The nation's first-ever law to regulate "pension lending" was signed in the Vermont Statehouse on Tuesday morning. It takes effect July 1.
Gov. Peter Shumlin said the measure allows Vermont to get ahead of an emerging financial trend before it becomes a problem for the state's retirees.
S.223 does not prevent Vermonters from borrowing against future pension payouts. Instead, it regulates the practice in much the same way other lending is monitored in Vermont.
"There's nothing worse than taking advantage of a person when they're in dire straits, when they're very vulnerable," Rep. Bill Botzow, D-Bennington, said at the bill signing.
Pension lenders will have to apply to the state's Department of Financial Regulation for a license. Most known instances of pension lending to date involve exorbitant interest and fees, however, whose terms likely would not be approved.
Legally, one important effect of the law is to establish pension advances as an official act of lending. Many pension lenders currently attempt to evade regulation by calling their financial product by another name.
Any unlicensed loans - or even solicitations - could trigger a fine up to $10,000 per violation. Victims of pension loan scams also could file suit privately, according to state officials.
State Treasurer Beth Pearce has supported the legislation for the protections it affords retirees. She underscored the role personal retirement savings play in the state's long-term financial and economic health.