NEW YORK (5/6/12)--Some companies targeting retirees with pension advance offers are getting scrutiny from regulators because the companies charge steep interest rates, they aren't disclosing their fees in their ads or contracts, and their operations fall outside state and federal banking regulations, according to The New York Times (April 27).
The Times conducted a study of more than two dozen pension-based loan contracts and found that after factoring in fees, the interest rates on these loans ranged from 27% to 106%. To qualify for the loan, the borrowers were sometimes required to take out an insurance policy naming the lender as the sole beneficiary.
The companies are courting retirees with public pensions--such as military veterans, police officers, firefighters and teacher--and offering to make short-term loans. They advertise through online and local newspaper ads, and circulars.
Legal aid offices in several states--Arizona, California, Florida and New York--said they've received a surge in complaints. The Consumer Financial Protection Bureau and the Senate's Committee on Health, Education Labor and Pensions are examining the loans, said the Times.