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Consumer advisory: 3 pension advance traps to avoid

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Many retirees depend on a pension to cover day-to-day as well as occasional unexpected expenses, such as health emergencies or home repairs. We’ve heard that some retirees with pensions who are facing financial challenges have responded to ads for cash advances on their pensions. Although pension advances may seem like a “quick fix” to your financial problems, they can eat into your retirement income when you start paying back the advance plus interest and fees.

A pension advance is a cash advance in exchange for a portion, or all, of your future pension payments. Pension advance companies typically charge high interest rates and fees and often target government retirees with pensions. Former servicemembers should also be on guard. Military retirees and veterans who receive monetary benefits from the Department of Veterans Affairs (VA) have been offered pension advances even though it’s illegal for lenders to take a military pension or veterans’ benefits. Many of those companies use patriotic-sounding names or logos and even claim they are endorsed by the VA as a way of enticing potential customers.

If you or a loved one is considering a pension advance, consider your alternatives. A financial coach or credit counselor can help you weigh your options and plan for new or unexpected financial demands. The National Foundation for Credit Counseling (NFCC) provides a list of member agencies around the country. You can also search for local credit counseling agencies on the Association of Independent Consumer Credit Counseling Agencies (AICCA)’s website.

Here are 3 things you can do to protect your retirement pension:

  1. Avoid loans with high fees and interest. Pension advance companies may not always advertise their fees and interest rates, but you will certainly feel them in your bottom line. Before you sign anything, learn what you are getting and how much you are giving up.
  2. Don’t sign over control of your benefits. Companies sometimes arrange for monthly payments to be automatically deposited in a newly created bank account so the company can withdraw payments, fees and interest charges from the account. This leaves you with little control.
  3. Don’t buy life insurance that you don’t want or need. Pension advance companies sometimes require consumers to sign up for life insurance with the company as the consumer’s beneficiary. If you sign up for life insurance with the pension advance company as your beneficiary, you could end up footing the bill, whether you know it or not.

You can also get a printer-friendly version of this information to share with friends or clients who are considering pension advances.

If you know someone who’s received a pension advance offer, we want to hear about their experiences, good and bad. Please ask them to share their story at consumerfinance.gov/your-story/.

Consumer advisory: Three steps you should take if you have a reverse mortgage

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Reverse mortgages are a type of loan that allows homeowners, 62 and older, to borrow against the accrued equity in their homes. Reverse mortgages can help some older homeowners meet financial needs in retirement. Most reverse mortgages today are federally insured through the Federal Housing Authority’s (FHA) Home Equity Conversion Mortgage (HECM) program.

We’ve heard many complaints from consumers who have experienced problems with reverse mortgages. The most common reverse mortgage complaint is about difficulty with changing the loan terms and problems communicating with loan servicers. Some consumers, for example, express frustration about slow, inconsistent communication from their reverse mortgage loan servicer.

We’ve also heard from consumers regarding non-borrowing spouses who are facing the loss of their home after the borrowing spouse has died. Recent changes to the federal program that insures most reverse mortgages allows some non-borrowing spouses to remain in the home after the death of the borrower spouse for HECM loans originated after August 4, 2014. Since this change is not retroactive, spouses of reverse mortgage borrowers who took out their loan prior to August 4, 2014 could be more likely to face losing the home when the borrower dies.

3 things you or your loved ones should do if you have a reverse mortgage

1. Verify who is on the loan

If you took out a reverse mortgage with two borrowers, check with your reverse mortgage servicer to make sure its loan records are accurate. Call your servicer to find out what names are listed on your loan. They may be able to help you over the phone. See your reverse mortgage statement for the phone number, and ask them to send you this information in writing for your records. You can also write a letter requesting information.

2. If your reverse mortgage is in the name of only one spouse, make a plan for the non-borrowing spouse

If your reverse mortgage is in the name of only one spouse, contact your loan servicer to find out if the non-borrowing spouse may qualify for a repayment deferral. A repayment deferral allows a non-borrowing spouse to remain living in the home after the death of the borrowing spouse. If not, make a plan in the event the borrowing spouse dies first and the loan becomes due. If you or your spouse are not on the loan but believe that you should be, promptly seek legal advice.

If you have enough remaining equity in your home, you could consider taking out a new reverse mortgage with both spouses. You’ll have to pay loan fees again, however, for the new loan. If the non-borrowing spouse can’t pay off the reverse mortgage when the borrowing spouse passes away, he or she might consider a new traditional mortgage if they have the income and credit to qualify. Also consider other family members that would be willing to cosign on such a loan. Some surviving spouses may need to sell the home and make plans for where they will live after the home is sold. Contact a HUD-approved housing counselor counselor near you to explore your options.

3. Talk to your children and heirs – make a plan for any non-borrower family members living in the home

Make sure your adult children or any family members living in the home know what to expect when your reverse mortgage comes due. If they wish to keep the home, contact your reverse mortgage company for written information that explains their options. Discuss this information with your family and follow up with the reverse mortgage company for anything you don’t understand.

Have a problem with your reverse mortgage?

