Most people have heard about "Payday Advance" companies which charge astronomical interest rates to people in desperate need of a loan, burying them futher into debt.
Not satisfied with milking the young and middle-aged poor, now these types of companies are going after senior citizens with a new scheme called "Pension Advances."
In exchange for a loan, an elderly retiree signs away part of their pension payments until the loan is paid. Of course, that loan comes with sky high interest rates of "27 to 106 percent," reported The New York Times.
The prime targets of this "service" are U.S. veterans and government employees.
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According to another article by The New York Times:
Some of the concern on abuse focuses on service members. Last year, more than 2.1 million military retirees received pensions, along with roughly 2.6 million federal employees, according to the Congressional Budget Office. Lawyers for service members argue that pension lending flouts federal laws that restrict how military pensions can be used.
How do Pension Advance companies get around the law? The Consumer Financial Protection Bureau states:
In the case of veterans, federal law contains a general prohibition on assigning military pensions to a third party. Reports indicate that many firms may try to get around this by calling the lump sum payment a loan or an advance and by urging veterans to deposit their monthly retiree payments in a newly created bank account controlled by the firms, which is then debited to pay back the lenders.
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The Pension Advance companies go one step further. They require their elderly borrowers to take out a life insurance policy, in which the Pension Advance company is the sole beneficiary.