The Consumer Financial Protection Bureau today issued a strong warning to people who depend on their pensions to cover day-to-day expenses. The CFPB says some retirees who are facing financial problems are responding to ads for cash advances on their pensions, sometimes with devastating results.
Like payday loans, pension advances may seem to offer a “quick fix” to financial woes. But, like payday loans, they can come with a very high price. Once the retiree has to pay back the advance plus high interest and fees, there can be very little left of their retirement income.
The CFPB especially warned retirees against pension advance companies who use patriotic-sounding names or logos and even claim they are endorsed by the Department of Veterans Affairs as a way to lure potential customers.
The CFPB recommended three things you can do to protect your retirement pension:
1) Avoid loans with high fees and interest. Pension advance companies may not always advertise their fees and interest rates upfront. Be sure to know just what you are signing up for.
2) Don’t sign over control of your benefits. Pension advance 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.
3) 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 retiree’s beneficiary.
Here is a printer-friendly version of this information from CFPB.