Retirement loans push retirees into more debt

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“This is simply not true,” said Mr. Govan, who filed a federal complaint in February that raises questions about the costs of the loan.

Arguments aimed at the military must circumvent a federal law that prevents veterans from automatically remitting pension payments to third parties. Pension loan companies encourage veterans to establish separate bank accounts controlled by the companies where pension payments are first deposited and then sent to lenders. Lawyers for the retirees have challenged the pension advance companies in US courts, saying they illegally foreclosed on military pensions and violated state interest rate limits.

To get around state usury laws that cap loan rates, some pension advance companies insist their products are advances and not loans, company websites and lawsuits show federal and state. On its website, Pension Funding asks, “Is this a loan against my pension?” The answer, he says, is no. “It’s an advance, not a loan,” says the site.

The advance companies have evolved from a range of different lenders; some made loans against class action settlements, while others were subprime lenders who provided installment and other short-term loans.

The bankrupt California firm, Structured Investments, has been sued with legal challenges virtually from the start. The company was founded in 1996 by Ronald P. Steinberg and Steven P. Covey, a military veteran who was convicted of bank fraud in 1994, according to court records.

To attract investors, the company promised an 8% return and “an opportunity to own a stream of payments generated by the US military,” according to the California Department of Corporations. Mr. Covey, according to the company’s registration records, is also associated with Pension Funding LLC. Neither Mr. Covey nor Mr. Steinberg responded to calls for comment. In 2011, a California judge ordered Structured Investments to pay $ 2.9 million to 61 veterans who had filed a class action lawsuit.

But the veterans, including Daryl Henry, a retired Navy disbursements clerk, first class, in Laurel, Md., Who received a pension loan of $ 42,131 at a rate of 26.8%, received no relief.

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