HARRISBURG — The Department of Banking and Securities is warning consumers about doing business with any company offering an advance on a retirement pension.
These so-called lump sum “pension advances” are thinly-disguised loans with no contractual or financial relationship with the consumer’s pension or pension plan. The total payments made on the “advance” often far exceed the initial loan amount.
In almost all cases, the payments made by the consumer are more than a lender can legally charge on a loan to a Pennsylvania resident.
The department issued a cease and desist order in May against one such company that was acting as an unlicensed lender in Pennsylvania.
Here are five questions consumers should consider asking when presented with any business proposal involving their pensions:
Is this company licensed to do business in Pennsylvania? In most cases, any company offering to advance money that must be repaid in Pennsylvania needs a license from the Department of Banking and Securities, making it subject to examination and offering protections to consumers.
What does the repayment amount equal in terms of an interest rate on the amount advanced? The repayment amount on these “advances” is mostly interest on a loan. In Pennsylvania, there are legal maximum interest rates established by the Consumer Discount Company Act and Loan Interest Protection Law.
Are fees and commissions being charged? The cap on interest rates in Pennsylvania is inclusive of all fees charged to the consumer.
Are you allowed to assign your pension benefits to a company? Check with the administrator of your pension plan to determine what restrictions might apply.
Does the company require the purchase of a life insurance policy naming it beneficiary? Some companies might have this requirement to ensure their future payments – because this transaction has nothing to do with your pension.
Consumers who have questions regarding one of these companies or believes they have been unlawfully charged interest or fees should contact the department’s Consumer Services Office at 1-800-PA-BANKS or file a complaint online: www.dobs.pa.gov/Consumers/Pages/File-a-Complaint.aspx.