Consumer-watch groups warn that older Americans may be at risk of losing their pensions to loan scammers. Recently, aggressive lenders have been targeting retired teachers, military veterans, first responders and other pension holders to take out cash advances from their retirement funds. These so-called advances are in reality craftily disguised loans that carry extraordinarily high interest rates and other dangerous terms. Some of the lenders require the borrowers to sign over their monthly retirement checks. In other instances, the companies stipulate that the borrower must take out a life insurance policy naming the lender as the sole beneficiary in order to qualify for the loan.
The New York Times recently released the results of its review of over two dozen pension-based loan contracts. The results showed, after factoring in numerous fees, that the interest rates had a broad percent range — from as little as 27 percent to as much as 106 percent. Not surprising, the loan companies did not disclose this information in their ads or even in the loan contracts.
The rising debt of older Americans
In these tough economic times, people of all ages are carrying higher debt. Seniors are shouldering an unusually heavy load. The Census Bureau reports that the median debt levels of older Americans totaled $12,000 in 2000 and rose by 50 percent in 2011 to $26,000.
When retirees have difficulty covering their daily living expenses or need extra cash for an emergency, there may be few borrowing options available. Pension advances promise quick cash and seem harmless because the lenders carefully hide the true interest rates. For those already overwhelmed with high debt, these loans can be detrimental.