Older Americans

Today, along with the Federal Trade Commission (FTC), our Office of Enforcement sent letters to a number of lenders concerning potential violations of the Mortgage Acts and Practices – Advertising (MAP) Rule, a new rule that took effect in August 2011. The MAP Rule addresses claims and statements in mortgage advertising that may be misleading to consumers.

Many of these potentially misleading practices seem to be directed at older Americans and servicemembers/veterans. So today we are writing jointly to highlight things to be on the lookout for when you get mortgage advertisements. We have seen examples of the following potentially misleading practices through our complaint system, and also heard about them as we travel the country talking to consumers.

Be suspicious of ads with:

• Official-looking seals or logos that imply some kind of government status, for example making you think they come from the VA or HUD. Although government agencies do guarantee some loans, they are not involved in the actual lending or advertising of loans.
• Promises of amazingly low rates – which may turn out in the fine print only be in effect for a short period and then will readjust to a higher amount.
• Promises that a reverse mortgage will let you stay in your home payment-free. Typically borrowers with reverse mortgages still have to keep up with tax and insurance payments – and will most likely lose their homes if they don’t.
• Announcements of “pre-approval” and large amounts of cash or credit available to you. Typically there’s no guarantee that you will be approved for a loan, or the size of the loan, until you go through a standard qualification process.

You know the old saying: “If it sounds too good to be true, it probably is.” Some advertisers will use your military or veteran status as a way to approach you, promising special deals or implying VA approval. Others will use the lure of a “no-payment” reverse mortgage to troll for older Americans desperate to find a way to stay in their home when they can no longer afford a mortgage payment. And although mortgage rates are very low right now, an offer promising “historically low rates” may still have hidden traps that turn it into a bad deal.

So please, be cautious. If you get an ad that sounds a little (or a lot) too good to be true, you should get more information from a trusted source before you respond to the offer. The FTC has published a consumer alert on deceptive mortgage ads and what to look for. We also have more information about mortgages and other financial products on our website at Ask CFPB, as well as specific information for veterans and older Americans. Take the time to know before you owe!

Yesterday, I testified in front of Congress about the work we’re doing for older Americans and wanted to share directly with you what we’re up to, as well. This work is incredibly important to me – and our Office for Older Americans as a team is thrilled to be getting to work on what has silently become an epidemic – elder financial abuse.

If you have a story we should hear, make sure to tell your story today.

For the past year, I have been privileged to lead the Office for Older Americans. Our statutory mandate covers two broad areas:

• protecting consumers over 62 in the financial marketplace; and
• enhancing their later-life economic security.

In our first year, we have made preventing, detecting and redressing elder financial exploitation job number one.

In doing so, we have recognized that collaboration is critical — on the local, state and national levels, and between the public and private sectors. To jumpstart and foster these collaborative efforts, we have travelled throughout the country to meet with state, local and tribal officials, including attorneys general, financial regulators, adult protective services administrators, commissioners on aging, chief justices, court administrators, and tribal elders.

We have also engaged with non-profits, community organizations and industry groups to explore ways to help and to partner with them. For example, we participate in a working group with the Financial Services Roundtable to enhance the capacity of financial institutions to report suspected elder financial abuse.

In addition, we have been actively engaged with our federal partners. Last month was the inaugural meeting of the Elder Justice Coordinating Council, an 11-agency body convened to shine a light on the disastrous impact of financial exploitation and catalyze the development of a prevention strategy.

At the meeting, we heard important themes from national experts:

• Older Americans are victimized by a broad range of perpetrators.
• Collaboration is critical.
• Diminished capacity is the 800-pound gorilla in the room.
• We need more and better quality data.
• And we need a broad-scale public education campaign to raise awareness of elder financial abuse and what to do about it.

CFPB already has initiatives underway that address issues flagged at the Council meeting.

• We are developing “how-to” guides for agents under powers of attorney, guardians, trustees, Social Security representative payees, and V-A fiduciaries.
• We are producing a guide to help senior housing, assisted living, and skilled nursing facilities identify and intervene in exploitation cases.
• Our Money Smart for Older Adults education program, in collaboration with the FDIC, will focus on preventing, recognizing, and reporting elder financial exploitation.
• We are working in several states to create and sustain coalitions for community education, public awareness, enhanced response, and increased prosecution.
• And we are developing strategies for communicating to financial institutions that the Gramm-Leach-Bliley Act generally does not prohibit them from reporting suspected abuse to law enforcement and APS agencies.

