Pension lending faces strict regulation

State Treasurer Beth Pearce references an enlarged screen shot of a news website, behind her. An ad for pension loans appears above an article quoting her concern about pension funding. Photo by Hilary Niles/VTDigger

State Treasurer Beth Pearce references an enlarged screen shot of a news website, behind her. An ad for pension loans appears above an article quoting her concern about pension funding. Photo by Hilary Niles/VTDigger

Vermont is looking to curb a new predatory loan practice that targets retirees.

Online advertisements for “pension loans” or “pension advances” started cropping up on Vermont websites in the last year or so, says Jay Sushelsky, a senior attorney for AARP in Washington, D.C.

Most pensioners are retirees, but military veterans also can fall prey to the scam. Ads offer lump-sum cash advances in exchange for monthly pension checks — often with usurious interest rates, hidden fees and other obligations that put retirees in a losing position.

It’s typically a loan “of last resort” that worsens a situation for people who are already vulnerable, Sushelsky told the House Committee on Commerce and Community Development Friday.

“If they were desperate to make a loan and these were the only asset they had … I think it’s clear within a very short time after, the person would be more desperate, not less,” Sushelsky said.

What’s more, the lenders try to get around existing regulations by saying their schemes are not loans.

“They could call it a pineapple for all I care,” Department of Financial Regulation Commissioner Susan Donegan told the committee. “We look at the practice. It doesn’t matter what you’re calling something. If you look at the results, it’s a loan.”

If the proposal now in the Legislature passes, Vermont would be the first state to pass a regulation specifically geared toward pension lending. The predatory practice came out of the shadows in 2013 with the publication of aNew York Times expose.

UnderS.223, the state would not ban pension lending, but would instead require companies to become licensed lenders. Sen. Kevin Mullin, R-Rutland, sponsored the bill.

Donegan said licensure solidifies her office’s and the Attorney General’s authority to go after pension lenders who violate existing statutes such as truth-in-lending requirements, prohibitions against unfair and deceptive practices, and caps on interest rates.

“If they seek (a license), it gives us the chance to deny it if their business model is inappropriate,” Donegan said. If a lender were to obtain a license but violate the regulations, or issue pension loans without a license, he or she could face penalties.

The fine for unlicensed lending is up to $10,000 per violation — including solicitations. That means even advertisements appearing online today could get pension lenders in trouble in Vermont, according to assistant attorney general Naomi Sheffield.

“The purpose of this (bill) is to confirm what we feel we already have in place,” Sheffield told the committee Friday.

Victims also could file suit privately. There have been no known cases of pension lending in the state, according to officials. The legislation is proactive.

“As a regulatory agency, we often are reactive and the law is catching up to what’s going on in the marketplace. I think getting ahead of things is good,” Donegan said. “Let’s go for it.”

State Treasurer Beth Pearce also supports the bill.

“We believe they’re unregulated, predatory and they undermine the financial security of our seniors,” Pearce testified. The fact that Vermont’s population is aging magnifies that danger, she said.

When people are financially secure in retirement, they purchase goods and services without relying on public assistance. Pearce said “siphoning off dollars” from retirement accounts ends up costing both the state and federal governments.

“It’s an awful picture not just for the individual, but for the state as well,” she said.

Pensions already are regulated to prevent predatory practices. Most cannot be assigned to third parties, for example.

Pension lenders get around that by requiring the pensioner to open a joint checking account with them. The recipient has their monthly pension checks deposited into the joint account. As soon as it hits, an automatic transfer moves the money to a different account belonging only to the lender.

Pension lenders usually require a life insurance policy too, in case the pensioner dies before the loan is paid off, according to Jay Sushelsky a senior attorney for AARP.

Chris D’Elia, president of the Vermont Bankers Association, said his organization fully supports the bill as it passed the Senate. A responsible lending institution or private lender would never issue such a loan, he said.

The regulation would not interfere with legitimate pension financing, D’Elia said. Some people arrange major purchases by having automatic payments deducted from the same account their monthly pension payments go to, for example. That practice would still be allowed.

And even a pension loan more along the lines of the joint account with fees and interest payments could theoretically be permissible.

Legislative Council director Luke Martland testified that discussion of S.223 had included the possibility of an outright ban. Ultimately, the parties involved did not want to forbid the transaction in case of a situation in which it might be appropriate.

Rep. Bob Bouchard, R-Colchester, decided Friday he supports the bill, though he is concerned that pension loans technically still can be made.

“Not quite as severe, but it can still happen,” Bouchard said. “But it is nice to know … that they’re being watched.”

The bill, which unanimously passed the Senate, got a green light in the House committee Friday. It will go next to the full House for a vote.

For a list of reported scams, suspicious loans or unlicensed lenders in Vermont, see the Department of Financial Regulation’s unlicensed lenders page. To make a consumer complaint, visit the Attorney General’s Consumer Assistance Program, run by the University of Vermont.

