Checking accounts with high-cost overdraft fees are increasing older persons’ economic vulnerability, says a new report from Woodstock Institute, “Improving Economic Security Later in Life: Meeting the Credit and Financial Services Needs of Older Persons.” The controversial overdraft fees, recently under fire from Senator Chris Dodd (D-CT), particularly burden beneficiaries of Social Security payments and low-income older persons.
The report, based on extensive conversations with leading members of the policy and advocacy community, financial services industry, and bank regulatory agencies, found that the availability of transparent checking and savings accounts is a key financial concern for many older people. As the national debate on consumer protections for financial products continues, this report lays out several key concerns of older persons that should be included in any reform efforts:
· High-cost short-term consumer loans prey upon older persons’ regular stream of Social Security benefits. Limited savings make older persons vulnerable when emergencies arise. Payday lenders know this: in five large cities, they have clustered their business around subsidized senior housing. Lenders have also found a loophole that allows them to collect loans by automatically transferring Social Security benefits from older persons’ accounts, creating a cycle of high-cost debt.
· Unscrupulous lenders often target older persons for subprime mortgage loans and refinances. High amounts of home equity make older persons attractive to unscrupulous lenders. Over 60 percent of older persons were aggressively approached by mortgage brokers and convinced to take out loans they would not have taken out otherwise, while as many as 50 percent of older subprime borrowers would have qualified for prime loans.
· Rising costs and declining incomes reduce older persons’ ability to meet basic needs. Forty percent of retirees have less than $10,000 saved for retirement—a frighteningly low figure, considering that it takes an average of $102,000 just to pay for Medicare premiums during retirement.