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Bloodsuckers After Government Pensions
Old 10-30-2015, 11:54 AM   #1
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Bloodsuckers After Government Pensions

It's like payday loans, only worse: "The effective interest rates charged by pension advance companies can be abusive, Cartwright said. But it is particularly “egregious” that the companies go after military retirees, targeting income streams that are backed by the federal government, he added."

https://www.washingtonpost.com/news/...eeper-in-debt/
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Old 10-30-2015, 12:01 PM   #2
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Originally Posted by Tekward View Post
It's like payday loans, only worse: "The effective interest rates charged by pension advance companies can be abusive, Cartwright said. But it is particularly “egregious” that the companies go after military retirees, targeting income streams that are backed by the federal government, he added."

https://www.washingtonpost.com/news/...eeper-in-debt/
I heard they were grabbing these guys off the street and keeping them captive in an unheated locked basement in Newark until they liquefy their pensions.

Ha
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Old 10-30-2015, 12:24 PM   #3
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The predatory lenders target, or I should say "Market" these loans to anyone in desperate financial situations. Most do it with auto title loans, at interest rates of 105% apy and up. I have seen a few of these situations with co-workers , usually low paid clerical folks. BK is usually where they end up, but they should have skipped the loan sharks and gone straight to BK.

Hopefully some states do not allow this type of thing. California does allow this type of lending.
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Old 10-30-2015, 12:47 PM   #4
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Unless these people were not competent, they just made a choice that was bad.... from what the article says, they seem to be competent....


Now, my 96 YO mom is not competent... and it can be proven...


I would agree that this is a loan and should be brought into that protection.... where they have to show APR, disclose fees etc. etc.... and with some states live with the usury laws... but if the people still do what they do, that is too bad....
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Old 10-30-2015, 04:52 PM   #5
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Predatory lending yes, but don't any of those folks know how to use a pocket calculator? Even without figuring the APR just adding up the payments should have made them run away.

I find it astonishing that anyone would agree to one of those loans. But people do payday and car title loans all the time anyway. Just amazing. Not blaming the victims but don't they have some responsibility for agreeing to ridiculous terms?

It is just that the short-term thinking is so foreign to me.
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Old 10-30-2015, 05:47 PM   #6
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... Most do it with auto title loans, at interest rates of 105% apy and up. ...

Hopefully some states do not allow this type of thing. ...
They could outlaw the loans, but then only outlaws would have loans.

You've heard of loan sharks, right? Bottom line, you can't outlaw ignorance, so these financially ignorant people will go somewhere. What they need is a little (a very little) education on personal finance.

BTW, those +100% APY numbers, while they may be mathematically correct, are very misleading. Let's say someone wants to borrow against their $200 check for a week. The firm has paperwork to process, and salaries to pay, let's call that a $10 fee. Whoah, we are already at 5% times 26 to annualized it (in simple interest terms), and that is 130% even at 0% interest on the loan!

Could you stay in business doing this for less than $10? I doubt it.

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Old 10-30-2015, 06:13 PM   #7
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Excerpts from the article:
...a company representative called Moore back and explained that he would receive a $5,000 cash advance for selling part of his pension. In exchange, Moore would have to pay the company $510 a month for five years — a total of $30,600.

...A Future Income Payments representative explained that Clay would sell the company a portion of her pension for a lump sum of $5,000, the smallest amount she could receive. In addition to a $300 setup fee, she would pay $621, or about 40 percent of her monthly benefit, a month for five years.

It wasn’t until months later that she did the math on how much she would be paying in the end — essentially, more than $32,000 in interest.

Egregious indeed! Perhaps laws can be passed to prevent loans of this type from being made, but how can people of utmost ignorance be protected from scams and gouges in everyday's encounters? How do we teach them to shop better? I have read of people buying daily grocery like milk or essential items like toilet papers from convenience stores. These stores have to charge higher than a grocery store in order to make money on the smaller volume that they sell, and they do provide a service to people who need the items in a hurry. Do we ban them?
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Old 10-30-2015, 06:43 PM   #8
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...a company representative called Moore back and explained that he would receive a $5,000 cash advance for selling part of his pension. In exchange, Moore would have to pay the company $510 a month for five years — a total of $30,600.
I find it hard to believe that anyone would knowingly agree to that. I suspect more likely that a positive slanted partial story was told to a desperate person and the details were hidden (technically there) but difficult to find or understand. If you can eliminate the likely deceptive sales practices that occur, then we can talk about whether these "products" have a legitimate place in the marketplace. I bet they find it a lot harder to dupe people into these loans if better disclosures are made.
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Old 10-30-2015, 07:13 PM   #9
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They could outlaw the loans, but then only outlaws would have loans.

You've heard of loan sharks, right? Bottom line, you can't outlaw ignorance, so these financially ignorant people will go somewhere. What they need is a little (a very little) education on personal finance.

BTW, those +100% APY numbers, while they may be mathematically correct, are very misleading. Let's say someone wants to borrow against their $200 check for a week. The firm has paperwork to process, and salaries to pay, let's call that a $10 fee. Whoah, we are already at 5% times 26 to annualized it (in simple interest terms), and that is 130% even at 0% interest on the loan!

Could you stay in business doing this for less than $10? I doubt it.



-ERD50
The payday loans are limited in amount and timeframe in CA, $2600 max. One of the largest and oldest payday loan firms locally has ad's with "Get $400 for 10 days, for just $34.95."

