On August 16, Minnesota Attorney General Lori Swanson announced the filing of a lawsuit against two pension advance companies alleged to have preyed on veterans and senior citizens, convincing borrowers into signing over large portions of their monthly pensions in exchange for small loans to cover household emergencies and basic living expenses.
The suit, filed in Minnesota state court, claims Delaware-based Future Income Payments, LLC and Nevada-based FIP, LLC violated Minnesota lending laws by issuing loans without being licensed lenders and seeking to evade state lending laws by falsely characterizing the transactions as "purchase agreements" for pensions, rather than as loans. The companies charged annual percentage interest rates of over 200% and required borrowers to surrender payments for up to ten years.
The lawsuit includes the following examples of the companies' alleged predatory practices:
- A 73-year-old disabled Vietnam veteran whose wife has stage four lung cancer borrowed $1,800 to take care of medical and other bills and was required to repay $14,400—eight times the borrowed amount. The veteran must pay the company $300 from his monthly VA benefits for four years, at a 199.9% APR.
- A 72-year-old military widow borrowed $2,100 for emergency surgery for her dog and was required to repay $21,000—ten times what she borrowed. She must pay the company $350 monthly deductions from her late husband's monthly VA benefits for five years, at a 200% APR.
- A 63-year-old with psoriatic arthritis borrowed $4,000 to pay off bills and was required to repay $24,600—six times what she borrowed—through $410 monthly deductions from her pension for five years, at an APR of 122.6%.
"These companies had veterans and seniors sign over significant portions of their monthly pensions and benefits for years to come in exchange for much smaller immediate cash payments to cover basic living costs, medical bills, and household emergencies," Swanson stated. She went on to say, "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. Borrowers' finances can become even tighter down the road if they relinquish their future monthly pension payments."
One of the defendants, FIP, holds itself out as "America's largest pension cash-flow originator, with over 100 million dollars in completed transactions." FIP solicited borrowers through its own websites or websites of "lead generators" who marketed "pension loans" or "loans that can fit your needs." 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 did not sign up immediately.
In the Minnesota case, state law required the companies to obtain licenses from the Minnesota Department of Commerce before issuing loans in the state, but neither company obtained such licenses. The suit alleges the companies attempted to evade Minnesota's lending law by claiming their products were "purchases" rather than loans.
Minnesota's action follows similar moves by other states and the CFPB to crack down on pension advance companies and litigation funding companies:
- The attorneys general for Colorado, California, Massachusetts, North Carolina, New York, Washington, Iowa, and Pennsylvania, as well as the Los Angeles City Attorney, have pursued actions against one or both of the companies sued by Minnesota for issuing unlawful loans.
- In February 2017, the CFPB and the New York Attorney General filed suit against a litigation funding company, alleging a litigation settlement advance product offered by the defendant was a usurious loan that was deceptively marketed as an assignment.
- In August 2015, the CFPB and the New York Department of Financial Services filed a lawsuit against two pension advance companies, making similar allegations.
These actions reflect a trend of greater scrutiny aimed at merchant cash advance providers and other finance companies perceived to prey on vulnerable populations.
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