Legislation recently introduced by Congressmen Matt Cartwright (D-PA) and Gerry Connolly (D-VA) aims to protect federal workers, military retirees, and postal retirees by expanding Truth in Lending Act disclosure provisions to any situation where a federal or military pension is used as consideration for an “advance.” The bill also caps the interest rate on such an “advance” at prime plus six percent.
The bill is known as the Annuity Safety and Security Under Reasonable Enforcement (ASSURE) Act (H.R. 3850).
The bill targets “pension advance” schemes that offer annuitants immediate cash and, in exchange, require them to sign over all or part of their future monthly pension checks to a separate bank account managed by the lending company.
It also addresses the lack of a private right of action in many of the applicable federal statutes that prohibit pension assignments. This means that private individuals may not sue to enforce laws that are already on the books, instead it is up to governmental authorities to take action. This legislation would create a private right of action allowing for the recovery of treble damages, court costs, and attorneys’ fees.
The Congressmen assert that these measures will protect federal retirees from exploitation, allow individuals to assert their rights in court, and ensure that retirees maintain their financial independence.
A review by The New York Times of more than two dozen contracts for pension-based loans found that after factoring in various fees, the effective interest rates ranged from 27 percent to 106 percent — information not disclosed in the ads or in the contracts themselves. Furthermore, to qualify for one of the loans, borrowers are sometimes required to take out a life insurance policy that names the lender as the sole beneficiary.
“While current federal law already prohibits federal and military retirees from assigning their pensions to a third party, many companies have resorted to skirting state and federal laws by requiring the retiree to deposit his or her pension in a separate bank account controlled by the firm,” Cartwright said. “Moreover, firms refer to the product they sell as a “pension advance” rather than a loan. In reality, these “advances” require borrowers to sign over all or part of their monthly pension checks and carry interest rates that are often many times higher than those on credit cards.”