fees for this service. we did not realize how expensive it would be. we simply did not get out the calculator. we did not see it as a loan. we were desperate and panicked. we realized we were taken to the cleaners. we were shocked when the complex math and contract was broken down by a reporter and explained to us that we were paying over 30% interest on our advance. the paperwork we signed did not disclose the interest rate. it did not break down how the numerous fees were paid to structured investments raised our interest rate. an example of these fees are the thousands of dollars we paid for a life insurance policy on me, required for the advance of our structured investments, listing structured investments as a beneficiary. and we needed to continue to pay this two years after the loan was paid off, because we needed consent from them in order to stop the insurance policy. we ended up paying more in

interest with our pension advance than we would have paid if we simply paid off the interest over time on our existing debt. moreover, we learned after the fact that there were alternatives we could have used to reduce our debt load while avoiding the high fees charged by structured investments. we have fully paid off structured investments. looking back on our experience, it is clear we made a mistake. we should have been more aware of what we were buying. we also want to make clear that we accept that we signed the contract and accept responsibility for that. we should have known better. as we said, ours is a cautionary tale. we want to make two points to those who may find themselves in a situation similar to ours. first, you have other options. you should explore those options and resist the urge to reach for easy, immediate cash. second, had we known what we now know, we'd never have taken out

the pension bands with their unreasonable fees. we wish we could do everything over again and make better decisions. it is our fervent hope by testifying today we can prevent other individuals from making the same mistake we did. thank you again for the opportunity to be here. we look forward to your questions. >> thank you very much for sharing your personal experience. when people hear that a physician can be tricked by these convoluted contracts with the lack of disclosure, i think it is a cautionary tale to others. and by coming forward and being willing to share your story, i believe that you will save others from making the same mistakes. so i very much appreciate your sharing your story with us today. mrs. kroot, do you have anything you'd like to add from your perspective?

>> no. we should have known better. i'm a math major, and i should have done the math. >> well, i think the fact that these contracts could fool a physician and a math major probably tells you all you need to know about the lack of disclosure, the deception in the contracts, the hidden fees, the charges and i think we'll hear next from mr. lord that based on gao's investigation, your experience is not at all uncomm uncommon, unfortunately. thank you, mr. lord? >> thank you, chairman collins, ranking member mccaskill and members of the committee. i'm really happy to be here to discuss our june 2014 report on pension advances. and the status of the agency efforts to implement our really important recommendations. this is a really important issue, because as highlighted by dr. kroot, there's companies out there using aggressive marketing

techniques to target those who are vulnerable and those in urgent need of cash. today i'd like to discuss three issues. first, a number and types of companies, marketing these types of products. secondly, i'd like to discuss how the terms of these products compare to other similar products such as consumer loans. and finally, i'd like to clarify the role of the cfpd and the federal trade commission. first, the overall numbers at the time of our review, we identified 38 companies that offered lump sum pension advance products. while 18 of these companies were located in california, the remainder were spread across several other states, and virtually all of them marketed these products on a nationwide basis through websites. i think that's one of the key points we revealed through our

work as well. and we found interestingly, we found that at least 30 of these 38 companies were affiliated with, in some manner, with each other, and that, if you could turn your attention to, i call this our connecting the dots chart. this is not obvious from a consumer perspective, because if you make phone calls or conduct website research, you are initially led to believe there's 38 companies out there operating independently, yet, by virtue of our undercover phone calls and follow up research, we were able to identify connections between these entities. for example, dr. kroot, the two companies he dealt with are exhibited in the upper left hand corner. that's company four. that's, as well as company five, structured investments is company four and retired military financial services

company five. so it was obvious, it wasn't obvious to him at first blush that they're related, but through our work, we were able to identify these connections. bottom line is the lack of transparency can make it difficult to file a complaint, if you're a consumer, because you really don't know who you're dealing with. also, if you're considering making an investment in one of these companies, it's difficult to do the, any research to, you know, assess the reputability of these vendors before making a financial decision. second key point is regarding the terms of these deals as highlighted by dr. kroot, the terms don't compare favorably with other similar financial products. how did we determine this? we analyzed 99 offers provided by six companies in response to our undercover phone calls. they did not know we were gao calling. they assumed we were aqicu con

and just interested in investing in these. and we found first, these products had effective interest rates that were significantly higher than the legal limits set by states on consumer credit, called the state usury limits, and these rates range from 27% to 46% interest rates. as you can see, that's considered really high. second, we also found that these lump sums offered through these companies were about half of what you would get through a defined benefit pension provider. if you were to get it directly from your pence provider, it added to about half. 46 to 55%. so, again, you can see these terms were not really that attractive from a consumer perspective. in terms of disclosure, as also highlighted by dr. kroot, we found of the 38 companies, most did not disclose an effective

