The hearing of the special committee on aging will come to order. Decades ago the warning caveat emptor, buyer beware, was the best advice one could give to a consumer seeking to borrow money. Well, that advice is still valid today. There are laws that seek to insure that consumers understand the obligations that they are taking on and that lenders have to play by the rules. Since the passage of the federal truth in lending act in 1968 and similar state laws around the nation, credit providers have been required to disclose key terms of Consumer Credit agreements up front in easytounderstand language. If you want to know what Interest Rate youll pay on a new credit card, youll find it in big, bold letters right there on the front of your application. Likewise, Interest Rates on car loans, personal loans, mortgages and myriad other Consumer Loan products are clearly and conspicuously displayed. But as we will learn today, that is not true for socalled pension advances. Pension advances are agreements under which consumers usually retirees receive cash lump sums in exchange for part or all of their monthly pension check. The effective Interest Rate on these Lump Sum Payments can be outrageous. One company charged nearly 120 last year. That fact, however, is hidden in the pension advance agreements which do not include the simple and clear disclosures required by law for Consumer Loans. Instead, these contracts are so convoluted that it is difficult for consumers to realize just how much their lump sum pension advance is really costing them. By way of comparison, i would like to direct your attention to this chart. Using the state of washington as an example, this chart shows the average Interest Rate charged on various forms of Consumer Debt compared to the effective rates on pension advances. The first three bars from the left show Interest Rates on typical sources of Consumer Credit. 4. 3 for car loans, 9. 7 for personal loans and 12 for credit card debt. The three bars on the right are Interest Rates calculated by Government Accountability office, better known as gao, on pension advances that one company sold in Washington State over the past three years. As you will see, the rates escalated to an astonishingly high 117 last year. All of these rates are higher than the state of washingtons usury rate of 25 . As if these Interest Rates werent bad enough, many Pension Advance Companies require their customers to sign complex documents whose terms can only be described as deliberately deceptive. Typically, customers are required to take out Life Insurance policies naming the pension advance company as the beneficiary. Most consumers simply dont realize that the rates that they are paying are so high. For example, one of my constituents didnt understand that he was paying a rate of 54 on his pension advance until his tax preparer told him that the deal just didnt look right and advised him to contact the main bureau of the maine bureau of Consumer Credit protection. Second, many of these consumers are financially vulnerable and desperate for cash. These Pension Advance Companies exploit this desperation. They also use flashy, aggressive and misleading advertising to encourage quick and uninformed decisions. It is extremely troubling that some companies aggressively target the patriots who have served our country, our veterans. They use web sites displaying the uniform and wrapped in red, white and blue and run ads in military magazines. Federal law prohibits the assignment of pensions of enlisted military retirees, but Pension Advance Companies too often ignore this prohibition just as they ignore federal and state laws requiring clear disclosure of Interest Rates on Consumer Loans and just as they ignore state usury laws that set a ceiling on the amount of interest that can be charged on Consumer Loans. Pension advance companies claim that these laws simply do not apply to them, arguing that their products are not Consumer Loans or assignments, but simply advances. Todays hearing builds on this committees Ongoing Investigation into pension advances and continues our efforts to protect americas seniors from shadowy schemes that threaten their financial security. I hope that any retiree considering a pension advance will think carefully before taking that step and will seek advice on other ways to obtain financial assistance. I look forward to hearing the testimony of all of our witnesses today. With that, id like to turn to our Ranking Member, senator claire mccaskill. Thank you, senator collins, chairman collins. Retirement security and Consumer Protection are both large parts of this committees focus and mission under the leadership of chairman collins. Todays hearing presents an opportunity to look at an alarming practice that intersects both of these committee priorities. The defined benefit pension plan is considered the Gold Standard in terms of retirement security. Although it is not as popular as it once was, those people retiring today with a defined benefit plan are incredibly fortunate. They get a fixed payment for life, so they cannot outlive their savings. And they did not have to figure out how to invest this money or how much to put aside. They are saved from the burden that they may not have had the financial wherewithal to adequately care for themselves throughout retirement. Nor do they have to worry about an economic downturn happening right before they cash out. Willie sutton explained that he robbed banks because thats where the money is. Well, these seniors with define canned benefit plans defined benefit plans are similarly ripe targets for a different kind of crook. These fraudsters offering pension advances are undermining all the advantages of these defined benefit plans, making what had been a secure retirement suddenly very unsettled. Worse still, these folks are targeting some of the pillars of our communities, our firefighters, our teachers, our veterans. They are also finding unwitting victims among elderly investors looking for a safe investment at a time in their lives when they are looking for ways to earn a little bit of money without taking a large financial risk. It truly is an impressive scam that is able to take advantage of both sides of the financial transaction; the investor and the pensioner. But that is what these pension advance schemes have been doing. Today we will hear firsthand from victims of these schemes as well as those in the Public Sector and Consumer Protection groups about their efforts to combat this problem. This committee is also investigating the bad actors behind these schemes, and i commend chairman collins for using this committees investigative and oversight powers to go after these folks. Right now there simply is not enough being done here, because its a legal gray area. So while we hear from our arkansas witness about all the good work she is doing down there to protect the public, unfortunately, once she catches these guys she cannot prevent the same bad actors changing their corporate name and putting down roots somewhere else to find new victims in other states. Theres only one state in the country where Pension Advance Companies are not trying to take advantage of teachers, veterans and firefighters, and that im proud to say is in my home state of missouri. I want to commend the work of our state treasurer who joined republicans in the missouri General Assembly to push for this legislation last year. This bill received enormous bipartisan support with no one testifying against it. Among those who spoke on the bill is one of our witnesses today, maria walden, from the Public School and education Employee Retirement systems of missouri. The largest defined plan in our state and one of the best plans in the country. She will talk about