Construction mechanic Darren Smith was working on a road crew in 1995 when a drunk driver hit him head-on and put him out of work for good. Today, a pension through the Operating Engineers union keeps him afloat. But a pension advance deal, something he thought was a loan against his pension, threatens to undermine Darren’s financial security and take a big bite out of his income.
What happened to 51-year-old Darren is emblematic of a growing national problem that threatens pension and retirement security.
Stuart Rossman, Director of Litigation for the National Consumer Law Center, says, “Virtually every situation where a person has a pension, a guaranteed income stream, there’s a vulnerability. It’s an area that’s ripe picking for those individuals who engage in scams to rip people off.”
Retired military members, those like Darren on disability, and older people with pensions find their way to Internet sites that seem to provide an easy answer to difficult situations.
AARP attorney Jay Sushelsky told ConsumerMojo, “This is predatory lending. These are lenders of last resort. The people who borrow money are very desperate for quick cash. But chances are they are going to be in worse shape six months after the transaction than they were before.”
It’s unclear how many people have been sucked into these deals. But we do know that interest rates often run from 25 percent to over 100 percent. All you have to do is Google “pension advance,” and pages fill with companies ready to sign you up.
Details may vary, but Darren’s experience seems to mirror that of many others. He needed money to help pay for a young cousin’s funeral and to consolidate some of his own debts. “In August, 2013, I was looking online for a loan for about $5,000 and this company kept popping up,” he explained.