interest rate. so it's really difficult to assess what type of rate is being provided. bottom line of all of our analysis that these are not a good deal for consumers and the companies appear to be operating in a regulatory gray area. there is some good news here in terms of our report recommendations. cfpb has taken enforcement action. august of this year it filed a complaint against pension funding llc. that's one of the entities dr. kroot was dealing with as well as one other related entity. they also have released the cfpb some consumer advisories in this area. so it's, it's encouraging that the regulatory agencies are taking some regulatory and enforcement action, as we recommended in our report. and this concludes my prepared remarks, and i look forward to answering any questions you have later. thank you. >> thank you very much.

mrs. wolf? >> good afternoon. appreciate the opportunity to speak with you today about the investigation that the arkansas securities department conducted against one such pension advance company, voyager financial group and its owner andrew gamber. what we found in our investigation is that although bfg was located in little rock, arkansas, it used a network of individual agents who were located throughout the united states, as well as various websites with multiple domain names, different company names that was mentioned by the gao, under this one company. and so it seemed like there were several different companies out there, and it was all under the umbrella of bfg. through these websites, they would try to locate pensioners who were interested in selling their pension for a lump sum. i believe some of the interest rates promised were between 7%

and 9%, which was more than what the market was offering. some of the investors found out about this project through agents with whom they'd already had a professional relationship. the bfg facilitated everything. the investor and pensioner never spoke with each other and never dealt directly with each other. they always dealt with bfg and their agents. once it was located, bfg would place the pension up for sale and help the pensioner establish an escrow account. the pensioner would then submit paperwork provided by bfg to the pension k. and the pension company would be instructed to forward the pension amount to an escrow account. in turn, it was then to be forwarded to the investor each month. this is an important distinction, because at no time was the actual pension assigned. at no time candidate pensioner relinquish control over his pension and at no time did the

investor have control over that pension. the reason this is important is the number one complaint we received was the failure of bfg and its agent was to disclose the redirect address. because the pensioner maintained control of his account, especially with military pensions, they could direct the escrow company to or direct the pension company to redirect the funds back to a different account and no longer to that escrow account. or, if the pensioner got into financial trouble and had to file bank resultsy, the pension would get caught up in the bankruptcy. so they were no longer getting that monthly return. they were never warned that this was possible. the problem is that a lot of the investors we saw were senior citizens looking for a safe, low-risk investment, and that's how this was packaged to them. this is safe, you get a 7% to 9% return on your investment every month. some were told it was government

insured, which was patently fae. another miscommunication and blatant, outright lie from bfg was the failure to disclose the fees involved in these type of products, and you've heard some about that. bfg failed to disclose a fee break down on both sides of the transaction. a pensioner never actually fwhu their pension sold for lump sum, and on the other side of the table, an investor never knew how much of that lump sum they paid actually went to the pensioner. they were told bfg would receive a fee, sometimes an administrative fee. and they were told but most of your money's going to go to the pensioner, and that ended up not being the case because there was a failure to disclose the fees. what happened in reality was bfg would receive the lump-sum payment from the investor. they would cut themselves a rather large commission offer the top and forward all of the commissions on to the individual agents. i saw one contract that had as many as six individuals receiving commissions off of one sale. then think would pay out

administrative fees and then along down the line, finally, the pensioner would receive a much, smaller, lump sum amount than what it was purchased for. and, again, there was no detailed disclosure about that to either side, either the pensioner or the investor. unfortunately, with the arkansas securities department, we were looking at this from the investor's side, and we are very limited in the type of regulatory abs we could take. fortunately for us, arkansas state law is the risk capital task to be able to analyze it as an investment contract, and we determined that it was under other state test, and therefore it was a security. so we able to taken forcement action against bfg, however the risk capital test is not the analysis in every state. it does vary state to state whether this would be considered a security. although we were able to shut down bfg, it is unfortunate that mr. gamber has not learned his

lesson. it seems he has continued to flout authority and has developed other companies and looks to be doing the exact same thing and we currently have an ongoing investigation against him and some eye diggsal companies. so i want to thank you for ha having me here to talk about our investigation and i look forward to any questions you may have. >> thank you very much. mr. rossman? >> thank you. appreciate being invited to testify today regarding pension advances. the report on recent cases involving military pension assignments where i have been counsel of record on behalf of retired veterans of our armed forces. i'm the director of litigation for the national consumer law center, for the past 16 years i've been responsible for coordinating and litigating cases on behalf of qualified individuals. and i testify today on behalf of the low income and elderly

