U.S. Senate Hears Testimony on Predatory Pension Advance Schemes


OpenRetirement has occasionally covered the growing business of pension advances—businesses that apply the concept of a payday advance to retirement benefits by giving retirees an option to receive their pension as a lump sum.

These schemes are rarely advantageous for retirees and are often predatory, but they remain largely under-the-radar and Missouri is so far the only state to ban the practice.

But this week, the business of pension advances made its way to the halls of the U.S. Senate.

More from the Arkansas Democrat-Gazette:

A lending scheme gives retirees and former military members lump sum payments in exchange for future pension payments and then charges outrageous fees on the money they’ve advanced, Arkansas Securities Department staff attorney Kaycee Wolf told a U.S. Senate committee Wednesday.

The Senate’s Special Committee on Aging is investigating pension advances, when a company gives pensioners a lump sum of cash in exchange for future pension payments. The company then sells those monthly payments to investors, pitching the contract as a reliable source of steady income. The company that acts as a middleman in the arrangement charges fees, commission or interest to both the pensioner and the investor.


“A lot of investors we saw were looking for a safe, low-risk investment and that’s how the product was packaged to them,” she said. Instead, the contracts they signed didn’t specify interest rates, explain the fees and commissions that the company would take off the top, or state that the government doesn’t recognize the transactions or back the loans, she said.

[National Consumer Law Center litigation director Stuart] Rossman said victims tend to be retired military personnel, public employees like firefighters and teachers and others who have a guaranteed pension and need quick money. He said the pension-advance companies swarm like bees to honey.

“They are just naturally attracted to the fact that the money is there, particularly when we’re dealing when vulnerable populations who are relying on their pension as their safety net,” he said.

The Government Accountability Office in 2014 identified about 40 companies around the country using “questionable” tactics to sell pension advances.


Photo by http://401kcalculator.org via Flickr CC License

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