CFPB Sues over Deceptive Pension Advances

The Consumer Federal Protection Bureau and the New York Department of Financial Services are seeking to enjoin deceptive lending practices by two pension advance companies. CFPB v. Pension Funding LLC, No. 8:15-cv-01329 (C.D. Cal.). On August 20, 2015, the agencies filed suit against Pension Funding LLC and Pension Income LLC and managing members, Steven Covey, Edwin Lichtig, and Rex Hofelter, alleging that the individuals and companies were in “violation of federal and New York law through the offering of pension advance products that came with hidden fees and interest charges that were not properly disclosed to consumers.” Specifically, the complaint alleges that the companies engaged in a scheme under which elderly consumers would send them eight years’ worth of pension payments in exchange for a lump sum. Though the consumers would be promised little to no fees or interest, in fact, the transactions included a hidden effective interest rate of more than 28 percent and were in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and New York usury laws.

The agencies moved for preliminary injunction and the companies responded that the transactions at issue were sales rather than loans and, therefore, the companies and individuals were not “lenders” over which the CFPB and DFS could exercise jurisdiction.

The agencies responded that “the facts establish that Defendants’ pension-advance transactions constituted loans under the CFPA, as consumers incurred debt and were granted the right to defer its payment, in this case typically over a period of eight years. That pension payments the consumers were entitled to receive were expected to be used to repay the debt does not change the fundamental character of the transaction, and Defendants’ arguments to the contrary are unavailing.”

A hearing on the motion for preliminary injunction is scheduled for December 18, 2015.

CFPB v. Pension Plan complaint CD Cal