitches to military members must sidestep a federal law that prevents veterans from automatically turning over pension payments to third parties. Pension-advance firms encourage veterans to establish separate bank accounts controlled by the firms where pension payments are deposited first and then sent to the lenders. Lawyers for retirees have challenged the pension-advance firms in courts across the United States, claiming that they illegally seize military members’ pensions and violate state limits on interest rates.

To circumvent state usury laws that cap loan rates, some pension advance firms insist their products are advances, not loans, according to the firms’ Web sites and federal and state lawsuits. On its Web site, Pension Funding asks, “Is this a loan against my pension?” The answer, it says, is no. “It is an advance, not a loan,” the site says.

The advance firms have evolved from a range of different lenders; some made loans against class-action settlements, while others were subprime lenders that made installment and other short-term loans.

The bankrupt firm in California, Structured Investments, has been dogged by legal challenges virtually from the start. The firm was founded in 1996 by Ronald P. Steinberg and Steven P. Covey, an Army veteran who had been convicted of felony bank fraud in 1994, according to court records.

To attract investors, the firm promised an 8 percent return and “an opportunity to own a cash stream of payments generated from U.S. military service persons,” according to the California Department of Corporations. Mr. Covey, according to company registration records, is also associated with Pension Funding L.L.C. Neither Mr. Covey nor Mr. Steinberg returned calls for comment. In 2011, a California judge ordered Structured Investments to pay $2.9 million to 61 veterans who had filed a class action.

But the veterans, among them Daryl Henry, retired Navy disbursing clerk, first class, in Laurel, Md., who received a $42,131 pension loan at a rate of 26.8 percent, have not received any relief.

Robert Bramson, a lawyer who represented Mr. Henry in the class-action lawsuit, said that pensioners too often failed to contemplate the long-term costs of the advances.

“It’s simply a terrible deal,” he said.




NY TIMES  June 10, 2013

<nyt_headline version=”1.0″ type=” “>Banks Seen as Aid in Fraud Against Older Consumers





The pitch arrived, as so many do, with a friendly cold call.

Bruno Koch, 83, told the telemarketer on the line that, yes, of course he would like to update his health insurance card. Then Mr. Koch, of Newport News, Va., slipped up: he divulged his bank account information.

What happened next is all too familiar. Money was withdrawn from Mr. Koch’s account for something that he now says he never authorized. The new health insurance card never arrived.

What is less familiar — and what federal authorities say occurs with alarming frequency — is that a reputable bank played a crucial role in parting Mr. Koch from his money. The bank was the 140-year-old Zions Bank of Salt Lake City. Despite spotting suspicious activity, Zions served as a gateway between dubious Internet merchants and their marks — and made money for itself in the process, according to newly unsealed court documents reviewed by The New York Times.

The Times reviewed hundreds of filings in connection with civil lawsuits brought by federal authorities and a consumer law firm against Zions and another regional bank that has drawn even more scrutiny, First Bank of Delaware. Last November, First Delaware reached a $15 million settlement with the Justice Department after the bank was accused of allowing merchants to illegally debit accounts more than two million times and siphon more than $100 million.

The documents, as well as interviews with state and federal officials, paint a troubling picture. They outline how banks profit handsomely by collecting fees while ignoring warnings of potential fraud and, in some instances, enabling dubious merchants to prey on consumers.

Anyone, young or old, can be targeted by unscrupulous marketers. But for several reasons — financial worries, age, loneliness — older people are particularly vulnerable to what is known as mass market fraud, deceptive pitches that arrive by telephone, mail and the Internet.

The problems at Zions and First Delaware, where the banks became financial conduits and quiet enablers for questionable businesses, extend well beyond those two institutions, federal authorities say. Indeed, banks across the country, from some of the largest to smaller regional players, help facilitate billions of dollars of fraud each year, according to interviews with consumer lawyers and state and federal prosecutors.

Officials at the Justice Department say they are taking aim at banks’ role in giving predatory lenders and fraudulent merchants access to the United States financial system. The department is considering civil and criminal actions against a number of banks for allowing tainted money to flow through branches, for failing to safeguard against suspicious merchants, and for originating transactions on behalf of businesses that they know make unauthorized withdrawals from customer accounts, according to people with direct knowledge of the matter.

“You can’t close your eyes anymore to the fraud that you are allowing to happen,” said Michael Blume, the director of the consumer protection branch at the Justice Department. “Banks are in business to make a profit. Unfortunately, this is a moneymaking operation at consumers’ expense.”

Zions did not interact directly with the company that called Mr. Koch, National Health Net Online. What the bank did was establish a banking relationship with an intermediary, Modern Payments, that handled payments for National Health. Mr. Koch’s account at a small Virginia bank was debited by National Health, which in turn paid Modern Payments for processing the transaction. Modern Payments gave its bank, Zions, a cut of its fee.

In all, Zions in effect let roughly $39 million be withdrawn from hundreds of thousands of accounts from 2007 to 2009. Much of that money was ultimately transferred to bank accounts in Canada, India and the Caribbean, according to a Times review of court records. Many of the Internet merchants’ customers were older people and others on shaky financial footing. But that, too, worked in banks’ favor: the withdrawals set off a cascade of insufficient fund fees — more than $20 million in all, court records show.