If you’re having a problem with your reverse mortgage or having problems getting through to your mortgage servicer, you can submit a complaint online or by calling (855) 411-2372 or TTY/TDD (855) 729- 2372. We’ll forward your complaint to the company and work to get you a response within 15 days.

For more information about how reverse mortgages works and questions to ask, read our guide to reverse mortgages for older consumers and their families.

Check out Ask CFPB to learn more about reverse mortgages.

Food for thought at your Thanksgiving table

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It’s almost Thanksgiving, and like most Americans, I’m looking forward to eating all my favorite holiday dishes and spending some quality time with my family. This year I’ve got it easy. I’ll be spending my holiday going to see the latest blockbuster movie with my kids while my sister-in-law worries about whether the turkey is done. My teenaged nieces will help me set up some social media accounts and will probably laugh at my clueless questions, all while my son regales us with tales from his latest job.

Thanksgiving will also be a time for family conversations about serious matters. Thanksgiving is a great time to touch base with your family and make sure that everyone is doing well, physically, mentally, and financially.

Everyone at the dinner table will have a story

  • A dear friend’s husband wired thousands of dollars when a caller claimed that his daughter was in jail and needed bail money.
  • An older relative, who just turned 97, can no longer manage his finances. Now that his wife is gone, my husband is handling the older man’s money and property.
  • Another relative recently fell for a lottery scam, and we need to help her avoid frauds and scams in the future.

Fortunately, I’ll have lots of tips and tools to share with everyone, because I work at the only office in the federal government specifically dedicated to the financial health of older Americans, the Office for Older Americans at CFPB.

Managing someone else’s money

First, I’ll give my husband the Managing Someone Else’s Money guides. Like millions of Americans, he’s managing money and property for a loved one who is unable to pay bills or make financial decisions. This can be very overwhelming. But, it’s also a great opportunity to help someone you care about, and protect them from scams and fraud. There are four guides for four types of fiduciaries (people with legal authority to handle someone else’s money)—agents under a power of attorney; court-appointed guardians of property; trustees; and government fiduciaries (Social Security representative payees and VA fiduciaries).

My husband can read the guide for agents under a power of attorney. It covers:

  • An overview of his four duties, providing concrete examples and tips
  • Information on how to spot financial exploitation and scams, and who to contact if you do
  • Resources to find additional help

Protecting against scams and fraud

My relative is embarrassed that she fell for a lottery scam when a nice young man called her repeatedly and acted like her new best friend. She’s not alone, and she should speak out to her peers so they don’t become victims. Our Money Smart for Older Adults resource guide will teach her about a variety of scams and frauds that are out in the community right now and help her to be financially prepared for disasters. The CFPB is currently training leaders across the country to deliver this curriculum to older adults, their caregivers and other service providers in their communities.

Assisting living and nursing facilities

Another family member is a geriatric social worker who makes house calls at assisted living facilities. I’ll encourage her to give the staff at the facilities she visits CFPB’s new manual for assisted living and nursing facilities on how to protect residents from financial exploitation. These residents are especially vulnerable to scams and exploitation because many have Alzheimer’s disease or other cognitive impairments.

So, as you prepare to enjoy your turkey, your pumpkin pie, and all of your traditions, consider using this Thanksgiving gathering to share some food for thought as well! You can order single or bulk copies of these guides for free.

Four things older Americans can do about debt collection problems

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If you’re an older American and you’re having trouble with debt collectors, you’re not alone. Since July 2013, older Americans have submitted approximately 8,700 complaints to us about debt collection.

We looked at these complaints and described the most common problems that consumers are experiencing in our snapshot of debt collection complaints submitted by older consumers.

People’s complaints often express grief, confusion, and frustration regarding the collection of medical debt, debt of deceased family members, and even suspicious calls from individuals who claim to be collectors.

Here’s what you or your loved ones can do when experiencing debt collection problems:

1. Get more information if you don’t recognize the debt

Older consumers report that debt collectors may have inaccurate or inadequate information, and sometimes don’t provide sufficient information to help them identify the debt. Almost one-third of the older consumers who submitted a complaint couldn’t identify the debt being collected.

First things first! Ask the debt collector for the company’s name and address. If the debt collector refuses to give you this information, you may be dealing with a fraud. If you think that a caller may be a fake debt collector:

Ask the caller for his or her name, company, street address, telephone number, and professional license number.

If you have the company’s name and address but you don’t recognize the debt, ask for more information in writing. You can start by using this sample letter.

Send this letter as soon as you can — if at all possible, within 30 days of when a debt collector contacts you the first time about a debt.

2. Dispute the debt if it’s not yours or if the amount is wrong

You can write a letter disputing the debt or any portion of the debt. It’s important to do so as soon as possible after you’re first contacted, and to keep copies of any letters you send.

If you dispute a debt (or part of a debt) in writing within 30 days of when you receive the required information from the debt collector, the debt collector cannot call or contact you until after the debt collector has obtained verification of the debt and has provided the verification of the debt in writing to you. You can use this sample letter.

3. Stop harassing and/or offensive calls

Older consumers told us that debt collectors sometimes refuse to take “No” for an answer, reporting in their complaints that collectors often use offensive language and make threats. To one extreme, we’ve also heard about collectors making successive calls using profanity or derogatory names.

