Pension Advance Scams: 2 Kinds of Bad

I’ve been very proud of a step my home state of Missouri recently took to prevent a particular form of scam targeting seniors with a pension from being a public employee. HB1217 makes it illegal to lend money against public employee pensions, and it should be a precedent for other states’ legislatures and the federal government, and future legislation should, in my opinion, outlaw the business altogether. Missouri is the first state in the nation to outlaw this practice. Way to go, MO!

 

Pension advance scams go by many names: “Pension advances,” “pension sales,” “pension loans,” and “pension buyouts” are the most common ones. An elder with a pension from the government, the military, or a corporation signs away their payments for a period of 5 to 10 years in exchange for an upfront lump-sum payment. The first kind of bad in this scam is that there are several deceptive “gotchas” with this scheme for those who borrow against their future payments:

 


 


 

In addition, the pension advance companies seek people to buy into these schemes as investors, and they often target seniors looking for low-risk investments with a monthly payout and annual returns of 7% or more. The second kind of bad with pension advance scams is that some judges have ruled them unenforceable, meaning the investors lost their money when the borrower simply stopped paying. The FTC also reported that the pension advance companies may charge investors high fees and make it very hard to get out of the investment. It’s also important to note that these so-called “investments” are usually not regulated by the Securities and Exchange Commission.

 

Sadly, far too many elders wind up in financial trouble for a variety of reasons. Sometimes they turn to sources of ready cash such as pension advance scams(“payday loans in sheep’s clothing,” according to one state regulator). Please pass the word about this problem (refer them to this blog post, for example) and help elders find workable alternatives in cash crunches whenever possible by referring them to reputable professionals.   

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