En español | Daryl Henry, a disabled Navy retiree from Laurel, Md., was beset by bills. In 2003 he read an ad and arranged to get a cash advance in exchange for signing over almost all of his $1,083 monthly pension for eight years.
Henry, who spent 20 years in the Navy, agreed to pay a company associated with Structured Investments Co. of Southern California $1,070 a month in return for money upfront. The repayment cost for the $42,131 advance: $102,720.
Henry was named the lead plaintiff among 61 retirees in a suit against Structured Investments in 2005. A California Superior Court judge ruled in 2011 that the company's advances violated a federal law that forbids assignment or sale of military pensions. The judge ordered that people who were still paying could stop their payments and the retirees would be repaid nearly $3 million.
The victory was sweet, but brief. Within weeks, Structured Investments declared bankruptcy. None of the victims has received any restitution.
Robert Bramson, a Walnut Creek, Calif., attorney who filed Henry's suit, continues to work on the clients' behalf. He said he's already spent about $225,000 of his own money in legal fees and expenses, hoping they'll see some payment in the bankruptcy proceedings. "The business I'm in is to help people who are getting taken advantage of," Bramson said.
Henry is one of an unknown number of people who have signed over their pensions to a growing army of pension predators who go after veterans and other retirees who have a steady income stream. Smooth talkers encourage them to tap their future income for a cash lump sum now — often at an exorbitant cost.
The good news is that Congress and some states are beginning to go after those who prey on people with pensions. AARP supports efforts to license lenders and ensure that they comply with federal and state consumer disclosure laws, state small-loan interest rate caps and usury laws. AARP also has urged the federal Consumer Financial Protection Bureau to issue regulations "to eliminate unfair, deceptive and abusive practices in the alternative financial services industry." For now, though, people with pensions need to be their own first line of defense. Here's what you need to know to protect yourself.
Cash today, pension tomorrow
Companies with patriotic-sounding names and flag-waving websites court military retirees as well as teachers, firefighters, police officers and others who have pensions. The hard-to-resist pitch: Convert part of tomorrow's pension income into cash today. The question is: What's the cost? Effective annual interest rates for pension loans can top 100 percent.
Pension advances are a variation on payday loans — short-term loans, usually under $500, that come with sky-high interest rates. In contrast, pension advances typically run into the tens of thousands of dollars, and the repayment period can last more than three years. Contracts can be confusing.
Pension advance companies fly under the legal and regulatory radar by insisting they are not banks and therefore are not subject to truth-in-lending or usury laws. Although it is illegal for military and federal pensioners to assign or sell their pensions, companies skirt the law by having retirees deposit a hefty portion of their pensions into bank accounts controlled by the companies. The firms claim that the transactions are advances, not loans, and the payments aren't interest.
Mark Corbett, vice president of marketing at buyyourpension.com, said the term "loan" suggests that the money can be repaid early. A pension buyout customer who agrees to turn over a portion of his or her pension for six years has a firm commitment for six years.
"We buy income streams," he said. "Everything we do is completely legal and legitimate. We're completely transparent."
Corbett said business is booming and that he gets 30 to 50 calls a day from people who want cash for their pensions.
"The first thing I do is try to talk them out of it," he said. "It's expensive money. I tell them: 'Don't sell your pension unless you have a really good plan for the money.' "