As part of its investigation, the GAO identified at least 38 companies that offered individuals lump-sum payments or advances in exchange for receiving part or all of their pension payment streams. These companies used multistep pension advance processes that included various other parties. The GAO investigation report says at least 21 of the 38 companies were affiliated with each other in ways that were inapparent to consumers. Findings also show that all of the companies operated primarily as Web-based companies and that some targeted financially vulnerable consumers who had poor or bad credit nationwide.
According to the report, the GAO received offers from six out of 19 pension advance companies. These 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 offered to the GAO during its undercover investigation typically ranged from approximately 27% to 46%—at times close to two to three times higher than the legal limit set by the pertinent state on interest rates assessed for various types of personal credit.
As a result of its findings, the GAO recommends that the Bureau of Consumer Financial Protection (BCFP), as well as the Federal Trade Commission (FTC), review the pension advance practices identified in the report and exercise oversight as needed. The FTC reports it has not taken any public enforcement actions, due in part to not receiving many complaints related to this topic. The bureau says its oversight has been limited to instances where the products met certain criteria.
The GAO also notes that consumers who are vulnerable to financial exploitation may lack the information needed to make sound decisions when it comes to pension advance transactions. The report recommends that, since the Bureau of Consumer Financial Protection facilitates coordinating federal financial education, it could help ensure that information reaches relevant pensioners.
The report documenting the results of the GAO investigation:
- Describes the number and characteristics of pension advance companies and marketing practices;
- Evaluates how pension advance terms compare with those of other products; and
- Evaluates the extent to which there is related federal oversight.
Report highlights, as well as the full version, can be found here.