Congressional leadership and support is critical to implementing a multi-faceted solution to the serious problem of elder financial exploitation. We look forward to continued information sharing with members of Congress on this important topic and the CFPB’s contributions.

Last week, I got my 401(k) plan fee disclosure notice in the mail. I almost threw it away.

At first, it looked like all of those form notices you get – you know, the ones with the window envelope and “US Postage Paid” in the top right-hand corner. Not the most exciting-looking mail.

So, why am I telling you?

Because I work for the Bureau’s Office of Financial Protection for Older Americans, and because I’m an older American learning through my own experiences. A big part of our mission is to help people understand how to plan and save for retirement.

What’s a 401(k)?
A 401(k) account helps you to save for retirement by making contributions from your paycheck. In some plans, your employer also makes contributions. In many cases, participants choose from among the investment options available through the plan. The money saved in a 401(k) account, and the growth in the account, isn’t taxed until you retire. This tax deferment helps your retirement savings grow faster.

While everyone with a 401(k) plan pays fees, an AARP survey found that over 70 percent of people with a 401(k) thought that they weren’t paying any fees at all.

Possible fees include investment fees for the funds, stocks, bonds and other investments you choose, individual service fees for things like taking out a loan from the plan or selling shares in a particular investment fund, administrative fees and more.

That’s where last week’s mail comes in. Under a new rule from the Department of Labor, everyone with a 401(k) must receive an annual disclosure about fees. Many have received them already and more will get them in the mail around Labor Day. To see how fees can affect your retirement savings, check out this video:

How will this new information help me?
The disclosure will tell you the fees and expenses for the investment options your plan offers and how those investment funds have performed over time. You can use the statement to compare your options.

What can I do to get a better deal?
If you think the fees in your 401(k) plan are too high, you can ask your employer to find more cost-effective investment options or plan services.

What else do I need to know?
Remember that fees are not the only factor in choosing 401(k) investments. Your plan may offer access to professional investment advice. If you’re thinking about rolling over your 401(k) savings into an IRA, consider that IRAs have fees, too, and those fees could be higher than your 401(k) plan fees.

To learn more, the Department of Labor offers resources that cover what you should know about your retirement plan.

And of course, I’ll be there learning with you along the way.

Since we launched on July 21st 2011, we’ve heard directly from consumers about the challenges they face in the marketplace, brought their concerns to the attention of financial institutions, and helped address their complaints. Accepting, resolving, and analyzing consumer complaints is an integral part of our work.

This week, we’ll be featuring stories from consumers who we have helped, and who have agreed to let the CFPB make their stories public.

Greg, a 39-year-old insurance adjuster from Michigan, whose credit rating was damaged after a bank failed to tell him that an account with which he was associated was in arrears.

Greg added his name to his 71-year-old mother’s checking account after he helped her move into an assisted living facility. Six months passed without Greg getting any statements or hearing from the bank. Little did he know, however, that his mother had written a check and the account was racking up big fees because its balance had fallen below zero. He found out about it when he checked his credit report and saw that he owed a collection agency $469.

Greg paid the bill but his credit was harmed and he says the bank wouldn’t help. After the CFPB got involved, the bank apologized for their error, called off the debt collector, and had Greg’s negative credit record removed.

Learn more

To see more about how we handle consumer complaints, read our Consumer Response Snapshot and to see all credit card complaints, visit our consumer complaint database.

Today, we released a Report to Congress on reverse mortgages. http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf

The Dodd-Frank Act, which created the CFPB, specifically recognized the unique financial needs of older Americans. Our Office of Older Americans is dedicated to protecting this population. In that effort we have taken a special look at one financial product only sold to them: reverse mortgages. Today’s report presents the findings of that study.

A reverse mortgage is a special type of home loan that allows older homeowners to access the equity they have built up in their homes now, and defer payment of the loan until they pass away, sell, or move out of the home. Reverse mortgages require no monthly mortgage payments, but borrowers are still responsible for property taxes and homeowner’s insurance.