The other loans with collateral ( auto title, future payouts etc) are under different regulation ,have a minimum amount of $2601. These are the things that get to astronomical amounts of compound interest. The 105% apy on this type of loan is one of the lower cost ones I have seen.
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Old 10-30-2015, 07:28 PM   #10
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What happens on these type of loans if the person dies? Normally a pension stops when someone dies. Is that the extra risk that would cause interest rates to be higher than normal?
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Old 10-30-2015, 07:40 PM   #11
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BTW, those +100% APY numbers, while they may be mathematically correct, are very misleading. Let's say someone wants to borrow against their $200 check for a week. The firm has paperwork to process, and salaries to pay, let's call that a $10 fee. Whoah, we are already at 5% times 26 to annualized it (in simple interest terms), and that is 130% even at 0% interest on the loan!
And there are plenty of cases where a customer would be glad to pay that "130% APR", and be smart to do it. One bounced check can easily cost $50, and getting the power turned off can mean a whole fridge full of spoiled food. Not being able to fix the car can mean losing a job.

People who live close to the line are at risk for hundreds of small things that can rapidly snowball into big things. Getting one of these payday loans doesn't fix the underlying problem, but making it illegal for people to get a loan from the only source available to them isn't the answer, either.
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Old 10-30-2015, 08:07 PM   #12
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And there are plenty of cases where a customer would be glad to pay that "130% APR", and be smart to do it. One bounced check can easily cost $50, and getting the power turned off can mean a whole fridge full of spoiled food. Not being able to fix the car can mean losing a job.

People who live close to the line are at risk for hundreds of small things that can rapidly snowball into big things. Getting one of these payday loans doesn't fix the underlying problem, but making it illegal for people to get a loan from the only source available to them isn't the answer, either.
Well said.
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Old 10-30-2015, 08:49 PM   #13
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And there are plenty of cases where a customer would be glad to pay that "130% APR", and be smart to do it. One bounced check can easily cost $50, and getting the power turned off can mean a whole fridge full of spoiled food. Not being able to fix the car can mean losing a job.

People who live close to the line are at risk for hundreds of small things that can rapidly snowball into big things. Getting one of these payday loans doesn't fix the underlying problem, but making it illegal for people to get a loan from the only source available to them isn't the answer, either.
bravo
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Old 10-30-2015, 08:53 PM   #14
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Predatory lending yes, but don't any of those folks know how to use a pocket calculator? Even without figuring the APR just adding up the payments should have made them run away.

I find it astonishing that anyone would agree to one of those loans. But people do payday and car title loans all the time anyway. Just amazing. Not blaming the victims but don't they have some responsibility for agreeing to ridiculous terms?

It is just that the short-term thinking is so foreign to me.
No, most folks who get payday losns and the like DON'T have calculators.

Have you ever stepped inside Camden NJ? Almost 90% of the population is on some type of assistance. They don't have bank accounts, they don't have jobs where they can get a conventional loan and many are not college educated.

What they are, are poor and desperate.
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Old 10-30-2015, 09:16 PM   #15
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And there are plenty of cases where a customer would be glad to pay that "130% APR", and be smart to do it. One bounced check can easily cost $50, and getting the power turned off can mean a whole fridge full of spoiled food. Not being able to fix the car can mean losing a job.

People who live close to the line are at risk for hundreds of small things that can rapidly snowball into big things. Getting one of these payday loans doesn't fix the underlying problem, but making it illegal for people to get a loan from the only source available to them isn't the answer, either.
Absolutely. I think we had a similar discussion a few years back. Repair a car so they don't lose their job, like in your example, or maybe buy some new clothes (or bus fare) for an interview. Those could help provide a big step up for someone on the edge.

But if they are just using this to delay the inevitable, they are just circling the drain. But that's an education thing, not a 'remove a tool that can be used for good or bad' thing.

-ERD50
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Old 10-30-2015, 09:34 PM   #16
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many are not college educated What are you implying by that statement. I know many college educated people who can't manage money. Last time I checked no one is required to take personal finance classes in either HS or College. I know what you are implying. I not college educated so I guess that makes me blank. Fill in the blank with what ever you want.
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Old 10-30-2015, 10:00 PM   #17
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What happens on these type of loans if the person dies? Normally a pension stops when someone dies. Is that the extra risk that would cause interest rates to be higher than normal?
In the article it stated that some of the companies require the client to take out life insurance on the loan, at additional cost I presume.
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Old 10-30-2015, 10:03 PM   #18
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How does the loan company induce the client to keep making these payments?
I did not see that info in the piece. I thought it said some states prohibit assignment of pension payments which is the only thing I can think of that would provide leverage to the lender.
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Old 10-30-2015, 10:08 PM   #19
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I don't know about a civilian federal pension, but it is against the law to originate this type of loan for military retirement pay.

Sent from my mobile device so please excuse grammatical errors.
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Old 10-31-2015, 04:22 AM   #20
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I don't know about a civilian federal pension, but it is against the law to originate this type of loan for military retirement pay.
I'm not so sure about the fine print.

It's not legal to sell a military pension for a lump sum (sort of a viatical), but it's perfectly legal to borrow a pile of money and pay it back with an allotment against a military pension.

DoD has tightened up allotments for personal-property purchases, and the Military Lending Act finally has some teeth in it (thanks to the military branch of the CFPB) but the lenders are as creative as ever.
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