It’s hard enough to save enough for retirement, but even those who are fortunate enough to have a DB plan are at risk from companies willing to buy their pensions in exchange for a lump sum. The SEC and FINRA recently issued an investor alert not only for pensioners but also for people investing in these products.
According to the New York Times, New York State’s Department of Financial Services has issued 10 subpoenas to these factoring companies, calling them nothing more than “pay day loans in sheep clothing” — claiming, among other things, that the loans may be usurious, with interest rates as high as 107% when all fees are considered.
The SEC/FINRA alert lists a number of issues for pensioners, including:
• Whether these payments are legal
• If they are worth the cost
• What is the reputation of the factoring companies
• Life insurance may be required, further increasing costs
• Potential tax consequences
For investors, these products (which in the past had targeted lottery winners and personal injury victims who won lawsuits) may carry high commissions, can be unregistered securities, may face legal challenges and are likely to be difficult to resell, SEC and FINRA warn.
