To retirees, the offers can sound like the answer to every money worry: convert tomorrow’s pension checks into today’s hard cash.
But these offers, known as pension advances, are having devastating financial consequences for a growing number of older Americans, threatening their retirement savings and plunging them further into debt. The advances, federal and state authorities say, are not advances at all, but carefully disguised loans that require borrowers to sign over all or part of their monthly pension checks. They carry interest rates that are often many times higher than those on credit cards.
In lean economic times, people with public pensions — military veterans, teachers, firefighters, police officers and others — are being courted particularly aggressively by pension-advance companies, which operate largely outside of state and federal banking regulations, but are now drawing scrutiny from Congress and the Consumer Financial Protection Bureau.
The combined debt of Americans from the ages of 65 to 74 is rising faster than that of any other age group, according to data from the Federal Reserve. For households led by people 65 and older, median debt levels have surged more than 50 percent, rising from $12,000 in 2000 to $26,000 in 2011, according to the latest data available from the Census Bureau.
While American adults of all ages ran up debt in good times, older Americans today are shouldering unusually heavy burdens. According to a 2012 study by Demos, a liberal-leaning public policy organization, households headed by people 50 and olderhave an average balance of more than $8,000 on their credit cards.