Blog Enforcement Watch August 21, 2019

CFPB and Arkansas AG Settle with Brokers Over Illegal Credit Contracts

On August 14, 2019, the Consumer Financial Protection Bureau (CFPB) and the Office of the Arkansas Attorney General (AG) entered into a proposed stipulated final judgment with three corporations that brokered extensions of credit to consumers, and the co-founder and owner of one of the corporations.  The simultaneously filed complaint, filed in the U.S. District Court for the Eastern District of Arkansas, alleged that defendants engaged in unfair and deceptive acts and practices in violation of the Consumer Financial Protection Act of 2010 (CFPA), and deceptive, unconscionable, and false practices in violation of the Arkansas Deceptive Trade Practices Act (ADTPA), by allegedly brokering contracts between consumers (the majorit​y of whom were military veterans) and investors whereby consumers received lump-sum payments in exchange for assigning to the investors part of their monthly pension or disability payments. These transactions were void under federal law which prohibits assigning a veteran’s pension payments to another person.  Additionally, defendants allegedly misrepresented to consumers that these products were sales of payments rather than high-interest credit offers, and failed to disclose to consumers the interest rates of these products.

Under the proposed settlement, defendants agreed to pay $2.7 million in redress to affected consumers.  However, due to defendants’ inability to pay, full redress is suspended so long as defendants pay $200,000 in partial satisfaction to the CFPB, a $1 civil money penalty to the CFPB, and $75,000 to the Arkansas Attorney General’s Consumer Education and Enforcement Fund. Under the order, defendants are also prohibited from brokering, offering, or arranging agreements between pension-recipients and third parties under which the pension-recipient purports to sell a future right to the income stream, or any portion of the income stream, from his or her pension.