“Put down that Loan Application….and slowly walk away” (Pension Advances – the latest way to steal)

When Consumer Courage was in our teens (and when our hearts were stronger) we used to got to scary movies.  And, there was always a scene when the heroes were being chased by the slasher/villain.  They would come across a functional, primed, easy-to-use, easy-to-carry weapon and then drop it, as if it were a rabid ferret.  Then, they would say “let’s split up!” And we would scream “NOOOOO!……,” as they would each trudge off into a separate (non-lighted) direction.  You can guess what happens next….When Consumer Courage reads about this week’s subject (a shameful product called “Pension Advances”), it elicits the same response: “NOOOOOOOO!” 

What are Pension Advances? 

A ‘Pension Advance,’ is when a company gives you money, because you agree to give them access to the monthly checks from your retirement account, until you have paid them back.  The access that you give them will be forever – because they will require you to sign a contract that says that you cannot revoke, change or alter the amount money that they get.  By the time you are finished paying them, they will get much more money from you than you ever dreamed. 

And, because the entire transaction is not a loan (‘This is NOT a loan’ is a phrase you will see many times on the documents that you sign), they aren’t required to be upfront with you about:

    • The interest rate you will be charged; 
    • The costs you will be charged;
    • The fees that will be paying; or
    • The fact that even your death won’t stop them from getting your pension money

As we will see, these products are set up as such a way that makes changing them virtually impossible.  In the words of Stuart Rossman, the Director of litigation for the National Consumer Law Center,  they are “Diabolically ingenious.”   

How much damage can Pension Advances do?

Look at the story of Dr. Louis Kroot, a Navy physician who got stung by one of theseHe needed money, to be sure (Medical bills to care for his daughter and a tax bill from the State –  because he used his retirement to help pay some of those bills).  In exchange for a payment of $91,566.37, he will wind up paying $242,753.99 over 95 months.  (That interest rate is more than 30% and it happens to be illegal in a great many states) 

Dr. Kroot’s story highlights a misunderstanding that most consumers suffer from, when it comes to borrowing money.  Just because someone is willing to give you money, doesn’t mean that you can afford to pay them back, or that it is a good idea.  When someone lends you money (or gives you a Pension Advance) they aren’t doing it because the just “love you” and want to help you out.  They are lending you money, because the amount of fees and interest you pay are going to make them rich.  And, if you are getting money from an industry where there are no governmental regulations, you have to be even MORE careful. 

Why is a Pension “ADVANCE” not a loan?

This is by design.  They go to great pains to make sure that the money you get is not considered a loan. This way, none of the Consumer laws that usually apply to consumer transactions can help you. 

    • The Truth-in-Lending Act (TILA); 
    • Ohio Small Loan Act (SLA); 
    • Ohio Mortgage Lender Act (OMLA);
    • Ohio Short-term Lender Act (STLA)………….

None of these laws (and their fancy-schmancy disclosures and consumer protections) will do you any good.   In fact, no Federal Statute covers the transaction that you are about to enter.  As a result, the Pension Advance industry is entirely unregulated.  This means that the person trying to get you to enter into a Pension Advance deal knows that no matter what they say – no matter what lie they tell you to get you to sign – without a law to protect your rights, you simply don’t have any.  Pension Advances are a salesman’s dream: the cost to the customer (and therefore, the commission) are high; and the customer simply canNOT get out of the deal, once it goes through.  

If it’s not a ‘loan’ how does it work?

Here’s what they make you do, before they give you money (this information was graciously donated by Stuart Rossman, from the NCLC)

    • First, you will set up a new checking account to make the monthly payments to the Pension Advance company.  To achieve this, you will give your pension administrator authorization to funnel that payment amount from your monthly check, directly to the new account (before you ever see it);
      • That new account will have three names on it: you and two representatives from the Pension Advance company.  You will agree IN WRITING that nothing will happen on that account unless two of those three people give permission.  (If you want to change or stop the payouts, once you get the money, do you think you are going to be able to get one of the Pension Advance company reps to sign along with you?…………me neither)
    • Second, you will give them a Power-of-Attorney that will give them access to any other accounts where your pension benefits go (like your regular checking or savings accounts), just in case there’s a problem.
    • Third, they will buy  – and you will pay for – a forced-place insurance policy, naming them as the beneficiary (in case you happen to pass away) before they have all of their money.

Can’t I just fill out a form and stop the payments, myself?

Well……not exactly.  As part of the transaction, you will agree IN WRITING that if you take any steps to stop the payments (like calling your Pension and telling them to stop the payments) they will add an additional two years to the payment cycle.  If the loan is for 8 years – a common length of time for these –  and you try to stop the payments, you will have agreed IN WRITING that it should become a 10-year loan.  (If Dr. Kroot, our Naval Officer, had tried that, he would’ve had to pay an additional $58,976.88, just for trying to get out of the contract!)

In case you’re wondering, the law in Ohio is that if you can read a contract and sign your name to it, you are bound by the terms – no matter how ridiculously one-sided that contract is. 

How do you protect yourself from Pension Advances

The obvious method is in the words of Lou Tisler (the Executive Director of Neighborhood Housing Services of Greater Cleveland ,NHSGC, the parent company of Consumer Courage), “Don’t get one.”

Remember a few things:

    • The less questions that they ask and the less time you have to wait for the money – the more likely it is that the money that you are trying to get is WAY too expensive.  If it only takes them a few days to give you the money, or – Ye Gods – a few hours, it is because they are about to steal from you.  (because the interest rate is so high; because you won’t be able to stop it, or both)
    • Always ask for a day or two to think it over.
      • Their enemy is an informed-patient consumer, so they try to pressure you into signing “TODAY!”   But, you can use this against them. Tell them: “Since your approval process is so quick, I certainly have time to think it over!”
    • Call someone you know and see if they will be the voice of reason
      • There is no decision that is too-important to make without getting advice from one of your friends.  Ask for help.  High-pressure salesmen want you to decide right away and without help. 
    • Remember:  fewer Government regulations means a BIGGER incentive to mislead you about the truth and a BIGGER likelihood that the transaction is going to be loaded with provisions that you are going to regret.
      • Before you take part in any transaction, call around and see just how many Consumer Protections you have.  If you don’t have any – that’s a problem.
    • The longer you are going to take to pay a debt – the more it makes sense to take your time, do research and listen to someone other than the person who is going to make money off of you.

And if someone calls you about taking out a Pension Advance, remember our foolish teenage horror-movie hero and scream, “NOOOOOOOOOOOO…………..

Posted by: Mark Wiseman (who is eons away from even thinking about a pension)