Many retired people and disabled military veterans, strapped for cash, will sell part or all of their pensions to pay monthly bills. The companies that hustle these transactions advertise “cash advances” in exchange for a portion of their pension. Some companies argue that they are simply buying the future income of pensioners, a transaction not regulated by state law. In fact, these are loans which are secured by the pension and involve extremely high interest rates.
The transactions, known as “pension advances,” may charge annual percentage rates (“APR”) of 200 percent or more and extend for as long as 10 years.
Several veterans and pensioners complained to Lori Swanson about the activity. One veteran signed an agreement to receive a onetime payment of $1,500. In exchange, the veteran assigned $18,000 in pension benefits payable over the next five years. This worked out to an annual interest rate (“APR”) of 200%. Another veteran signed an agreement to receive $3,000; in turn, he assigned $30,000 of pension benefits payable over the next five years at an APR of 200%.
Under Minnesota law, companies that make loans generally must be licensed. Lenders are also capped in the interest they may charge.
While many victims are military pensioners, other retirees are also affected. One retiree applied for and received a $4,000 payment in exchange for an assignment of $24,600 in benefits payable over five years. “You’re desperate. You trust them,” she told a newspaper.
In 2017, Swanson filed a lawsuit against Future Income Payments, LLC. She alleged that these “pension advances” were in fact secured loans which are regulated under state law and can only be made by a licensed lender. Swanson, saying that a rose by any other name is still a rose, defined a “loan” as the delivery of a principal sum of money by a lender to a borrower, with the borrower promising to repay the principal, usually with interest, in the future and often over time. She also referred to Minn. Statutes, Chapter 56, which describes a “loan secured by assignment” as “the payment of money …as consideration for any sale or assignment of…wages, salary, commission, of other compensation for services, whether earned or to be earned.”
Swanson made a made a Motion for Temporary Injunction, which was granted in March of 2018. Thereafter, in July of 2018 a Motion for Summary Judgment was granted, in which the company was required to pay $491,202 in refunds to customers and $611,000 in civil penalties to the State.
Order granting Motion for Temporary Injunction. Download Below.
Order granting Plaintiff Summary Judgement. Download Below.
Swanson v. Future Income Payments, 27-CV-17-12579 (2017)