clients. in may of 2003, nclc was researching consumer scams perpetuated on active military personnel and ultimately issued a report. while we investigating that report we came across a separate issue. they felt that some of the greatest abuses they were seeing contained the solicitation of retired military personnel to gain access to their pension payments. what we skfred was that companies and individuals were targeting veterans' benefits offering cash up front for several years of veterans' payments. veterans are highly attractive targets for financial exploitation. i'd like to say that guaranteed streams of income are like honey to bees. and particularly when we're dealing with vulnerable populations relying upon their pensions for their safety net. retirement and disability benefits are regular, dependable

and long term and it's easy to transfer the funds each month. in the military it's done by allotment. of more and more, it's now proliferated through the internet. the companies engage in ha we call lead generators. when dr. kroot was contacted by rmfs, that was a lead generator which then turned him over to strategic investmenting which was in fact the lender. so they're actually serving the agents as we previously heard. and finally, veterans may have perceived themselves to have the, they usually have heavy debt burdens or poor credit as a result of the financial strains of their deployment and their frequent relocation. i want to talk about a specific case that we had. a man who retired and had

payments of over $1,000 a month. when he went to purchase a home, he found out that the because of the dess he had when he left the service he did not qualify for a prime loan to purchase and in trying to find a better option he found an advertisement for a retired military financial services, same company that reached out to dr. kroot. they then referred him to the same company, and i've included the ad as part of my testimony. and he got a lump sum of payments, which he, as a chief petty officer figured out was 28%, high above the california usury law would permit. i do want to point out on usury laws, only approximately one third of the states in our country have usury laws at this point. in fact, in california he would have been protected under those circumstances, but in many cases that would not be true. he was told since the transaction wasn't a loan, the

credit score didn't make a difference. they used it as a way of selling it to him that he could improve his credit score by paying down his loans. mr. henry got in touch with us, and we ended up bringing suit on behalf of him and other enlisted personnel in a case in california in superior court. we alleged it was a contract that violated the usury statutes and was lass in violation of the truth in lending. we also indicated it was a violation of the federal senate outs, both from the department of defense and veterans administration that prohibit assignments. putting him in a rock and hard place. it wasn't a contract, it wasn't a signment. it was a violation of either of those statutes, it was a vie lafrgs the california consumer protection statute. in august 2011, the judge issued rulings finding it was a violation of dod and veterans administration regulations and

the california consumer protection statute and awarded our client $2.9 million worth of damages. unfortunately, in the interim, the california division of corporations had shut down mainly because our litigation had stopped their flow of income and subsequent to our getting the judgment against them and the two principals, they all filed for bankruptcy and received bankruptcy protection. interestingly enough, one of the reasons they don't want them to be contracts because as contracts they would be dischargeable as unsecured debt. but once we got the judgment they sought judgment in bankruptcy court to keep from paying the judgments. our client got nothing out of the deal because he had paid off his loans. a number of individuals who had been in the process of paying off loans could stop at that point. mr. henry told us that at least he stopped this company from doing these bad transactions.

quite honestly, my clients who are the heroes here, the lawsuit mr. lord was referring to, along with the new york department of financial services was against the company called pension funding. and three of their managers were named as defendants in those suits, one of whom was mr. steven kobe who used bankruptcy laws in order to get out of the debt that he owed in my case in 2011. the pension funding group does not do military loans, he apparently learned enough of that lesson, but fortunately, the regulators in that case were able to set forward. the bottom lean is that we need full disclosure. we need to ensure that the usury laws are obeyed. that various state and federal agencies are enforcing the law. individuals have the ability to use consumer advocates in order to protect their rights but ultimately preventing this from the very beginning is the best way to deal with this problem. there are many, many other alternatives that are much

better than these loans. >> thank you very much. ms. walden? >> chairman collins, ranking member mccaskill and other distinguished committee members. my name is marie wald en. i'm the director of the public retirement system in missouri. there are over 575,000 missouriens that are now protected under the statewide law ban that prevents pension advances in the state of missouri. since 1946, psr's peers have worked to establish stable retirement benefits to 250,000 missouri public education employees, we pay more than $2.5 million annually to retirees. we continue to be a financially stable benefit plan for our members. we have over $37.4 billion in assets. we are the largest public retirement plan in the state. if you combine all other 85 retirement plans in the state we

