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From Banking and Finance Law Daily, August 20, 2015

Pension advance lenders attacked by CFPB, New York regulators

By Richard A. Roth, J.D.

Pension Funding, LLC, and Pension Income, LLC, induced pensioners to borrow against their future benefits through deceptive advertising and did not fully disclose the costs involved, according to a suit filed by the Consumer Financial Protection Bureau and the New York Department of Financial Services. The agencies are charging that the companies misrepresented loans as sales of future benefits and failed to disclose the resulting high interest rates and fees.

Transactions described. According to the agencies’ joint complaint, the two companies and three controlling individuals targeted pensions recipients, including military veterans, with advertisements claiming to offer pension buyouts, meaning that no interest would be paid. The companies would receive eight years of a consumer’s pension income in exchange for a single advance. However, when the various fees paid by borrowers were considered, the money advanced actually carried interest rates that averaged more than 28 percent, the complaint alleges.

The companies also told consumers that no life insurance was needed because the transactions were not loans, while in fact life insurance premiums were funded by the companies’ receipts and paid by the companies. This increased the fees paid by the borrowers.

Collections. While the companies purported not to be making loans, the contracts left consumers with the legal ability to redirect their ongoing pension payments to an account other than the account established by the companies. The companies “aggressively pursued” consumers who did so, and the contracts provided that in such a case all remaining payments would be immediately due.

State law violations. The NYDFS also is charging that Pension Funding and Pension Income violated various New York state laws. Not only did the interest rates exceed state usury limits, but the companies’ practice of creating accounts to accept pension payments and then debiting those accounts amounted to engaging in money transmission without a license, the state alleges.

Consumer advisory. The CFPB issued a consumer advisory on pension advances at the same time it announced the suit. According to the bureau, consumers should protect their pension benefits by:

  • avoiding transactions that actually are high-cost loans;

  • not assigning control of their benefits to a lender or agreeing to have their benefits deposited in a different account; and

  • not buying unnecessary life insurance.

The CFPB advisory also noted another problem—military veterans have been offered pension advances even though it is illegal for lenders to take assignments of military pensions or Department of Veterans Affairs benefits. In some cases, the lenders have claimed to be endorsed by the VA.

Companies: Pension Funding, LLC; Pension Income, LLC

MainStory: TopStory CFPB ConsumerCredit InterestUsury NewYorkNews StateBankingLaws UDAAP

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