The Government Accountability Office (GAO) has identified companies that offer advances in exchange for receiving all or part of their pension funds and questionable practices that may put plan participants at risk. “Pension Advance Transactions: Questionable Business Practices Identified,” a report the GAO prepared for the Senate Committee on Health, Education, Labor and Pensions, identified questionable elements of these transactions.
The GAO identified at least 38 companies that offered such payments; it found that they used multistep pension advance processes that included other parties. All of them were web-based. At least 21 of them were affiliated with each other in ways that were not apparent to consumers. Seventeen offered other financial products in addition to advances. And some of the 38 targeted financially vulnerable consumers with poor or bad credit.
Undercover GAO investigators received offers from six of 19 pension advance companies. The offers compared unfavorably with other financial products or offerings, such as loans and lump-sum options through pension plans. For example, the effective interest rates on pension advances typically ranged from approximately 27% to 46%, which were at times close to two to three times higher than the legal limits set by the related states on the interest rates assessed for various types of personal credit.
The GAO conducted this study because concerns have been raised about companies attempting to take advantage of retirees using pension advances. GAO was asked to review business practices related to pension advances. The GAO recommends that the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) review the practices the report identified and exercise oversight or enforcement as appropriate. The GAO also recommends that CFPB coordinate with relevant agencies to increase consumer education about pension advances. The CFPB and FTC agreed with these recommendations.
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