have more assets and more membership than all other. the quality of our plan designed as senator mccaskill mentioned has been nationally recognized bit public pension coordinating council. we are governed by a seve seven-member board of trustees. due to the independent nature of our trust fund. staff is limited in the ability to support matters of which the board has not yet taken an official position. the comments that i'm making today are solely for informational purposes and require that the systems remain neutral on this issue. as the chairment indicated pensions are financial instruments where the individual receives a lump sum for contracting away that payment. during the fall of 2013, there were several national media

reports of these plans. they started in the boot heel and worked their way up jefferson city. it can be subject to interest rates of 27% to 126%. in some cases, borrowers are required to take out a life insurance policy. in 2013, the state treasurer went on record as being very concerned about the practice in missouri. in an effort to protect missouriens, he established the pension advance portal on his website to allow pensioners to report any problems or concerns they had faced. that same month, the systems held several internal meetings to discuss the impact of those on our own members. anytime we see any firm or organization that may try to take advantage of our members we become concerned and work toward

protecting our individuals. we took a proactive stance and updated our website to educate our members. and we also informed them of the current statutory provisions that were in place that would prese protect them. in addition, staff notified our members about educational meetings. one of the challenges was educating members and the public on the statutory protections that were already in place. psr's peers members are covered by an anti-alienation and ant anti- -- it specifies that the beneficial or equitable owner of that property held in that agreement cannot transfer the interest to a third party. those provisions prevent psr's peers from paying benefit payments to anyone other than the retiree or from accepting an assignment of the benefit.

therefore, by statute, we are prohibited from paying benefits directly to a pension advance company. and many of our statewide plans provide similar presbyteriotect their statutes. however, a retiree can use his or her benefit in any manner. therefore, a psr peer's retiree would be able to enter into a contract with a pension advance company as long as the contract did not require psr's peers to make that payment to anyone other than our retiree. on january 7th, the request of state treasurer, and representative tony duggar sponsored the house bill 17. it cannot be transferred or assigned at law or in equity. a pension assignee would be prohibited from using any device, scheme, transfer othr

other artifice to evade this provision. any contract maid in violation would be considered void and all sums paid and collected by the assignee would be returned. during the legislative process, proponents of house bill 17 testified that the bill served as a good consumer protection for all missouri public pension retirees. proponents testified that the bill prohibited a person's missouri public retirement benefit from being transferred or assigned to a pension advance service and would keep it for what it was meant to be, a retirement benefit. it created a ban on pension linders and that pensions earned by teachers, firefighters and other public sir vants would be protected from such a practice. one of the reasons was to protect all of missouri's petitioners, especially those members whose plans might not have an anti-assignment

provision. we had five groups testify in support of the provision. there were no groups that opposed the legislation. it was approved by the governor on july 9, 2014, went into effect that august. since the implementation of this law, we are not aware of any retiree of our retiree, who has been sold an income stream for all or part of his pension. we have also not received a request from a retiree to make a payment in advance to a service or into an escrow request the. i look forward to any questions you may have. >> thank you viery much for you testimony. dr. kroot, what we've learned from your experience, from the testimony of mr. lord, mr. rossman is that veterans are frequently targeted, probably because it is known that military retirees have pensions the way other public employees

do. and so there's a regular stream of income. you mentioned that you saw an ad in a military magazine for one of these pension advances. and i want to put up a couple of examples of the typical ads that we're finding as part of our investigation. very patriotic-looking. you also initially dealt with an organization that was called retired military financial services. did that give you a sense of comfort, that this was a legitimate offering? >> yes, it did, senator. >> and how long did you sign away your pension, for how long a period did you agree to sign

away your pension? >> senator, it was for eight years. if we failed to make a payment, then we would automatically go into ten-year repay. >> so eight years is a very long time. can you tell us what portion of your pension that you agreed to give up for those eight years in return for the lump sum? approximately? >> approximately? currently, we're receiving a little over $3,000, like $3,015 in retirement benefits. during the time that we were paying structured, we would get a check from structured every month for about $300. so i would say between $2500 and

$2700 was taken each month. >> so instead of getting your military pension check each month of about $3500, you instead were getting $300? >> yes, ma'am. >> that must have been so difficult for you. >> ms. wolf, i want to commend you for being very aggressive in closing down voyager's operations in your state. in my past, i've spent five years as the chief regulator overseeing the bureau of insurance, consumer credit protection, banking and the security division, so i was very interested in the state of maine, i'm telling you about. i was very interested to hear you talk about not only the effect on the military retiree or the person giving up the