“Zions takes seriously the need to prevent the banking system being used for fraudulent purposes; however, it is our general policy not to comment on pending legal matters,” said James R. Abbott, director of investor relations for Zions. “There is another side to this story, other than that told by the plaintiff. Our side of the story will be told at the appropriate time through the legal system.”

A spokesman for First Delaware declined to comment. Neither National Health Net Online nor Modern Payments responded to e-mails and telephone messages.

Mr. Koch, a retired teacher, said that he was usually skeptical of telemarketers. But when his phone rang one afternoon in November 2007, he recalled, he listened as the caller identified himself as a Medicare official and suggested that Mr. Koch update his health insurance card. Mr. Koch, as requested, supplied his bank information.

But instead of a new insurance card he received notice that he had been enrolled in National Health Net Online’s discount health plan. The company had withdrawn $299.95 from his bank account as payment, according to records reviewed by The Times.

National Health, a unit of NHS Systems Inc. of Collegeville, Pa., has a troubled history. In April, the Federal Trade Commission permanently banned the company from telemarketing and ordered it to pay a $6.9 million fine after accusing NHS Systems of defrauding consumers. NHS Systems did not return multiple telephone calls seeking comment.

“I was so angry,” Mr. Koch recalled. He demanded a refund from NHS Systems but was not reimbursed.

Between 2007 and 2009, tens of thousands of Americans, many of them over age 65, lodged complaints with state attorneys general, banking regulators and the F.T.C., requesting refunds for bank charges that they say were unauthorized, according to court records.

Lawyers at Langer, Grogan & Diver sued Zions, representing several hundred thousand consumers who said that NHS Systems and other telemarketers took money from their accounts without authorization. The lawsuit, which is pending in a federal court in Pennsylvania, claims that Zions effectively gave “fraudulent marketers direct access to every bank account in the United States.”

According to internal e-mails and other documents filed in connection with that suit, Zions bankers recognized something was amiss early on. An outsize number of customers were disputing payments to certain processors. The rates of return — that is, the percentage of payments that are returned for insufficient funds and lack of authorization — stood out. “WOW,” one Zions officer wrote in an e-mail after seeing the numbers.

Others inside Zions raised alarms, too. Zions executives told colleagues that the high return rates were a troubling sign. In January 2007, one warned that the rates were “staggering.” In 2007, more than half of the payments that one Internet merchant was routing through Zions were bounced back — roughly 40 times the industry standard.

Reviewing complaints about one Internet merchant, a Zions vice president wrote, “Every red flag possible went off in my head.”

And yet the bank kept handling the transactions, court records show. Why? One payment processor executive suggested an answer: the business was a gold mine.

“Turning them off and sending them somewhere else is not an option,” this executive told Zions in an e-mail in September 2007.

Officials at the F.T.C., the Justice Department, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation say this is just the tip of the iceberg, according to people with knowledge of the matter.

In a move that prosecutors say is a harbinger, the United States attorney in Philadelphia sued the First Bank of Delaware in November, claiming the bank effectively abetted “fraudulent Internet and telemarketer merchants,” court records show. The bank, the lawsuit claims, stayed “willfully blind” to the fact that the merchants were illegally taking money from customers, including a disproportionate number of seniors, through “fraud, trickery and deceit.”

Like Zions, First Delaware dealt with intermediaries rather than directly with the merchants.

But as Zane David Memeger, the United States attorney in Philadelphia, said in the lawsuit against First Delaware, bad actors “must access the banking system to gain access to the consumer’s money.”

At First Delaware, return rates for some merchants exceeded 80 percent. Yet the more questionable the merchant, the more fees a bank stands to collect, prosecutors say. Every time victims flag an unauthorized charge and demand money back, banks collect fees to process the return. Those fees are far larger, according to banking documents, than the ones charged for processing the original transactions.

First Bank of Delaware anticipated that revenue from its processing business would swell by more than 1,300 percent, from $150,000 in 2010 to roughly $2 million a year later, court records show.

Bradly D. Swartz, of Meshoppen, Pa., learned firsthand how much such practices can cost consumers. Mr. Swartz, 59, was trying to stretch his retirement savings when a telemarketer called in 2007 with what sounded like good news: Mr. Swartz had won a prize. All he had to do to collect was fill out a money order.

Then, starting in 2007, Mr. Swartz said, a subsidiary of NHS Systems — the same company that Mr. Koch had dealt with — started withdrawing $19.95 a month from his checking account. After emptying the account, National Health referred him to a debt collector, Mr. Swartz said.

Mr. Swartz said his credit was ruined. He now works part time at Walmart to supplement his savings.

“I have to work until the day I die, and these greedy banks just profit,” he said.

Federal officials say banks not only must know their customers, but also their customers’ customers in order to ensure that consumers in general, and older Americans in particular, are not at risk. The First Delaware case, they say, is a warning to the industry.

“Nothing sharpens the focus for banks like an enforcement action,” said Michael Bresnick, the director of President Obama’s Financial Fraud Enforcement unit.