The Federal Trade Commission (FTC) recently issued a warning about pension advances, which seniors and veterans can take against their future pension payments.
Also called buyouts or pension sales, these products carry annual percentage rates that top 100 percent. The loans are typically for five to 10 years, and consumers who are repaying the debt usually have to live on less. Pension-advance lenders also often insist that borrowers take out an expensive life-insurance policy that names them as the beneficiary. When working with pension lenders, borrowers usually have to forward their payments to a banking account that they share with the lender or an affiliate. This type of arrangement allows the companies to avoid state lending caps and federal lending laws. Because of the loans' gray regulatory area, the company may not disclose the annual percentage rate.
Seniors who are on a pension and struggling to make ends meet should first look at free or low-cost resources. Home-repair programs, energy-assistance initiatives, and free tax-return assistance can help seniors cut expenses. Those who are still considering a pension advance should ask whether they are eligible, what the costs are, what are the tax implications, whether the transaction can be canceled, what is the lender's reputation, and whether there is an alternative available.