pension, but on the investor, on the other end of the transaction, so you looked at it as if it were a security, whereas the consumer credit protection bureau in my state would look at it as a consumer loan. my point, however, is this. you were able to close down this bad company in arkansas and protect the people of arkansas from this bad actor, but pointed out, he simply set up shop in another state. does that mean that we need to have some sort of federal regulation or legislation in this area? >> well, i certainly, it's very limiting what we can do as a securities regulator, because you are right. we were looking at it from the investor's standpoint. and unfortunately, with the nature of mr. gamber, and it sounds like from other types of pension companies like this,

they do shut down in one state, and although we believe mr. gamber's tilstill in arkansas, s formed companies in texas and that seems to be quite common. i can't state to texas security laws. but strictly from a securities standpoint, it varies from state to state. if there's not some overreaching protection otherwise in mace then we're limited to the action we can take. >> obviously, missouri has taken care of this. the only state in the nation, by banning this kind of practice when it comes to public pensioners. but there are a lot of private sector people as well, although defined benefit plans have greatly declined. there's still some. in missouri, ms. walden, is there any protection for those receiving private pensions? >> not that i'm aware of. the state law only addressed

public pensioners. >> and mr. lord and mr. rossman, i want to give you the opportunity to give us your recommendations on whether or not given the ease with which people can move from state to state, the bubble chart that mr. lord put together showing the interlocking companies, we'll start with mr. lord. what do you think congress could do to help protect people in this area? >> well, there heirs a couple things. it's been a long, unsettled question on whether these constitute consumer loans or not and therefore should be subject to the truth in lending act disclosure requirements. there's some way to clarify that, number one. also, just in terms of transparency, you could require in some respects more reporting about who these entities are or just have some sort of a minimum

reporting requirements to help enhance the transparency of this area. it's a very murky area. i know they're doing this, they structure these products deliberately by design so they fall outside some of the existing statute. but from a consumer perspective, it's simply, they don't have a lot of visibility. also i think there's a role in consumer education, literacy, i think they could take additional steps to educate the consumer, obviously consumers ultimately are responsible for their own financial decisions, but i think they need to better understand the risk of these transactions going into them. >> it's clear that the companies are taking advantage of this murkiness and the fact that in one state it's going to be treated as a security in order to get at them. and in another as a consumer loan shows you some of the problems.

my time has expired. so mr. rossman, i'll get you on the second round. >> fair enough. >> senator mccaskill. >> thank you. ms. walden, one of the more disturbing parts of these schemes, i know this was applicable to your members, is the idea that your pension members don't have social security. >> correct. >> and so even those that do are subject to the complicated rules under the wind fall elimination provision. so, for these people, selling offer future income is even more dangerous, they don't even have social security to fall back on. how does this, how does that work with your plan? if someone signed up for a pension advance, assuming they were still legal in missouri, would they typically, your members, any of them have social security income they could rely on? >> some of them do. it depends on what they did prior to teaching.

it also depends on what they do in the summer months. most teachers work year round. >> are there any options that your pensioners have if they needed a substance sum of money? can they take a lump sum at any time from the system? is that allowed in missouri? >> the only allowing that we have is if a member, before they retired, we have an option called a partial lump sum that allows a member to take a portion, it's either a 12, a 24, a 36-month portion, and what it does is give them that pension for those years that they take and reduces the pension that they receive. but they do get a lump sum. so if you have an individual who wants to pay off their house before they retire, they will work an additional three years and get that 36 partial lump sum

so they can pay off their house. so it's a dime for dime transaction. there's no enhanced benefit for the system at all. >> but if something occurred unexpected after they had made their decisions about retirement, there's no options for them, perhaps, except something like these scam artists. >> they could potentially, in missouri, it's not allowed at all for our teachers, due to the law that was passed. prior to that, most of our teachers will call in. we have an unbelievable member education system and we touch teachers every day. the call volume is unbelievable. they call us when they have any kind of question. and what's great about it is we have that type of relationship with the teachers. our teachers give 14.5% contribution rate. they love the retirement plan. they want to make sure what they're doing is preseotected. so that's part of our education

process, to educate our staff, to let them know if they received any calls regarding this, to one, inform them of the problems that could result from it such as we've seen earlier today. >> right, with dr. kroot. mr. rossman, these remind me of life settlements or payday loans in a sense who allow a consumer who is desperate and feels pressure and needs cash in exchange for promises of something that would happen in the future. these industries are regulated in some capacity, although there's a certain, certainly a concern with both products. but there's a market out there for people who need a large sum of money. do you think pension advances should be regulated like those products for people who really need the money? some sort of interest rate cap? i mean, are we making a mistake by outlawing these as opposed to just making them behave like moral human beings?