Our study finds that reverse mortgages are complex products that are difficult for consumers to understand. Borrowers are also increasingly using reverse mortgages in ways that are different from what was intended. Nearly half of recent borrowers were in their 60s, and nearly 3 out of 4 borrowers took all of their money upfront in a lump sum. The Bureau is concerned that these borrowers will have fewer resources to pay for everyday and major expenses later in life.

Deceptive marketing is a long-standing problem in this market, with many older Americans receiving solicitations implying that a reverse mortgage is a government benefit rather than a loan. Prospective borrowers are required to attend counseling, but these deceptive advertisements and an increased array of product options make the counselor’s job very difficult.

We have submitted a Notice and Request for Information to gather public input on follow-up questions about reverse mortgages. We are seeking feedback on the factors most important to consumers when they are considering a reverse mortgage, the way consumers use reverse mortgage proceeds, the longer-term outcomes of reverse mortgage borrowers, and certain practices that may differ depending on the type of business that is offering the reverse mortgage . Sign up for our email list and we’ll notify you when the comment period opens. You can view the Request for Information here

Additionally, our Office of Older Americans released a 4-page consumer guide to reverse mortgages and a new and improved set of answers to common reverse mortgages questions on Ask CFPB. We’re also taking complaints on reverse mortgages through our complaint system.

It can be hard to picture yourself older – but doing just that can spur you to plan for your later years.

Take one Stanford study, for example. First, researchers showed students what they would look like at 60. Then, they asked: “If you had $1,000, how much would you save for retirement?”

Those who saw pictures of their older selves said they would save twice as much as those who didn’t.

Just as it’s important to save money for our future selves, it’s also important to plan for the possibility of an older self who can no longer handle her own finances.

In addition to physical changes that occur with age, many people experience cognitive decline, developing Alzheimer’s disease or another form of dementia. In the United States, 22 percent of people age 71 and above have mild cognitive impairment. Once we get into our 80s, our rate of cognitive impairment increases markedly.

As our cognitive abilities decline, so do our financial abilities. A Boston College study showed that we peak at about 53 – after that our financial ability goes steadily downhill. (When I presented on this topic at a recent forum on retirement in Atlanta, I laughed with the audience members who, like me, found themselves on the wrong side of that equation!)

These statistics illustrate exactly why it is important to think about your money and your older self now: when your abilities decline, you’ll need someone to help you handle your finances.

Finding the right person to help you with your money is particularly important because as your abilities decline, you become more vulnerable to frauds, scams, and other kinds of financial exploitation. If you find a trustworthy financial helper, not only will you have someone to help you with your money, but also someone who can help protect you from exploitation by others.

One thing that people are doing to plan for their financial futures is creating a power of attorney for finances. A power of attorney (POA) is a legal document that allows you to designate someone else to act on your behalf – your agent. Creating this legal document is a private way to appoint a substitute financial decision-maker. It’s relatively inexpensive, although you may want to seek help from a lawyer.

If you don’t create a POA before your decision-making ability declines, a friend or family member might have to go to court to have a guardian appointed – often a lengthy, expensive, and uncomfortably public process. Acting now makes it easier on family members later.

Getting a power of attorney does involve some risk. It gives someone else – your agent – a great deal of authority over your finances without regular oversight, which can lead to abuse. Your agent might pressure you for authority that you do not want to grant. Your agent may spend your money on himself rather than for your benefit. Your agent might do things you didn’t authorize him to do – for example, make gifts or change beneficiaries on insurance policies or retirement plans. Also, sometimes scammers forge powers of attorney and use them to take other people’s money.

What are some ways to minimize these risks? You should trust, but verify. Only appoint someone in whom you really have confidence and make sure they know your wishes and preferences. You can also require in your power of attorney document that your agent regularly report to another person on the financial transactions he or she makes on your behalf. Another strategy is to tell other friends, family members, and financial advisers about your power of attorney arrangement so they can look out for you. And remember that power of attorney designations are not written in stone – you can always change or cancel your power of attorney if you decide that your agent is no longer the best person to handle your finances.

Finally, beware of someone who wants to help you out by handling your finances and be your new “best friend.” If an offer of help seems too good to be true, it probably is.

Naomi Karp is a policy analyst in the CFPB’s Office for Older Americans