The CFPB and the South Carolina Department of Consumer Affairs (SCDCA) recently settled a lawsuit they filed jointly in a South Carolina federal district court in October 2019 against Performance Arbitrage Company, Inc. and Life Funding Options, Inc., and their individual owner that alleged the defendants violated the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by brokering high-interest loans to consumers that were marketed as purchases of the consumers’ future pension or disability payments. The CFPB and SCDCA alleged that the majority of the transactions involved veterans with federal disability pensions or other pensions issued to veterans. They also alleged that the defendants assessed the creditworthiness of consumers before entering into the transactions and allowed consumers to repay the contracts from sources other than the contracted-for income streams.
The stipulated final judgment approved by the court permanently bans the defendants from collecting money on any transaction, using any consumer information, and providing consumer financial products or services. The individual defendant was discharged from bankruptcy in May 2020. The settlement requires her to pay civil money penalties of $500 each to the Bureau and to South Carolina.
In addition to targeting companies that broker pension advance products structured as purchases, the Bureau has targeted service providers to such companies. In February 2020, the CFPB, joined by the SCDCA and the Arkansas Attorney General, filed a complaint in a South Carolina federal district court against Upstate Law Group LLC. and two of its individual owners and managers that alleged the defendants violated the Consumer Financial Protection Act in connection with the brokering of pension advance products structured as purchases by engaging in unfair and deceptive acts or practices and by providing substantial assistance to others who had engaged in deceptive and unfair acts or practices. The complaint also included a count brought only by the SCDCA alleging the defendants violated the South Carolina Consumer Protection Code by engaging in unconscionable debt collection.
According to the complaint, the defendants worked with other companies (Broker Companies) that brokered high-interest loans to consumers that were marketed as purchases of the consumers’ future pension or disability payments, where the majority of such consumers were veterans with federal disability pensions or other pensions issued to veterans. Such Broker Companies included Performance Arbitrage and Life Funding Options. The Bureau entered into settlements with the other Broker Companies in January 2019 and August 2019.
These lawsuits indicate that not only companies offering financial products structured as purchases should expect continued CFPB scrutiny, particularly under a new CFPB Director appointed by President-elect Biden, but also indicate that service providers to such companies should expect such scrutiny. An even heightened risk of scrutiny should be expected where the products are marketed to veterans.
The lawsuits also underscore the need for all players in this space, including litigation funding companies and merchant cash advance providers, to revisit true sale compliance, both in the language of their agreements and in the company’s actual practices. Providers of business financing can face lawsuits from federal regulators as well as state AGs and regulators. Providers of merchant cash advances are the targets of recent lawsuits filed by the FTC and the New Jersey Attorney General.