>> that would be a good start. i think that the, first of all, you have to distinguish between the payday lenders and the other products, prid tory products out there. what is unique about these pension advance companies, and it was a great surprise to us was that they are much smaller in size. many of the other predatory lenders are now, you know, publicly-held companies, and it these were pretty much dimly capitalized corporations that had no skin in the game. what we found out with each of these entities was that they only loaned out what they were able to get in from investors. so the individuals who were running the show. >> it was like a bookie, just take being the big. >> just taking the big. >> i don't know how i knew that word. i just want to say for the record. i want to put that on the record. i don't know where that came from. >> but i come from boston, so i know exactly what you mean. >> and i don't. i come from maine. >> and i think that the other

thing that is significant is that most predatory loans we see out there are in the $5,000 to $10,000 range. as i think mr. lord said and we found in our reports, we were seeing averages of $45,000 to $50,000 and upwards over $100,000, which is a much bigger sum. look, we understand that individuals run into difficult times financially, like the doctor was testifying. there are certainly each, in my case, in the military, each of the branches of the military have relief funds to help people in cases of emergency. there's also the possibility to use the guaranteed stream of income in order to secure a loan from a more responsible and regulated source. so you could go to a credit organization or a savings and loan to be able to take up a loan and then secure it. the key here, though, is that you are controlling your funding. and that is not the cation with these companies. you literally lose control over

your pension, over that time. and i thought the doctor was absolutely correct. we have the same situation, that if in fact you tried any way to get yourself out of the transaction, you were penalized with a two-year addition. that is two years, in their case, of almost $3,000. so you're looking at a $25,000 penalty. it's outrageous, unconscionable. it is a shark practice that really cannot be tolerated. so i don't know that regulating that makes a great deal of sense. i think that providing other alternative products are important. last thing i wanted to add on this, senator is the fact that we're dealing here with an internet product now. >> right. >> it's very different than when we started this in 2003. and you saying that they are going from arkansas to texas, half the time you have no idea where this company is located. >> just an ip address. >> exactly. >> thank you very much. >> senator tillis. >> thank you, madam chair. i made a personal note to go on the internet and look up what a

"big", is. >> oh, come on. >> i don't believe you. >> dr. kroot, am i pronouncing that properly? >> yes, you are, senator. >> first of all, thank you for your service in the navy, and thank you for your continued service for our veterans. i wanted to get to the -- you were required to take out a life insurance policy, i think for $180,000. this is after you've agreed to pay about $230,000 back for $91,000 loan. what is the nature of the requirement that you have now in terms of keeping that life insurance policy current? i mean, are they paying it at this point? and you have to keep it? i need to understand a little bit about that ongoing obligation. >> we paid for this, and it was paid up. and when we -- >> it was a term life insurance in the term ends in october.

we were unable to stop paying it until the end of the term, because we needed permission from structured to stop paying it. >> thank you. and i'm sorry for what you went through. ms. wolf, i have a question for you. the operation in arkansas, it sounds like this, i think it's fair to call him a thief. he would originate some of these loans and sell them? i'm trying to get a sense of his business operation. it sounds like i would do a loan for dr. kroot, identify people who would buy the product that he has sold, did he continue to service these loans? did he have a business operation? or did he wash his hands of it after he transferred it or distributed it? >> originally, well, pretty much he washed his hands of it. what would happen is the company would, through an agent say, in

p florida would find someone who wanted to sell their pension for a lump sum. so this person in florida, usually a military veteran put the amount that they were looking to sell it for and the amount of money they were looking and the amount of money they got each month for their pension. voyager would package these and put a purchase price on them, unbeknownst to the pensioner, and through another network of agents would find a buyer who was willing to pay that amount of money for, say, $1,000 a month for six years coming in. but voyager would facilitate all the paperwork between the parties and kind of stay out of it. they would facilitate everything. >> but who, i was trying to get a sense of who's doing the servicing of the loan? because there's still that process of, i guess, processing the pension paints, providing some disbursement back to the person who provided the loan. so i was trying to get a better

understanding of the business enterprise that existing for the life of the loan. >> voyager would set up an escrow account for the lump-sum payment and the pensioner set up an escrow account for a certain a time to direct the pension. so there was never actually a loan. they would have the pensioner direct that money into the escrow account for a certain amount of time. and that's where the issue came from, because the pensioners would then turn around and redirect the money back to themselves or have to file for bankruptcy or it get caught up in the bankruptcy. so there was never, the loan to the pensioner would be kiss tribted at the very beginning. >> okay. >> mr. rossman or mr. lord, or anyone else who may want to contribute, the law that was passed by vermont, is that a best practice law? is that something that all states should consider? or is there a best practice baseline out there that as we discuss what we may do at the

federal level that we should be encouraging our respective states to take up? >> unfortunately, i don't now enough about the vermont, the specifics to comment on other than they do have a law that pertains to this issue. >> the problem, the vermont law is a good law. there's no doubt about that. the problem is that because of the situation of the internet, there, it stops at the state line. states can only do so much to protect their citizens from people coming from outside of the jurisdiction. and i think that the proposal of having a federal system that would guarantee you knuniform i across the country would be a good one because there's always going to be a jurisdiction to hide out, so to speak, in order to market their bad wares. >> thank you for the work you're doing, and dr. kroot, thank you for your service to our country. >> thank you. senator warren? >> thank chair collins.

