As if there are not enough scams that target older Americans and retirees, now there are people who are trying to cheat them out of their retirement income by offering to lend them money against their pensions.
You have probably seen ads for payday loans. The loans that are targeted at retirees are essentially the same as payday loans, except they are called advance pension loans. The annual interest rate on these loans can be as much as 100%, according to the Consumer Financial Protection Bureau.
An interest rate of 100% is outrageous, especially since the loans are taken out against secure pensions which are generally guaranteed as long as the person is alive.
Warnings Against Advance Pension Loans
An interest rate of 100% is outrageous, especially since the loans are taken out against secure pensions which are generally guaranteed as long as the person is alive.
Warnings Against Advance Pension Loans
The CFPB is warning retirees to avoid these types of loans. They report that the loans are being offered in very deceptive ways. This is an important enough issue that I wanted to pass on the Consumer Financial Protection Bureau warnings.
How Advance Pension Loans Work
In particular, the lenders purposely target retired military personnel, police officers, firemen, state employees and others who are entitled to a government or private pension. The lenders typically offer to loan the recipient a lump sum and, in return, they ask for access to the retiree's pension information until the loan is paid off. Since the interest rate can be 100% (and sometimes more), it can be almost impossible for someone on a tight fixed budget to ever be able to repay the loan.
These lenders are often operating illegally. It is against federal law for pensions to be assigned to a third party; however, the lenders are getting around the law by opening special joint bank accounts with the retirees in order to hide what they are doing. The pension is deposited into the bank account and the lender removes it.
Since the lenders often do not reveal the exact terms of the loan, the pensioners frequently do not have any idea how much they will have to repay and many have no idea what they are getting themselves into.
The national Consumer Financial Protection Bureau is also concerned and they have issued a nationwide alert.
How to Protect Yourself from Predatory Lenders
How to Protect Yourself from Predatory Lenders
How can a consumer protect themselves from these predatory lenders?
1. Do not give a lender access to the bank account where you receive your pensions. Do not enter into an agreement with someone in which you pledge your pension in return for a loan.
2. Do not borrow money from an unfamiliar organization or loan company. Go to your bank or a trusted financial advisor if you need money in a hurry. There are better options and you may be able to take out a personal loan or a loan against one of your assets, while getting much better terms such as a lower interest rate, particularly if you have a long-term relationship with your bank.
3. For more ideas, check out the Consumer Financial Protection Bureau article below. (It is the third link listed in the Resources section.)
Resources for this story:
In addition, if you want more retirement planning information, check out more articles using the index tabs at the top of this page. In particular, you will want to check out the Retirement Money tab.
You are reading from the blog: http://baby-boomer-retirement.blogspot.com
Public domain photo of military personnel is courtesy of www.morguefile.com
We should all be as inventive as these scammers! It's heartbreaking to learn they've found another new way to dupe seniors.
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