The CFPB filed its first new lawsuit under acting Director Mulvaney yesterday, alleging that a pension advance company and its president made predatory loans to consumers that were falsely marketed as asset purchases. While it’s noteworthy as the Bureau’s first new case under current leadership, the action continues the CFPB’s focus on companies that offer settlement and pension advances, which began under Director Cordray and has continued under acting Director Mulvaney.
The defendants, under a pseudonym, unsuccessfully challenged the Bureau’s CID in federal court several months ago. The investigation presumably continued, resulting in yesterday’s complaint filed in California federal court. Similar to the Bureau’s earlier lawsuits against two pension advance companies and RD Legal, the complaint against Future Income Payments, its president Scott Kohn, and affiliated companies alleges that they made loans disguised as asset purchases that violated state usury and licensing laws. More specifically, Future Income Payments and the other defendants allegedly committed deceptive acts in violation of the Consumer Financial Protection Act and failed to make disclosures required by the Truth in Lending Act by:
- Falsely marketing that the alleged loans (1) are asset purchases rather than loans, (2) do not have interest rates, and (3) are comparable or cheaper than credit-card debt; and
- Failing to provide the disclosures required by TILA explaining the cost of the credit.
The complaint, however, is missing a critical element. It does not explain why the transactions are in fact extensions of credit. Instead, the complaint concludes, without supporting allegations, that the funds provided to consumers are loans subject to the CFPA and TILA. This failure to grapple with the elements of a loan under state law also exists in the CFPB’s pending action against RD Legal, which we highlighted in a blog. In both cases, the Bureau fails to address the well-established, state-law factors for distinguishing asset purchases from loans, such as an absolute obligation by consumers to repay the funding company.
These lawsuits against pension and settlement advance companies are striking exceptions to acting Director Mulvaney’s public statements that the Bureau will neither push the envelope nor regulate by litigation/consent order. We will, therefore, continue to monitor the Future Income Payments case as we have with the RD Legal lawsuit.