Retirees are being solicited by certain companies to obtain “pension advances,” which regulators say are really disguised loans. The New York Times has determined that pension advances carry (after factoring in fees) interests rates ranging from 27 percent to 106 percent. Jessica Silver-Greenberg, “Loans Borrowed Against Pensions Squeeze Retirees,” New York Times, Apr. 28, 2013, p. A1.
Ads for the pension advances tout to military retirees and others: “Convert your pension into CASH”; “You have put your life on the line for Americans to protect your way of life. You deserve to do something important for yourself.”
According to the New York Times, legal aid offices in Arizona, California, and New York have reported a surge in complaints from retirees about the products.
The New York Times reports:
Pitches to military members must sidestep a federal law that prevents veterans from automatically turning over pension payments to third parties. Pension-advance firms encourage veterans to establish separate bank accounts controlled by the firms where pension payments are deposited first and then sent to the lenders. Lawyers for retirees have challenged the pension-advance firms in courts across the United States, claiming that they illegally seize military members’ pensions and violate state limits on interest rates.
To circumvent state usury laws that cap loan rates, some pension advance firms insist their products are advances, not loans, according to the firms’ Web sites and federal and state lawsuits. On its Web site, Pension Funding asks, “Is this a loan against my pension?” The answer, it says, is no. “It is an advance, not a loan,” the site says.
The advance firms have evolved from a range of different lenders; some made loans against class-action settlements, while others were subprime lenders that made installment and other short-term loans.
One former Marine, Ronald Govan of Snelville, Georgia, states, “I served this country and this is what I get.” The N.Y. Times reported that Govan paid an interest rate of more than 36% on a pension-based loan.