The Minnesota attorney general’s office Wednesday filed suit against two companies that required military veterans and senior citizens to sign over significant portions of their monthly pension payments in exchange for loans of relatively small sums, often to cover household emergencies and basic living expenses.
The loans often charged annual percentage rates of 200 percent and extended for as long as 10 years.
The companies issued the loans to veterans who receive pensions or disability benefits, and to senior citizens who have private sector pensions.
“A pension is supposed to provide financial security, and people should be very cautious about giving away their future pension benefits to get just pennies on the dollar in immediate cash,” Minnesota Attorney General Lori Swanson said in a statement.
The lawsuit was filed against Future Income Payments, of Delaware and FIP, of Nevada. It alleges that the companies violated state lending laws by issuing loans without a license.
The lawsuit, filed in Hennepin County District Court, alleges that the companies sought to evade state lending laws by falsely characterizing the transactions as “purchase agreements” of a pension, not a loan.
In the last two years, Colorado, California, Massachusetts, North Carolina, New York, Washington, Iowa, and Pennsylvania, and the Los Angeles City Attorney, have taken action against one or both companies for issuing unlawful loans, according to a news release.
Under Minnesota law, lenders must obtain a license from the Minnesota Department of Commerce before issuing loans in the state. The companies did not obtain such licenses, Swanson said.
Federal law prohibits a company from acquiring the right to receive a veteran’s military benefits or pension, but permits a veteran to use a military pension or benefits to repay a loan, as long as a preauthorized electronic fund transfer is used to make the payment.
Examples in the lawsuit include a 73-year-old disabled Vietnam veteran who borrowed $1,800 to take care of medical and other bills for his wife, who has stage four lung cancer. He was required to repay $14,400 — eight times what he borrowed.
In another case, a 72-year-old military widow borrowed $2,100 for emergency surgery for her dog and was required to repay $21,000 — 10 times what she borrowed. She must pay the company $350 monthly deductions from her late husband’s monthly VA benefits for five years, Swanson’s office said.
The company often solicited borrowers through its own websites or websites of “lead generators” who marketed “pension loans” or “loans that can fit your needs,” Swanson’s office said. The companies’ training materials encouraged sales agents to instill a “sense of urgency” and “fear of loss” that a loan may no longer be available if the borrower does not sign up immediately, her office said.