Pension advance companies are facing heat from the CFPB and the New York Department of Financial Services after the regulatory agencies filed a suit Thursday (Aug. 20) against the pension financing companies for allegedly misleading consumers on loan costs.
The companies accused of the deceptive practices include Pension Funding, LLC and Pension Income, LLC — along with three of the companies’ individual managers for allegedly deceiving consumers about the costs and risks of taking the loans. The suit alleges that the companies tricked consumers into borrowing against their pensions by providing them with a deal that appeared to be the product of a sale, when in reality it was a loan. The companies then failed to reveal the high interest rates and fees that were associated with those loans.
“These companies duped consumers into taking out pension advance loans by deceiving them about the terms of the deal,” said CFPB Director Richard Cordray. “We are working to put a stop to the illegal practices these companies are using to sell their bogus product to military veterans and other pensioners.”
“As outlined in our complaint, the defendants used blatantly deceptive practices to harvest the hard-earned pensions of seniors and military personnel,” said Anthony J. Albanese, Acting New York Superintendent of Financial Services. “This scheme involved false advertising, illegal loans at high interest rates, and other abusive tactics that our Department simply will not tolerate. Together with the Consumer Financial Protection Bureau, we are seeking to deliver relief to the pensioners on whom the defendants preyed. We thank our partners at the CFPB for their outstanding work and cooperation in investigating and pursuing this matter, and the attorneys at the New York Attorney General’s Office for their representation of the Department in this matter.”
According to the suit, the two California-based companies offered consumers lump-sum cash advances between the time period of around 2011-December 2014. The consumers agreed to redirect all or part of their pension payments over a period of eight years. The individual managers named in the suit are Steven Covey, Edwin Lichtig, and Rex Hofelter — all accused of designing and marketing the alleged deceptive loans.
According to the complaint filed, the CFPB and NYDFS alleges that the Dodd-Frank Wall Street Reform and Consumer Protection Act was violated as a result of these practices. The suit also alleges that the “companies’ misrepresentations deceived consumers, interfered with consumers’ ability to understand the risks, costs, and conditions of the transactions, and took advantage of consumers’ lack of understanding of the product and inability to protect their interests.”
Under New York state law, NYDFS alleges that the “defendants charged interest rates that violated New York usury laws, that they illegally transmitted money without a license, and that they violated state laws prohibiting deception.” The complaint has currently only been filed by the the CFPB and NYDFS and has been filed with the U.S. District Court for the Central District of California.
Unfortunately, cases like this are not unheard of — and the CFPB has been anything but quiet on the issues.
Earlier this year, the CFPB and the Navajo Nation took action and sued another company who was accused of taking advantage of low-income Navajos. That lawsuit, which was filed in April, targeted a former H&R Block tax preparer and a refund-anticipation loan company in New Mexico that allegedly cheated customers out of a quarter-million dollars.
"This scheme exploited vulnerable consumers by grossly understating loan rates and by deceiving them about the status of their tax refunds,” Cordray said in April. “Today’s joint action with the Navajo Nation to police illegal and abusive practices is a milestone for the Bureau. Through our coordination and cooperation, we are putting an end to this sorry chapter."
Meanwhile, the CFPB has also been keeping an eye on short term lending.