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GAO Undercover Investigation Raises Questions About Pension Advance Companies’ Business Practices


WASHINGTON, D.C.—The Government Accountability Office (GAO) released the results of an undercover investigation into pension advance companies requested by Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee and Senator Lamar Alexander (R-TN), Ranking Member of the HELP Committee. GAO found questionable business practices at companies that, in exchange for a consumer’s future pension payments, offer some financially distressed consumers lump-sum payments that are often worth far less than the current value of the pension itself. Harkin and Alexander continue to examine the business practices of these companies in order to protect consumers and their retirement security.

“This GAO report shows that there are some in the pension advance industry who are attempting to take advantage of financially distressed consumers by buying pensions for a lump sum,” said Harkin.  “That may sound like a good idea to someone who is facing financial challenges, but over the long term, it can actually leave them worse off. The GAO’s report indicates that more work needs to be done to better understand the full extent of these practices.”

“There is a lot we don't know about this practice of pension purchases. The results of this investigation are one source of information as we look into the practice and concerns that some pension advance companies may be preying on retirees who are in financial difficulty,” Alexander said. 

Posing as consumers in need of immediate cash, GAO investigators identified 38 companies that offered payments in exchange for receiving part or all of consumers’ pension payment streams. Many of these companies also offered lump-sum cash advances for a wide range of income streams, including lottery winnings, insurance settlements, and inheritances. Eighteen of the companies were concentrated in just one state—California—though almost all of them offered services nationwide. All of the companies operated primarily on the Internet and typically covered various types of pensions, including private, corporate, federal, state, teacher, military, and VA disability. Highlights from the investigation include the following:

  • Offered Pension Advances Were Often Worth Less Than the Value of the Pension Itself, Potentially Putting Consumers’ Retirement Security at Risk: Undercover investigators received quotes for pension advances from six companies. These offers did not compare favorably with other recognized financial products, such as traditional loans or lump-sum options through pension plans, though GAO did not analyze whether other financial products would have been available to consumers. Specifically, the pension advance offered by the six companies would have required payback at 27 to 46 percent interest rates.
  • Lack of Clear Disclosures: Some companies may have failed to disclose in written offers the full amount of additional fees associated with the advances—for example, whether a pensioner is required to purchase life insurance.
  • Potential Targeting of Vulnerable Consumers: Twenty-eight companies used marketing or sales pitches to target consumers in need of cash to address an urgent need, such as paying off credit card debt, tuition fees, or medical expenses. Eleven companies specifically targeted consumers with bad credit, and some of those companies’ representatives encouraged those with past bankruptcies or other “blemishes” to apply for advances.
  • Lack of Business Transparency: At least 30 companies had a relationship or affiliation with each other, including as a subsidiary or a broker, or the companies were the same entity operating with more than one name. However, only nine companies clearly disclosed these relationships to consumers. This lack of transparency could make it difficult for consumers to know whom they are really dealing with, especially if they are dissatisfied with the service and want to file a complaint. 

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