By Jonathan Stempel
(Reuters) - New York's main banking regulator has opened a probe into pension advance companies that persuade retirees and military veterans to sign over pension checks in return for cash payments.
The Department of Financial Services, at the direction of New York Governor Andrew Cuomo, has subpoenaed 10 companies involved in the business, the governor said on Tuesday.
Cuomo accused the companies of "preying" on retirees and veterans by advancing sums that may actually be disguised, high-cost loans.
He said a pension advance involves a retiree signing away a portion of his or her regular weekly or monthly pension payments, in exchange for an upfront lump sum payment that can carry an effective annual interest rate exceeding 100 percent.
These payments "appear to be nothing more than payday loans in sheep's clothing," financial services superintendent Benjamin Lawsky said in a statement. "Pension harvesting schemes that hit financially strapped retirees with sky-high interest rates and hidden fees are simply unacceptable."
Cuomo announced the subpoenas after the New York Times published a front-page story on April 28 describing the pension advance business. (http://www.nytimes.com/2013/04/28/business/economy/pension-loans-drive-retirees-into-more-debt.html?pagewanted=all&_r=0)
The subpoenaed companies include: Cash Flow Investment Partners of Irvine, California; DFR Pension Funding, which does not indicate on its website where it is based; First American Finance Corp of Portland, Indiana; Investing Forward of Niceville, Florida, and LumpSum Pension Advance of Irvine, California.
They also include: Pensions Annuities & Settlements LLC of Wilmington, Delaware; Pension Funding LLC of Huntington Beach, California; Pension Income LLC of Lafayette, California; Veterans Benefit Leverage of Grandville, Michigan, and Voyager Financial Group LLC of Little Rock, Arkansas.
Pension Funding and Pension Income declined to comment. DFS was not accepting phone messages or emails on Tuesday. The remaining companies did not immediately respond to requests for comment.
Cuomo said the probe will examine whether the companies engaged in fraud or misconduct; violated state usury laws that cap interest rates; engaged in false or misleading advertising about rates and fees; or violated laws designed to protect military pensions.
(Reporting by Jonathan Stempel in New York; editing by Matthew Lewis)