The following is from an editorial in The New York Times:
During the run-up to the mortgage crisis, elderly people were often duped into taking out subprime loans that earned a fortune for the lenders while leaving the borrowers with little or no home equity and headed for foreclosure. A similar brand of wealth stripping is alive and well in a new crop of companies that specialize in separating retirees from their pensions. Unless state and federal regulators get a handle on this problem, ever larger numbers of elderly people who are already battered by the recession will end up even worse off.
Companies profit by convincing retirees to sign over all or part of their monthly pension checks in exchange for an upfront payment. These "advances" are disguised loans (although not described as such in the contracts) that can carry interest charges that can reach 100 percent or more.
The companies insist that they are not lenders. Therefore, they do not need to comply with usury laws, licensing regulations as well as the federal Truth in Lending Act, which requires detailed disclosure of costs to borrowers. Without disclosure, it is virtually impossible for the borrowers to know what the actual costs will be.
The companies are especially aggressive in their pursuit of military veterans — even though federal law forbids transactions that require enlisted retirees to turn over their pensions to third parties. As the companies expand their businesses, they are also soliciting disabled people who might be receiving accident settlements. Regulators cannot prevent people from making poor decisions.
But, at the very least, state and federal authorities need to force these "advance" companies to conform to state usury laws and truth-in-lending disclosure rules on pension loans.