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From Banking and Finance Law Daily, November 22, 2016

Lead-paint poison scam leads to brush with CFPB enforcement

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has alleged that Access Funding, LLC, a structured-settlement-factoring company based in Chevy Chase, Md., engaged in an illegal scheme to deceive victims of lead-paint poisoning and others into signing away future settlement payments in exchange for significantly lower lump-sum payouts. According to the bureau, Access Funding steered victims, many of whom were cognitively impaired, to receive "independent advice" from a "sham advisor," an attorney named Charles Smith who was paid directly by the company.

"Many of these struggling consumers were victimized first by toxic lead, and second by a company that saw them as little more than income streams to be courted and harvested," said CFPB Director Richard Cordray.

The CFPB’s complaint names Access Funding, Access Holding, LLC, and a successor company, Reliance Funding. The lawsuit also names: Michael Borkowski, Chief Executive Officer of Access Funding; Raffi Boghosian, Chief Operating Officer of Access Funding; Lee Jundanian, CEO of Access Funding from February 2013 to May 2014; and Smith, the Maryland-based attorney who purportedly provided advice for almost all Maryland consumers who did business with Access Funding.

Structures settlements. Structured settlements set up periodic payments of damages for personal injury, often with the intent of ensuring the well-being of individuals who have suffered long-term physical or cognitive harm. Structured-settlement companies purchase payment streams from settlement recipients in exchange for an immediate lump sum that generally is significantly lower than the long-term payout. Many states, including Maryland, require that a consumer consult with an independent professional advisor before the court will approve a sale.

UDAAP. The CFPB charges in its complaint that Access Funding violated Sections 1031 and 1036 of the Consumer Financial Protection Act prohibiting unfair acts or practices. Under the CFPA, an act or practice is unfair if it causes or is likely to cause substantial injury to consumers, the injury is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or to competition. The CFPB alleges that Smith’s actions were in violation of Sections 1031 and 1036 because he:

  • held himself out as an "independent professional advisor," and was therefore obligated to explain the financial, legal, and tax implications of the transfers consumers made to Access Funding;

  • did not tell consumers about his relationship with Access Funding;

  • provided virtually no advice to these consumers and did not take the consumers’ personal circumstances, including other debt obligations, into consideration; and

  • was compensated directly by Access Funding.

Access Funding also violated Sections 1031 and 1036 by:

  • referring nearly all of its Maryland consumers to Smith for services;

  • requiring consumers to sign letters stating that they received services before speaking with Smith;

  • compensating Smith directly for services;

  • offering cash advances to consumers awaiting approval of structured-settlement transfers, even though many of these consumers were cognitively impaired, a fact of which the company was aware; and

  • falsely representing to consumers that they were obligated to proceed with the transactions after receiving the advances even though the advances did not bind consumers to do so.

Demand for relief. The CFPB is requesting that the court:

  • permanently enjoin Allied Funding and the other defendants from participating in the structured-settlement industry;

  • award damages or other monetary relief;

  • order the defendants to pay redress to consumers; and

  • impose civil money penalties.

Cummings statement on lawsuit. Representative Elijah E. Cummings (D-Md), Ranking Member of the House Committee on Oversight and Government Reform, said that the bureau’s lawsuit against Access Funding "is proof of the critical work the CFPB is doing, and evidence that any effort to undermine its legitimacy serves only to harm consumers."

The lawmaker said that he is "proud of the CFPB, and will fight to ensure it can continue to protect Americans from financial predators."

Last year, Cummings sent a letter to Access Funding requesting information and a meeting about how the company purchased structured settlements in exchange for lump-sum payments. Cummings said that in response to his letter, Access Funding "provided limited data regarding the distribution of cases by jurisdiction and the total value of the payments bought."

Companies: Access Funding, LLC; Access Holding, LLC; Reliance Funding

MainStory: TopStory CFPB EnforcementActions MarylandNews OversightInvestigations UDAAP

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