A California firm has been sued by the federal consumer financial protection agency for failing to present its products to elderly and disabled customers as loans, when in fact they were, the agency said Thursday.
In a post on its website, the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) said it had filed a complaint against Future Income Payments, LLC (FIP) and Scott Kohn, both of Irvine, Calif., as well as related entities for representing to consumers that their pension-advance products were not loans, were not subject to interest rates, and were comparable in cost to, or cheaper than, credit card debt.
The bureau said that, in actuality, the pension-advance products were loans, and they were subject to interest rates that were substantially higher than credit card interest rates. The BCFP also alleged in the complaint, it said, that the defendants violated provisions of the Truth in Lending Act (TILA) by failing to disclose a measure of the cost of credit, expressed as a yearly rate.
The action was filed in federal district court in the Central District of California, the bureau said.
“Defendant Scott Kohn, through the above-named companies and others unknown to the Bureau (together, ‘Defendants’), offers consumers lump-sum payments in exchange for which the consumers authorize Defendants to periodically debit the accounts in which the consumers deposit their pensions or other future income streams,” the agency’s complaint states. “Defendants represent to consumers, among other things, that these lump-sum payments are not ‘loans,’ that there is no applicable interest rate, and that the cost of the lump-sum advance is less than that of potential alternative sources of funds, such as credit cards.”
The bureau stated in the complaint that, in fact, defendants’ product is a loan and “is more costly than alternative financial products to which Defendants draw comparisons. Defendants misrepresent material aspects of their product. Defendants thus engage in deceptive acts and practices as well as other violations of ‘Federal consumer financial law.’”
CFPB asserted that numerous state and local regulators and agencies also have concluded that the defendants’ product is a loan for purposes of applicable state laws. The agencies include those in California, Minnesota, Massachusetts, North Carolina, Iowa, Virginia, Oregon, Illinois, Maryland, Pennsylvania, New York and Washington state, BCFP said.
The agency said the product lures in vulnerable consumers, including senior citizens, disabled military veterans, and their spouses in need of immediate cash. BCFP said it is seeking injunctive relief, other monetary and equitable relief, and civil money penalties.