United States: Consumer Financial Protection Bureau Files Suit Against Company And Individuals Who Allegedly Ran Pension Loan Scam

On August 20, 2015, the Consumer Financial Protection Bureau ("CFPB") and the New York superintendent of financial services jointly sued Pension Funding, LLC; Pension Income, LLC; and individuals Steven Covey, Edwin Lichtig, and Rex Hofelter (collectively, "PF-PI") in the Central District of California for violation of the Consumer Financial Protection Act, usury, and fraud, among other claims.

The CFPB alleges that PF-PI, and its individual members, operated a scheme to defraud investors and elderly consumers out of their pensions. PF-PI allegedly utilized Google AdWords to direct consumers seeking pension loans to PF-PI's website. Under the guise of a "pension advance," Pension Funding allegedly enticed pensioners to redirect their pension streams to PF-PI in exchange for an up-front lump sum. Concurrently, PF-PI allegedly advertised for consumer "investors" to provide funds for the pension advances. PF-PI required its consumer-investors to sign a power of attorney allowing PF-PI to set up bank accounts and run transactions in the investors' names.

While Pension Funding repeatedly claimed the lump sum was an advance and not a loan, the company required consumers to submit to an extensive underwriting process and thereafter required monthly payments. PF-PI also allegedly charged numerous fees of varying amounts to cover the lump sum advance, interest promised to investors, and various other fees. In total, the various required payments and fees amounted to an effective 28.56 percent interest rate. If consumer-borrowers missed even one payment, PF-PI would accelerate the entire balance due and threaten to commence litigation, in which it would seek liquidated damages in the amount of the entire remaining balance. PF-PI would allegedly bring the actions in the name of the consumer-investors.

The CFPB sued for damages and injunctive relief for violations of the Consumer Financial Protection Act. The New York superintendent of financial services sued for usury, false and misleading advertising, fraud, and unlicensed money transferring. This blog will provide updates as the case progresses.

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