ST. PAUL, Minn. (KMSP) - Minnesota Attorney General Lori Swanson is suing two companies that required military veterans and senior citizens to sign over their monthly pension payments in exchange for small loans to cover household emergencies and basic living expenses. The lawsuit claims the companies commonly charged high interest rates that only made peoples’ financial troubles worse.
According to a news release, Future Income Payments, LLC of Delaware and FIP, LLC of Nevada issued loans to veterans who received military pensions or disability benefits and senior citizens who have pensions from private sector jobs.
The lawsuit, filed Wednesday, alleges the companies violated Minnesota’s lending laws because they did not have a license to issue the loans. The State Commerce Department is currently investigating more than 100 cases.
"The companies know what they are doing because they call them 'purchase agreements' with the consumers, but they're just thinly disguised loans. They're extending money in exchange for payments over time," Swanson said.
Most loans issued by the company were for less than $5,000 and the most common interest rate charged to borrowers was 200 percent. In some cases, borrowers had to repay more than 10 times what they borrowed.
In one of the examples cited in the lawsuit, a 73-year-old disabled Vietnam veteran borrowed $1,800 to pay for his sick wife’s medical expenses and other bills. To repay his loan, he has to pay the company $300 from his monthly VA benefits for four years -- a 199.9 percent interest rate and more than eight times what he borrowed.
Another victim, Steven Schmelz, took out a $2700 loan from a company that charged him 200 percent interest. Schmelz is a Gulf War Army veteran who suffers from PTSD.
“They know that we need the money. They know we have a fixed income, and they know that's going to be a direct payment every month," Schmelz said.
Bill Jo Slater, another victim, borrowed $2100. She had to repay $21,000 over 60 months - a 200 percent interest rate.
"I feel stupid," she said.
Stephen Schmelz was able to negotiate a quick repayment, but he, too, admits he was desperate.
"I knew it was a lot but, but I needed the money right away," he said.
In a statement, Swanson said that the 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 said in a statement. “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.”
Colorado, California, Massachusetts, North Carolina, New York, Washington, Iowa and Pennsylvania have also filed lawsuits against one of both companies in recent years.