You don’t have to put up with it. You can send a letter to the debt collector telling it to stop contacting you. If you dispute the amount due, or you don’t believe that it’s your debt, put that in the letter, too. You can use this sample letter.

Telling a debt collector to stop contacting you does not stop the collection, including the filing of a lawsuit against you or reporting negative information to a credit reporting company.

4. Know your rights: Your federal benefits have many protections from garnishment in collection

Many older consumers rely on Social Security or other federal benefits and frequently complained that debt collectors threatened them with garnishment of these benefits. Most federal benefits, such as Social Security, Veterans’ (VA) benefits, and Supplemental Security Income (SSI) benefits, are protected in debt collection. There are exceptions for, among other things, money owed in child support, spousal support, federal student loans, or for federal taxes.

When you receive federal benefits by direct deposit to your checking account, your bank or credit union is required automatically to protect up to two months of these benefits that are directly deposited into your account. If you receive your benefits on a government issued prepaid card, they usually are protected too. Some exceptions may exist for debts owed to a federal or state agency.

If you’re not sure if your federal benefits are being wrongfully garnished, you should seek legal advice.

Here’s how you can find a lawyer:

Learn more about your rights when it comes to debt collection.

You can also:

  • Submit a debt collection complaint online or by calling (855) 411-2372. We’ll forward your issue to the company and work to get you a response, give you a tracking number, and keep you updated on the status of your complaint.
  • Tell us your story, good or bad, about your experience with consumer financial products. We hear from many Americans every day and we’d like to hear your story.

Resources in Spanish that could help thousands of older Hispanics spot financial exploitation and scams

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Elder financial exploitation crosses all social, economic and cultural boundaries. Older Hispanics, like other older adults, increasingly are targets of financial abuse and scams by a broad spectrum of perpetrators. A 2012 study found that 17 percent of Hispanic seniors are victims of financial exploitation, and that limited English proficiency is a factor that contributes to the vulnerability of older Hispanics.

Nearly 1.5 million – or two-in-five- older Hispanics have limited English language proficiency and speak Spanish only. Their limited access to trusted information and resources in Spanish hampers their ability to detect, respond to and report abuse.

We have Spanish versions of two resources that can help Spanish-speaking seniors, their family members and other caregivers, and the professionals and organizations that work with them:

  • Money Smart para Adultos Mayores (Money Smart for Older Adults) – an educational program with the FDIC that teaches older adults and their caregivers how to spot scams and frauds, and prevent financial exploitation. The translated guide can be used as a self-study guide or delivered as a training in a group setting.

These resources are available in English and Spanish for download and free print copies are also available.

Updated reverse mortgage guide: Two things you should know

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More and more homeowners are considering tapping their home equity as they approach retirement age. Getting a reverse mortgage is one way that some older homeowners can do that. Reverse mortgages are a special type of home equity loan sold to homeowners aged 62 years and older, which are repaid when the borrowers sell the home, move out, or die. It’s a complicated type of loan that works best for homeowners who carefully consider all of their options.

Things to consider

Before borrowing, seniors and their families should consider:

  • The cost of homeowners’ insurance and taxes
  • Plans for staying in the home or leaving it to family members
  • Plans for dependents or others living in the home
  • Alternatives to reverse mortgages

Because some important things about reverse mortgages have changed recently, we’ve updated our guide to reverse mortgages.

First-year payout limits

One of these changes limits the amount of money you can draw from your loan in the first year. Borrowers often get into trouble by taking a lump-sum payment early on. It may feel great to get a big payment up front, but borrowers can outlive this money – which spells financial trouble for borrowers who live longer lives.

This limit encourages borrowers to make their money last longer. Borrowers can still take out lump-sum single payments – but this is still a risky choice. Borrowers should strongly consider the monthly payment or line of credit options before choosing to get a lump-sum. These options provide more long-term security than lump-sum payments.

Protections for non-borrowing spouses

Another important change is for couples considering a reverse mortgage. In the past, couples who took out a reverse mortgage loan in the name of only one spouse ran into trouble when the borrowing spouse passed away. When a borrower died, the “non-borrowing spouse” had to pay back the reverse mortgage or move out. Many surviving spouses were surprised to learn this, and lost their homes. With recent changes, a non-borrowing spouse may be able continue to live in the home under certain conditions, even after the spouse who signed the loan passes away. However, the non-borrowing spouse will still stop receiving money from the reverse mortgage after his or her spouse dies.

For couples considering a reverse mortgage, borrowing together makes more sense. If both spouses sign the reverse mortgage, then the surviving spouse can continue to receive monthly payments or use an existing line of credit. It also ensures that a surviving spouse may live in the home after his or her spouse (co-borrower) dies.

These changes help protect reverse mortgage borrowers, but make no mistake—reverse mortgages are still not right for everyone and can be risky and expensive. If you’re considering a reverse mortgage, get the information you need to make an informed decision and give yourself time to weigh your options.

Check out our guide to reverse mortgages for older homeowners and their families.