See figure 1  for an illustration of the parties that we identified as part of our June 2014  report in the multistep pension advance processes that we reviewed. Various state and federal agencies have oversight roles and  responsibilities related to consumer and investor issues. A Number of Geographically Concentrated and Affiliated Companies Were Involved in Pension Advances and Marketed to Financially Vulnerable Consumers Nationwide

In June 2014, we reported on the number and characteristics of entities  offering pension advances and the marketing practices that pension  advance companies employ. During our review, we identified at least 38  companies that offered lump-sum advance products in exchange for  pension payment streams. Eleven of the 38 companies that we identified used marketing  materials or sales pitches designed to target consumers with poor or  bad credit. We also observed this type of marketing during our undercover  investigative phone calls. The Six Pension Advance Companies That Provided GAO Investigators Quotes Offered Unfavorable Terms Compared with Other Financial Products

Six pension advance companies provided our undercover investigator  with quotes for pension advances with terms that did not compare  favorably with other financial products such as loans and lump-sum  payment options provided directly through private-sector pension plans. Comparison to Usury Rates

We determined that the effective interest rate for 97 out of 99 offers  provided to our undercover investigator by six companies ranged from  approximately 27 percent to 46 percent. The effective interest rates  on some of these offers could be even higher than the rates we  calculated to the extent some pension advance companies require the  pensioner to purchase life insurance, and “collaterally assign” the life- insurance policy to the company, to protect the company in the event of  the pensioner’s death during the term of the contract. There Is Limited Federal Oversight of Pension Advances

		Questionable Practices Related to Unregulated Transactions Pose Consumer Risks

Our June 2014 report identified questionable elements of pension  advances, such as the lack of disclosure and unfavorable agreement  terms. Hence, we recommended that CFPB and FTC  review pension advance practices and companies, and exercise oversight  and enforcement as appropriate. CFPB agreed with this recommendation  and took action by investigating pension advance companies with  questionable business practices. FTC also agreed with our  recommendation and, according to FTC officials, the agency has also  taken actions to review consumer complaints related to pension  advances, pension advance advertising, and the pension advance  industry overall. At the time of our  2014 review, we found that CFPB and four other agencies had taken  some actions to provide consumer education on pension advances. CFPB agreed with  this recommendation and released a consumer advisory about pension  advances in March 2015. However, in response to our review, in 2014, FTC  also posted additional consumer-education information about pension  advances on its agency website. CFPB and FTC have taken actions to implement the  recommendations that we made to review pension advance practices and  companies, and exercise oversight and enforcement as appropriate, as  well as to disseminate consumer-education materials on pension  advances. We believe their implementation of these recommendations  will help to strengthen federal oversight or enforcement of pension  advance products while ensuring that consumer-education materials on  pension advances reach their target audiences, especially given that  Treasury’s recent announcement restricting permitted benefit increases  may make these products more desirable to pensioners.
Why GAO Did This Study

Recent questions have been raised about companies attempting to take advantage of retirees using pension advances. In June 2014, GAO issued a report on pension advances. The report (1) described the number and characteristics of pension advance companies and marketing practices; (2) evaluated how pension advance terms compare with those of other products; and (3) evaluated the extent to which there is federal oversight.
This testimony summarizes GAO's June 2014 report (GAO-14-420) and actions taken by CFPB and FTC in response to GAO's recommendations. In June 2014, GAO identified 38 pension advance companies and related marketing practices. GAO conducted a detailed nongeneralizable assessment of 19 of these companies. GAO used undercover investigative phone calls to identify additional marketing practices and obtain pension advance offers. This information was compared with the terms of other financial products, such as personal loans. GAO also examined the role of selected federal agencies with oversight of consumer protection and pension issues.

What GAO Found

In a June 2014 report, GAO identified at least 38 companies that offered individuals lump-sum payments or “advances” in exchange for receiving part or all of their pension payment streams. The 38 companies used multistep pension advance processes that included various other parties. At least 21 of the 38 companies were affiliated with each other in ways that were not apparent to consumers. Some companies targeted financially vulnerable consumers with poor or bad credit nationwide.
GAO undercover investigators received offers from 6 out of 19 pension advance companies. These offers did not compare favorably with other financial products or offerings, such as loans and lump-sum options through pension plans. For example, the effective interest rates on pension advances offered to GAO's investigators typically ranged from approximately 27 percent to 46 percent, which were at times close to two to three times higher than the legal limits set by the related states on the interest rates assessed for various types of personal credit.
GAO identified questionable elements of pension advance transactions, including lack of disclosure of some rates or fees, and certain unfavorable terms of agreements. GAO recommended that the Bureau of Consumer Financial Protection (CFPB) and Federal Trade Commission (FTC)—the two agencies with oversight responsibility over certain acts and practices that may harm consumers—provide consumer education about these products, and that CFPB take appropriate action regarding identified questionable practices.
Since the time of GAO's review, CFPB has investigated pension advance companies that GAO referred to the agency and disseminated additional consumer-education materials on pension advances. Similarly, FTC posted consumer education on pension advances on its website, and FTC officials report that they have reviewed consumer complaints related to pension advances, pension advance advertising, and the pension advance industry overall. CFPB's and FTC's actions are a positive step toward strengthening federal oversight or enforcement of pension advance products.

What GAO Recommends

In its June 2014 report, GAO recommended that CFPB and FTC review the pension advance practices identified in that report and exercise oversight or enforcement as appropriate. GAO also recommended that CFPB coordinate with relevant agencies to increase consumer education about pension advances. CFPB and FTC agreed with and have taken actions to address GAO's recommendations.