Missouri Gov. Jay Nixon has signed into law the prohibition of pension advances to public employees.
As a result, Missouri became the first state to prohibit pension advances to public employees, though other states are beginning to move in a similar direction.
In April, Vermont passed a law requiring pension advance companies be licensed by the state and ordered them to comply with the interest-rate limits placed on other regulated lenders.
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According to reporting from Bloomberg, Vermont Gov. Pete Shumlin believes the net effect of the law will be to halt all pension advance lending, because the state doesn't anticipate any advance companies will qualify as licensed lenders.
Missouri's law won't even give pension advance companies the chance to comply, at least not with respect to retirees of public plans.
State Treasurer Clint Zweiful led the ban's push. Zweifel, a trustee to the Missouri State Employee's Retirement System, called pension advance lenders "predatory businesses," and said in a statement that the law will "ensure that pensions earned by our teachers, fire fighters, police officers and other public servants are protected."
A Pension Advance Portal has been set up on his office's website, giving Missourians the chance to report any solicitations.
A recent undercover investigation by the Government Accountability Office found pension advance companies were offering lump-sum payments with interest rates between 27 to 46 percent – two to three times higher than the legal limits placed on regulated lines of credit, which are set at the state level.
Missouri's new law underscores the growing momentum against pension advances, but brings into question how other states may go about enforcing any new limits.
By not outlawing the lending companies, but making them comply with state banking regulations, Vermont may have set in place more comprehensive consumer protections: if the lenders can't comply, and they are not expected to, then both public and private pensioners will be protected.
In establishing the ban in Missouri, the state clearly could only muster the legal authority to protect beneficiaries of public pensions. In no way does the law prohibit pension advance companies from approaching retirees of private plans.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
