Financial regulators in Maine are looking into an increasingly popular practice that may be ripping off seniors.
Known as a "pension advance," it has also come under scrutiny from U.S. Sen. Susan Collins of Maine, who has called for an investigation.
Pension advances enable retirees to access a lump sum in return for signing over all or some of their future pension payments.
A few years ago, retired corrections officer James Stoddard of Litchfield desperately needed some cash.
Searching the Internet he came across a California-based company offering to help him effectively "cash-in" $10,000 of his pension, right away.
The company was called Cashflow, but has since changed its name to Future Income Payments LLC.
As part of the deal, Stoddard committed to signing over a portion of his pension to the company every month.
"I am paying $473 a month for 60 months," he says. "I have paid 27 months, I have 33 more months to go."
Stoddard, who's 68, is one of a growing number of seniors across the country — most of them military and public service retirees — who have signed up for so-called pension advance schemes and later regretted it.
Stoddard admits he knew the deal when he signed up, "but it was an easy way to find funding at that time."
What has been more difficult, he says, is having to shell out nearly a quarter of his pension every month to pay for the advance.
With nearly three years remaining on his five-year payment plan, Stoddard says he's not sure how much longer he can afford to go on like this.
His advice to other senior consumers, desperate for cash: "Be careful of what you're getting into."
By the time he's finished his payments, Stoddard says he will have spent more than $28,000 on a $10,000 advance.
This equates to an annual percentage rate of more than 55 percent, says William Lund, head of the Maine Bureau of Consumer Credit Protection.
"We at the Bureau of Consumer Credit Protection have been watching the development and growth of the pension advance programs in other states," he says. "It's our view that these are in effect disguised loans."
To be clear, these cash advances are technically not loans — the companies issuing them classify them as "purchases."
Not being loans, Lund says they're not subject to Maine's usury law, which caps the lending rate at 18 percent APR.
He says Stoddard is the only victim of pension advances to have come forward in Maine so far, but he suspects there are hundreds more like him.
Since learning of Stoddard's situation about 10 days ago, Lund says the bureau has begun drafting a letter to the California company.
"Stating our position that these loans are subject to the Maine consumer credit code and that a license is required of the company and that the loans themselves must be within usury limits for the state of Maine," he says.
Lund says some states have taken aggressive action against pension advance schemes. Vermont, for example, has banned the practice, demanding all such cash advances be classified as loans.
He says Maine also has laws that may prohibit the activities of companies such as Future Income Payments, but he says state regulators need to work together to analyze the relevant statutes and how they might be interpreted.
Pension advance schemes are also under scrutiny at the federal level.
"We're going to continue to investigate these companies and hold them accountable," says Collins, who this week chaired a hearing of the U.S. Senate's Aging Committee on the issue of pension advances.
It's part of an ongoing probe, initiated by Collins.
"I launched this investigation because of my concern that there are some unscrupulous companies that are targeting our military veterans, our public employees, because they know that they have pensions," she says.
Collins says she would like pension advances to be subject to the Truth in Lending law, requiring greater disclosure from the companies involved.
Also key to tackling the problem, she says, is a greater educational effort to alert people to these schemes.
Future Income Payments LLC of California did not respond to a request for comment for this story.