The Consumer Financial Protection Bureau released a consumer advisory Tuesday that warns of the potential dangers of pension advances, and provided a list of guidelines for those considering advances to help them proceed with caution.

Pension advances are offers of a loan or cash advance in exchange for some or all of a retiree's future pension payments. The CFPB guidelines, titled "3 Pension Advance Traps to Avoid" advises, first and foremost, that those considering a pension advance to explore alternatives and consult with a financial professional to weigh their options. There are non-profit credit counseling agencies with sliding-scale fees for those in difficult financial situations.

If a retiree does decide to take out a pension advance, the CFPB advises that:

  • Retirees pay attention to the fees and interest rates attached to pension advances. Fees and interest rates are often unadvertised and can be very high, leaving a retiree with far less money than expected. 
  • Retirees should never sign over control of their benefits, or give anyone access to manage them. Companies will sometimes try to set up new bank accounts into which a retiree's benefits are deposited, leaving the retiree with little control over his or her money. 
  • Retirees should not sign up for unnecessary life insurance pushed by the pension advance company.

The advisory further warns that while government retirees are the group most frequently targeted by such offers, former service members, military retirees and veterans also need to be wary. Pension advance companies sometimes use patriotic slogans and imagery to appeal to veterans. However, it is illegal for lenders to take a military pension or veteran's benefits.

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