i want to thank you for holding this hearing today and thank you to all the witnesses for coming. we really appreciate you coming and telling the story. i know it's hard to do that. but it's very important that we understand what's happening here. i just want to see if i can pull this together so we all kind of get it in one place. so define benefit pensions, the steady guaranteed income stream throughout retirement, we know these pensions are disappearing, and the americans who still have them know they are lucky to have these pensions, but now there's this interconnected industry that's targeted to getting their hands on the pensions. so these pension scam companies turn a profit by offering retirees cash in exchange for a fixed amount of the buyer's future pension, as you testified to, plus, of course, interest and fees. and according to a 2014 report from the nonpartisan government accountability office, and also

from senator collins, these loans can have pretty shocking fine print, for example effective interest rates over 100%. and, to make sure that they get paid no matter what, these companies require the retirees, often, to buy a separate life insurance policy to cover the loan if the refiery dies and the pension stops. so it is a great deal fort conditions running the pension scam. no risk and 100% plus interest rates on this. so i just want to pull a couple of the pieces apart. mr. rossman, you've seen the damage that these predatory pension scams do first hand. and i want to ask about some of the details. who's the typical victim of this kind of scam? >> the typical victim of the scam, you're going to have someone who has a guaranteed stream of income. >> and who does that tend to be? >> you're including in here,

you're going to have retired military personnel, disabled military personnel, state, municipal and federal government employees who are covered. and then in our case, we are, those individuals covered by erisa does have protections. >> military, teachers, firefighters. >> exactly. >> all right. now lots of states have consumer protection laws prohibiting loans with the high interest rati rat rates, usury laws. so how can this be legal? >> in our case, every single page of the contract was stamped at the bottom of the page that says "this is not a loan." after having done this for 20 years, if it quacks like a loan and waddles like a loan, it's probably a loan.

but they went to great lengths in order to avoid having typical contract loan language and discounting that it was a loan. one thing that was interesting and we caught them on was there were a number of cases early on where people tried to discharge in bankruptcy, and we were able to get the bankruptcy records with the same company coming in saying, no, no, no, it's not a loan. it's an assignment. so then we go to california and they say it's not a loan, it's not a signment, now we've got them. >> they say it's not a loan. >> you want to avoid the usury statutes. truth and lending. and they want to avoid having it discharged in bankruptcy. >> so they don't want to make the disclosures. they don't want to comply with the laws around loans. so they go to the other side and they say they're not loans, they're assignments. so let me ask that question

then. if these are assignments, are they then legal? >> in some cases they are are not. that's where the cloudiness comes. if it is military pay for a retired benefit, for enlisted personnel, you are protected by the military pay act. but if you're unfortunately like the doctor, a commissioned officer, you are not protected. all disabled veterans are covered under the v.a. by anti-signbility. virtually every state and federal employee statute includes provisions for anti-assignment and erisa in many cases prohibit it. >> so, for some people, it is the case that it doesn't matter whether it's a loan or an assignment, it's not legal either way. >> that's right. you've got them in the horns of a dilemma. >> for some, assignment is still legal, and this is just a place where the law has not given full protection. okay. so it sounds like we're starting to get some action on this. five years ago, congress passed

dodd frank to try to prevent companies from cheating consumers, and as someone mentioned in their testimony, the cfpb has now partnered with the new york department of financial services to file two suits against two of the largest pension scam companies for using these deceptive marketing practices to dupe retirees into borrowing from their pensions, obviously a good first step, but we need to do more. there is no excuse for this. it's time to put a stop to these scams. thank you, madam chair. >> thank you, senator kaine? >> this is sadly eye opening and especially the spectre of ads targeting veterans with flag waving and patriotic themes and pictures makes you sick to your stomach. i'm really discouraged at this. a couple of questions i was going to ask. maybe i'll start with ms. wolf.