the legislation banning pension advances and the protections that cover her members. Im also pleased to say that thus far our state has not had any reports of Pension Advance Companies coming to missouri since the bill was signed into law. I am hopeful other states will follow missouris lead and protect those Public Employees who have spent their careers protecting us. Once again, i want to thank the chairman for calling this hearing and for our witnesses for joining to discuss this problem today. I look forward to your testimony. Thank you. Thank you very much. Were now pleased to turn to our panel of witnesses. First, we will hear from dr. And mrs. Louis kroot. He is a retired Navy Physician from kentucky, and he and his wife kathie will share with us their personal experience in selling their pension to a pension advance company. Next well hear from steven lord, the managing director at the Government Accountability office who will discuss gaos investigation of the pension advance industry. We will then hear from kaycee wolf from the arkansas security department, and i would like to call on our colleague, senator cotton, for the introduction of ms. Wolf. Thank you. Im pleased to introduce kaycee wolf who will testify about the work she and her colleagues did fighting pension advance fraud in arkansas. Kaycee is a university of Arkansas Law School alum and has helped protect people for the last five years with the arkansas Securities Department. Her work with the Securities Department was not about preventing sophisticated parties from entering mutuallybeneficial agreements. Instead, as we will hear, her team spent thousands of hours successfully fighting outright fraud and blatant misrepresentation of contracts. Kaycee, thank you for i peering for appearing for us today. Its an honor to have you here. Arkansas and i are are proud of the work you and your team have done and hope it canning be a model for the entire country. Thank you. We will then hear from stuart rossman, the director of litigation at the National Consumer law center, and i understand that senator warren would like to introduce this witness. Thank you, chair collins. I am pleased to introduce one of our witnesses today, mr. Stuart rossman. As you said, hes the director of litigation at the National Consumer law center in boston, massachusetts. I just want to say about mr. Rossman, he is deeply knowledgeable about the law, but he also has a very thorough understanding about what is actually happening to people across this country. In other words, he knows husband stuff his stuff, and we are lucky to have him here today. Thank you, mr. Rossman. Thank you. And finally, i want to ask senator mccaskill if she would like to add anything. You mentioned our final witness on this panel, maria walden. If you have anything you would like to add to what you said in your opening statement. Well, as i mentioned in my opening statement, she is the director of legislation and policy for the Public School and education Employee Retirement system. It is one of the finest pension programs in the country. We, i like to remind our teachers in missouri that we are not high on the scale when it comes to salaries, but when i was auditor, we were number one in the country in terms of pension benefits. Are we still number one . We are very close. Yeah. I know that we have one of the finest pension programs for people on the front line of every social ill that faces our country. I think we forget that it is teachers that were asking to do so much more than teach in so many places in our country today. So well deserved, good pensions, i think, are something that we all need to in this country realize is an important part of financial security. So im proud of your organization and so glad that youre here today. Thank you. Thank you all for joining us. We look forward to hearing from your testimony, and were going to start with dr. And mrs. Kroot. Chairman collins, Ranking Member mccaskill, distinguished senators on the committee, thank you for the opportunity to appear before you today and to testify about our familys experience with pension advances. We are here today as husband and wife because in our 34 years of marriage, we have always operated as a team, and ours is a shared cautionary tale. For 32 year 22 years i served our country in the navy as a physician. When i retired as commander, i intended to work as a doctor, and i did so as an er attending physician in several hospitals. Today i continue to work as an er attending at eva hospital in lexington, kentucky. My wife kathie has done incredible work as an advocate for Organ Donation and as a dedicated volunteer at our synagogue. When i left the military, i planned to continue to provide for our family through work and through my military pension. But due to a perfect storm of unfortunate events, we were left with debts spiraling out of control. First, we received bad tax planning advice and moving funds from 401 k and incurred around 100,000 in unexpected fees and penalties. Second, we suffered over 10,000 in home repair from our Basement Flooding while our house was in escrow. Third, we incurred enormous amount of medical expenses when it became necessary for our adopted, special needs daughter to be repeatedly hospitalized for serious psychiatric medical condition. We were financially desperate at that time and did not know where to turn. We had incurred an extraordinary and unexpected debt. We were looking for any way to pay off this debt. We had seen advertisements in military magazines for companies that gave Lump Sum Payments for military pensions. We contacted one of these companies, structured investments, which was doing business under the name of retired military Financial Services, and they offered to provide us with a lump sum payment against my future pension payments. We jumped at the opportunity. We felt that the lump sum payment structured investments allowed us to pay off much of our existing debt. We understood at that time that we were taking an advance on monies that were due from future retirement payments. We understood that there would be fees for this service. We didnt realize how expensive it was going to be. We simply did not get out the calculator or see it as a loan. We were desperate, and we panicked. In fact, we realized wed been taken to the cleaners by structured investments. We were shocked when the complex math in the 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 and did not break down how the numerous fees we were paying 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 by 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 load. Moreover, we learned after the fact that there were alternatives we could have used to reduce our debt load while avoid paying the high fees charged by structured investments. We paid off structured investments. Looking back on our experience, it is clear that 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 we accept responsibility for that. We should have known better. As we said, ours is a cautionary tale, and 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 you should resist the urge to reach for easy, immediate cash. Second, had we known what we now know, we would never have taken out the pension advance from structured investments with their unreasonable fees. We wish we could do everything over again and make better decisions. It is our fervent hope that 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 mistake, so i very much appreciate your sharing your story with us today. Mrs. Kroot, do you have anything youd like to add from your perspective . No. We should have known better. Im a math major, and i should have done the math. Well, i think the fact that these contracts could fool a physician and a