Concern about a new lending practice targeting the military is worrying federal auditors and veterans. Military pensioners are offered money up front in exchange for signing over monthly benefits for a period of time, with few strings attached. After the time period ends, they’re told, they’ll get their monthly payments back.
The Government Accountability Office found that the terms of these financial deals are often unclear and sometimes conceal interest rates that are “significantly higher than equivalent regulated interest rates” from banks and other financial services companies.
18 of 38 companies offering pension advances to veterans and other federal retirees, are located in California, according to a recent federal audit. At least one class action suit has been filed by a Marine Corps veteran from San Diego County.
Jack Harkins, a Marine Corps veteran and past chairman of the United Veterans Council of San Diego County says, “He and other veterans are troubled that their comrades could find themselves in a financial situation in which they borrowed money from companies that didn’t have their best interest in mind.”
Without particular regulations for pension advance companies, they continue to flourish. Another issue identified by federal auditors is the network of companies offering pension advances.
“We found that at least 30 out of 38 companies that we identified had a relationship or affiliation with each other, including working as a subsidiary or broker, or the companies were the same entity operating with more than one name,” the federal auditors wrote.
So far there has been little movement to regulate the new loan products, said Scott Silver, managing partner of the Silver Law Group, which is attempting to file class action lawsuits against pension advance companies across the country. Silver said he gets three to four calls a week from retirees who signed up for pension advances that they now regret. He said the cases are difficult to take to court because the contracts include clauses that prevent veterans from participating in class-action suits and lock them into arbitration.