Consumer advisory: 3 pension advance traps to avoid
By Nora Dowd Eisenhower, Assistant Director,
Office for Older Americans, and Holly Petraeus, Assistant Director, Office of
Servicemember Affairs, Consumer Financial Protection Bureau
Many retirees depend on a pension to cover
day-to-day as well as occasional unexpected expenses, such as health emergencies
or home repairs. We’ve heard that some retirees with pensions who are facing
financial challenges have responded to ads for cash advances on their pensions.
Although pension advances may seem like a “quick fix” to your financial
problems, they can eat into your retirement income when you start paying back
the advance plus interest and fees.
A pension advance is a cash advance in
exchange for a portion, or all, of your future pension payments. Pension advance
companies typically charge high interest rates and fees and often target
government retirees with pensions. Former servicemembers should also be on
guard. Military retirees and veterans who receive monetary benefits from the
Department of Veterans Affairs (VA) have been offered pension advances even
though it’s illegal for lenders to take a military pension or veterans’
benefits. Many of those companies use patriotic-sounding names or logos and even
claim they are endorsed by the VA as a way of enticing potential customers.
If you or a loved one is considering a
pension advance, consider your alternatives. [MORE]