so enter gamber. he had a previous history before getting into this pension advance area. he had permanently lost his license as assurance broker for grossly misleading his customers, according to a committee briefing for this. so i guess he was in a field where there was a regulated environment, and he had engaged in activities that caused him to have his license pulled. but i guess it's an indication that this kind of falls in the cracks, these pension advance, because he could go from a regulated area losing his license to setting something like this up without a license. >> right. >> and is that just the quirks of all the different state laws and how this kind of financial product is treated or maybe more often not treated under state law? >> i would think so, but also mr. gamber seems to not really have a conscience and not really care what the laws are. his license was revoked in 2009 from the arkansas insurance

department. he was not licensed under our act. but that's not to say that he wasn't selling securities. and so because it was a security under arkansas law, we were able to take action. but i do want to point out, his license was revoked in 2009. he formed bfg in 2010. we took abs against him in 2013 and 2014, and now he's formed a new company. so he's definitely finding ways to skirt the law and finding those gray areas to exploit. >> the gao report is interesting, because i think your study indicated with this bubble chart that the pension transaction are concentrated in these two large groups. one was mr. gamber, and we talked about him. and future payments group is run by steven kohn, which led to him being convicted of federal criminal counterfeiting. so you have the two main groups, one run by someone who's lost

his license because of misrengss to insurance client, and the other is being run by someone who had been convicted of federal criminal counterfeiting, and those are the two main groups doing this in the country right now. >> unfortunately, you have several unsavory characters operating in these business lines. from a consumer perspective, again, it's very difficult to know who you're dealing with, because that's not revealed on the company website. so, from a disclosure perspective, that's why we raise that as an issue in our report. >> but, again, from a regulatory problem, if you've got folks who've been in different sort of financial capacities, and one has been, you know, are suspended, his license because of insurance challenges. and the other's been convicted of federal criminal counterfeiting, but nonetheless, three can do this kind of a business, this suggests that there's sort of like a gap in which they're trying to put their work in a less-regulated

area. >> yeah. >> it's amazing that we would have less regulation for these kinds of pension transactions than we would for insurance. i mean, insurance is really important. pensions are really important, too. that would be a gap and something that is notable. i want to take the kroots' testimony, and i really appreciate you coming and sharing the experience, and i often find these hearings are really valuable, because people are willing, thank god, to come share what's been a painful experience, and we can learn from it. thank you for being willing to do that. but they talked about, and i'm going to ask the other witnesses to help me with this question. they talked about the challenge think were dealing with. medical bills with a daughter, housing expenses. these are the kinds of things that people run into every day. there are many alternatives better than these kinds of loans. so these generic advisers to seniors or veterans that are confronted with financial needs that they described.

got some real legitimate concerns. you see these kind of ads in the paper about maybe, you know, take advantage of this 800 number or get on this website to get help. what are the better alternatives. we're having hearings like this. what other alternatives that folks should explore. we're not talking about a particular circumstance. and mrs. kroot, you want to jump in first. so please. >> yes. one of the things that happened with us and structured, we took this money out to pay the irs. and at the end, when we, the loan was concluded, we were given a list of who we could pay and who we couldn't. the irs was not on it. so we paid those other ones, and we had to finally call the irs, which worked with us on a payment plan for the $100,000. >> mm-hm.

>> and i would piwish to put on the record, the irs was extremely cooperative in coming up with a payment plan that was not a burden to us. >> senator, one of the things that's important, and we were talking before about why they were treated as loans or assignments. one of the pitches that these companies will make is that because it's not a loan, you don't have to worry about your credit score. many of the people in dire financial straits are because their credit scores have deteriorated to the point that they can't have access to other prime sources of lending. and they say since this is not a loan you don't have to worry about your credit score. you have the united states government paying you off and insurance as well. so you're dealing with a community that has difficulties because of their credit scores and are looking for options. if you're dealing with credit cards, for example, work being with the credit card companies or dealing with a non-profit. >> credit counseling. >> to help you work out a plan

to be able to pay off is certainly better. you do have this guaranteed stream of income, although you don't want to lose control of it, you still can use it as collateral as part of a good plan to pay off your dits to secure funding but maintaining control and not turning it over to someone else. and, the final area, at least in the military is that the jag corps is upset because there are systems in the military, air force relief, army relief to help with these problems. in the military area, these thieves are stealing essentially tax dollars, stealing them from veterans who have served their countries and expect us to take care of the veterans, of course we're not going to abandon them when they don't have the ability to take care of their own needs. there's just no justice in there whatsoever. everyone is being victimized.

and these thieves are ripping us all off at the same time. >> and ms. wolf was going to answer for me, too, and i know i'm over time. >> i'll keep this very brief, not necessarily an alternative, but i do want to thank dr. and mrs. kroot for coming forward.