Pension advance loans

  • Published
  • By 2d Lt Charles Y. Yi
  • 17th Training Wing Legal Office
GOODFELLOW AIR FORCE BASE, Texas --  Last March, the Consumer Financial Protection Bureau issued a bulletin warning to veterans and retirees against buying loans from financial managers and pension loan companies that offer pension advances.

A pension advance is a loan offered in exchange for all or part of a retiree’s pay. Federal law prohibits veterans from automatically turning over benefits to third parties, but pension advance firms are circumventing the regulation by misleadingly marketing the loans as advances.

The prospect of a large amount of money up front is enticing retirees and military personnel with financial issues to participate. However, the amount of money paid up front for the loan is often considerably smaller than what a veteran would have earned if he or she waited to receive full pension payments. The loans carry interest rates that are often many times higher than credit cards, running anywhere from 27 percent to 106 percent.
Two pension loan companies and three individual managers have already landed in hot water for deceptively marketing pension advance loans to military personnel. Earlier this year, the Consumer Financial Protection Bureau and the New York Department of Financial Services jointly filed suit against them for engaging in unfair, deceptive and abusive practices in offering consumer financial products and services by misrepresenting their products as a sale and not a loan. They also failed to disclose the interest rate and fees associated with the loans.

If you are having financial trouble, safer options are available. Consider a small loan from your credit union or a small loan company. If late on bills, contact your creditors or loan servicer as quickly as possible and ask for more time. Non-profit organizations like the Consumer Credit Counseling Service can also help work out a debt repayment plan with creditors or develop a budget at no or low cost.

Pension advances promise quick money, but the cost can be very high. If you are considering a loan, always make sure to research the terms and conditions to figure out whether it will actually benefit you in the long run, and whether the loan violates any federal laws.
For further information on this topic, please contact the base legal office at 325-654-3203.