Pension Advance Scam
[Posted on 08/26/2013 at 2:00 PM]
Retirees should be aware of a new scam that offers cash in return for your pension checks. These offers are essentially high-interest loans being masked as "advances" on your pension. The pension advance companies tend to target military veterans and public sector retirees, offering quick cash to get out of debt, but obscuring the terms of the loan and the long-term repercussions.
According to a New York Times article, "Loans Borrowed Against Pensions Squeeze Retirees," once fees and finance charges are taken into account, the interest on these loans amount to anywhere from 27-106%. According to the article, a pension advance company may skirt federal laws capping interest rates by encouraging a retiree to set up a separate bank account, controlled by the company, where the retiree’s pension payments are initially deposited. After the interest and fees are sent from the account to the pension advance company making the loan, then the remainder is available to the retiree.
A class action lawsuit was filed in California on behalf of retirees, resulting in a settlement, and the Consumer Financial Protection Bureau and a Senate committee are investigating this issue. In a press release, Senators Tom Harkin and Lamar Alexander of the Senate Health, Education, Labor, and Pensions Committee announced they are forming a bipartisan committee to investigate this issue:
"Pensions are the bedrock of economic security in retirement for millions and millions of middle-class families. But now, it appears that there are some financial operations trying to siphon a profit off of people's retirement benefits. These unscrupulous companies are offering to buy pensions for a lump sum. That may sound like a good idea to someone who is facing financial challenges, but long term, it can actually leave them worse off down the road. I hope this bipartisan investigation will shed light on the scope of this issue and uncover the companies that are taking advantage of our nation's pensioners."
Tips to Avoid this Scam
The Chicago Tribune article, "Pension loans potentially ruinous, often illegal," offers these suggestions to retirees who may need fast access to cash:
"If you own a pension, do not enter into any agreement with an organization offering this product. If you have a short-term cash flow problem, pursue other alternatives. If you must borrow money, borrow it from a financial organization that is regulated by either state or federal authorities. State and federal regulators offer consumers protection and limits on the interest rates they can be charged on loans."
If you have already entered into a loan, contact a lawyer or the Missouri Attorney General’s office for help and file a complaint with the Consumer Finance Protection Bureau.
Comments or questions for MOSERS?
Your opinions and questions are important to us. If you would like a direct response to a question, please include your name and email address below. If your feedback involves an email you received from MOSERS, please include the subject of that email with your comments below.
Help us help others. If you have a question, others may too.
If your question is of general interest and has not already been addressed on Rumor Central, we may post it there. We won’t use your name, email address or any other individually identifying information.