Are Pension Advance Companies The New Payday Loan Lender?

Image courtesy of (frankieleon)

While many consumers who are short on cash between paychecks might seek help from the often predatory payday lending industry, more and more retirees are turning to their equivalent – pension advance lenders – when struggling to make ends meet, sometime with devastating results.

Today, the Consumer Financial Protection Bureau issued a warning to people who depend on a pension to cover the cost of their day-to-day needs. These consumers are advised to be on the lookout for unscrupulous pension advance companies that are more focused on bringing in money than providing aid.

Similar to payday lenders, pension advances companies provide cash advances in exchange for a portion or all of a consumer’s future pension payment.

And just like typical payday loans, pension advances come with high interest rates and fees. The products are often targeted at government retirees and former servicemembers, despite the fact that it is illegal for lenders to take a military pension or veterans’ benefits under the Military Lending Act.

The CFPB reports that pension advance companies will often use patriotic-sounding names or logos and even claim they are endorsed by the Department of Veterans Affairs as a way of enticing potential customers.

As part of a consumer advisory the CFPB released a list of ways consumers can protect themselves and their pension for being exploited.

Avoid loans with high fees and interest. Pension advance companies may not always advertise their fees and interest rates, but you will certainly feel them in your bottom line. Before you sign anything, learn what you are getting and how much you are giving up.

Don’t sign over control of your benefits. Companies sometimes arrange for monthly payments to be automatically deposited in a newly created bank account so the company can withdraw payments, fees and interest charges from the account. This leaves you with little control.

Don’t buy life insurance that you don’t want or need. Pension advance companies sometimes require consumers to sign up for life insurance with the company as the consumer’s beneficiary. If you sign up for life insurance with the pension advance company as your beneficiary, you could end up footing the bill, whether you know it or not.

Consumer advisory: 3 pension advance traps to avoid [Consumer Financial Protection Bureau]