Follow Hilary on Twitter @nilesmedia

Comments

  1. Tom Pelham :

    The enlarged screen shot behind Treasurer Pearce also notes “Vermont Treasurer: Pension Problem Needs to be a Priority in 2014.” Previously, Treasure Pearce had called this problem, especially that associated with funding teachers’ retiree health care costs, “a monster” and “at the tipping point”. Further, with the Governor’s budget submission last January, the following vague outline of a strategy to address this problem was presented. His Executive Budget Summary said:

    “It is expected that a plan will be presented during the 2014 legislative session to provide revenue sources for payment of the OPEB healthcare premiums in the amount of $28,600,000 and to make statutory changes to move the health care premiums’ sources of funds and budget to a separate trust fund, rather than a sub-fund of the pension fund.”

    So, now that the legislature is more than halfway through the session, it’s fair to ask how the hopes of the Treasurer and Governor are unfolding.

    As noted above, to cover the costs of retiree health care benefits without dipping into the pension fund, an additional $28 million was needed. The Governor’s proposal designated $7.5 million in general funds toward this problem and the House passed budget added another $300,000 to the Governor’s recommendation for a total of $7.8 million, leaving a gap of over $20 million .

    Toward that gap, the House crafted language which in all its legalese can be found at the following link at Section D.104 on page 102.

    http://www.leg.state.vt.us/docs/2014/bills/Intro/H-885.pdf

    Basically, it says that if general fund revenues exceed expectations, and only after one-third of such excess is transferred to meet specified thresholds in the Education and Property Tax Relief funds, then the next third, if any, is “appropriated in the fiscal year just concluded to the State Teachers’ Retirement System for payment of the retired teacher health care obligations”.

    Bottom line, unless the general fund hits the lottery, it looks like larger unfunded liabilities for the teachers’ pension fund, keeping in mind that in 2011 the teachers’ pension fund was only 66.5 percent funded and has fallen to 60.5 percent by 2013. It’s certain that Treasurer Pearce hears the monster roar louder as the tipping point arrives.

  2. Wendy Wilton :

    Structural change is needed to the state’s pension systems, especially the teacher’s pension. Even if changes are made the state may need to borrow to pay off the accumulated teacher pension debt to ensure the remaining fund is solvent for future retirees.
    The funded status as of June 30, 2014 will be important to note…will it be available before the general election? The pension report for June 2012 was dated October but not released until after the election in that year. No surprise, the news was not good, and Pearce didn’t want it known. The funded status continues to decline even though the investment returns have been good.
    The fact that the governor and treasurer have not sought changes to the structure of the pensions is very telling. This represents a lack of leadership on issues that will have significant impact on the financial future of the state.

    • Timothy D. MacLam :

      What Pearce “didn’t want … known,” is most likely a reflection of Gov. “Slick” Shumlin’s direction and wishes. He seems to thrive on not answering to the people, while functioning as an agent for his fellow plutocrats and out-of-state corporate interests.

  3. Paul Richards :

    A state, city or town being held hostage due to public sector union pension plans, what else is new? Look at Detroit, California or any one of thousands of governments across this nation and you will see this reoccurring problem; Public sector union pension plans are bankrupting all of us. It will continue until people realize that they are being ripped off by this practice and abolish these unions. Your public officials have over promised these benefits and you have had no say in it. You just get stuck with the bill. They decide behind closed doors what pay, benefit and “work rules” will apply to them and it’s non negotiable to the tax payers unless you can muster enough votes among those not on the gravy train to defeat the overall budget. Even then, they get to pick what gets cut and you live with it.
    Why do they have pension plans and why should we have to pay for them?? Do you have a pension plan? I don’t . The closest plan I have to a pension plan is Social Security and that’s a joke. The government forced me to pay in to this plan along with my employer and then they raided it and gave it to someone else who didn’t earn it. I want my money back to do with what I want. If I didn’t have to fund these public sector union pension plans I might be able to afford one for myself. Let these union people get what we get. They get paid enough money to fund whatever pension plans they want. I’m sick of subsidizing their fat wages, early retirements and pension plans. Stop the bleeding of America that is public sector unions and the Social Security Administration.

  4. Bill Olenick :

    I would say it would be an effective idea if our elected officials would allow the towns to bring back the stockade, in the towns squares and allow the citizenry, who have been hoodwinked by these fast talking charlatans,to publicly ridicule them and allow rotten tomatoes and cabbages to be thrown at them while locked in the stockade.
    If they are hardcore and unrepentant the town can break out the river dunking unit and tie the scoundrel to it and publicly dunk the con men then tar and feather and run then out of town.
    After all it worked for our forefathers,no court but a kangaroo court equals less money and resources spent while keeping it local and providing free entertainment for the townsfolk while at it…
    Cheap instant karma justice.
    I figure this a common sense solution worth looking into.

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  1. […] Pension lending faces strict regulation State Treasurer Beth Pearce references an enlarged screen shot of a news website, behind her. An ad for pension loans appears … Ads offer lump-sum cash advances in exchange for monthly pension checks — often with usurious interest rates, hidden fees … Read more on vtdigger.org […]

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