Missouri has become the first state in the nation to prohibit so-called pension advances that target teachers, police officers, firefighters and other public employees.
Gov. Jay Nixon signed the legislation, joining Vermont in taking action against pension advance firms that use the Internet and other marketing tools to pitch deals with high interest rates to those with government, military or corporate pensions.
Unlike Missouri’s law, Vermont regulates, but does not prohibit, pension advances.
Missouri state treasurer Clint Zweifel said the legislation “will ensure that pensions earned by our teachers, firefighters, police officers and other public servants are protected.” Zweifel made pension advances one of his legislative priorities during the recently completed session.
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Here’s how advances work: In exchange for an upfront, lump sum cash payment, pensioners give up all or some of their monthly pension checks for a period of time, often for between five and 10 years. In many cases, the upfront cash is provided by individual investors who are drawn to the promise of a low-risk investment that provides returns at attractive interest rates.
But pension advances often include costly and misunderstood fine print such as interest rates as high as 106 percent. In some cases, borrowers are required to take out a life insurance policy and name the pension advance company as the sole beneficiary to ensure payment.
“Victims are often seniors struggling to pay medical bills or care for aging loved ones,” Zweifel said.
In addition to prohibiting this business, the Missouri legislation gives the state attorney general the authority to ensure that victims can reclaim any money lost during these transactions.