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Suit Filed Against Pension Advance Firms

The Consumer Financial Protection Bureau (CFPB) and New York Department of Financial Services (NYDFS) have jointly filed suit against two pension loan companies and three individual managers for deceptively marketing pension advance loans to seniors and military personnel.

In a 24-page complaint filed in California District Court, the CFPB and NYDFS assert that California companies Pension Funding, LLC (PF) and Pension Income, LLC (PI), and their principals, offered products described as “tailored financing programs,” purporting to purchase, through lump sum payments, “eight years of future cash flow” from consumers’ pension payments, but which were in fact pension loans with exorbitant interest rates.

According to the 24-page complaint filed in California District Court, between 2011 and 2014, Pension Funding, LLC (PF) and Pension Income, LLC (PI), deceptively marketed the products to consumers with pensions from sources such as military and civil services, as “pension advances,” lump-sum payments that consumers could receive in return for agreeing to direct all or part of their pension payments over eight years to repay the funds. Consumers who searched for “retirement loans” or “military pension loans” were steered to a website that represented the defendants would buyout a pension in a lump sum, and that it was not a loan. The website did not disclose any associated fees or interest rates.

The complaint alleges the companies and their principals violated the Consumer Financial Protection Act (CFPA)’s prohibition on unfair, deceptive, and abusive practices (UDAAP) in offering consumer financial products and services by:

  • Misrepresenting the products as a sale of their future pension income, rather than as a loan.

  • Failing to disclose or misrepresenting the interest rate and fees associated with the loans (in some cases, they misrepresented to consumers that the product was better than a home equity line of credit or a credit card because of lower rates, when the effective interest rate was in fact typically greater than 28%).

In addition to the claims for violating the CPFA by engaging in UDAAP, the NYDFS also asserts claims against PF and PI under New York state law, including violations of New York usury laws, illegally transmitting money without a license, and counts for deceptive advertising of loans, and intentional misrepresentation.

The complaint requests injunctive relief, money damages, payment of redress to consumers, disgorgement and civil penalties.

Earlier this year, the CFPB issued an advisory to retirees with pensions warning of the dangers of pension advances.