The CFPB announced on August 14, 2019 that, subject to the approval of the Federal District Court for the Eastern District of Arkansas, the Bureau and the Arkansas Attorney General have entered into a proposed settlement with Andrew Gamber, Voyager Financial Group, LLC, BAIC, Inc., and SoBell Corp. to resolve the Bureau’s allegations that the defendants violated the Consumer Financial Protection Act and the Arkansas Deceptive Trade Practices Act while brokering contracts that offered high-interest credit to veterans and other consumers, through which these consumers received lump-sum payments in exchange for assigning their monthly pension or disability payments to investors. In its press release, the Bureau announced that under the proposed settlement, Gamber and his companies will be “permanently banned from brokering, offering, or arranging agreements between pension recipients and third parties under which the consumer purports to sell a future right to an income stream from the consumer’s pension.”

The proposed order alleges that the defendants violated the CFPA and ADTPA based upon the following conduct:

• Misrepresenting to consumers that the contracts were valid and enforceable when, in fact, the contracts were void from inception because federal law prohibits agreements under which another person acquires the right to receive a veteran’s pension payments, 38 U.S.C. §5301(a)(3)(c), and because South Carolina law, which governs the contracts in question, prohibits sales of unpaid earnings and prohibits assignments of pensions as security on payment of a debt. S.C. Code § 37-3-403(2). “Unpaid earnings” are defined to include pension benefits. S.C. Code § 37-1-301(15).
• Misrepresenting to consumers that the offered product was “a sale of payments and not a high-interest credit offer”.
• Misrepresenting to consumers that they would receive funds from Gamber and his companies “within a specified period when, in fact, many consumers would not receive funds by the specified date”.
• “Failing to inform consumers of the applicable interest rate on the credit offer”.

Under the proposed agreement, Gamber and his companies agreed to pay a judgment of $2.7 million in redress to the affected consumers. However, due to Gamber’s inability to pay, full payment of the judgment would be suspended upon satisfaction of Gamber and his companies paying $200,000 for consumer redress, a civil money penalty of $1 to the Bureau, and a payment of $75,000 to the Arkansas Attorney General’s Consumer Education and Enforcement Fund.

While there might very well be a violation of federal law to purchase veterans’ pension benefits, that does not necessarily give the CFPB and the Arkansas Attorney General’s office jurisdiction to enforce the federal statute which prohibits the acquisition of veterans’ pension benefits. Similarly, while there might well be a violation of South Carolina law to purchase any type of pension benefits, that does not necessarily give the CFPB the jurisdiction to enforce the Arkansas statute which prohibits the sale of “unpaid earnings”. The CFPB characterizes the purchase of veterans’ and other persons’ pensions as loans under Arkansas law, because the CFPB would not have jurisdiction if these transactions were considered sales of pension benefits. Under Arkansas law, a transaction is a consumer loan, as distinguished from a sale, only when there is a personal legal obligation of the consumer to repay the amount advanced to him or her. See e.g., Haley v. Greenhaw, 235 Ark. 481, 481, 360 S.W.2d 753, 754 (1962) (stating that to constitute usury in Arkansas, it is essential that there be a loan of money or a forbearance of an existing indebtedness, requiring the borrower to pay and entitling the lender to receive a higher rate of interest than that allowed by statute).

While the CFPB and the Arkansas Attorney General have stated in the complaint that the transactions brokered by the defendants were loans, this unsupported conclusion does not establish that they were in fact loans because the consumers were obligated to repay.

This is not the first time that the CFPB has pushed the envelope and has sought to characterize pension advances and other types of sales transactions as loans. See here, here and here as to other pension advance cases. The CFPB asserted that structured settlements are loans. See here, here, here. The CFPB has asserted that litigation funding transactions are loans. See here, here. While these are all examples of former Director Cordray pushing the envelope, it is surprising to see that Director Kraninger is doing the same thing, especially since the Federal Trade Commission and state AGs have UDAP enforcement authority over these products without asserting—much less establishing—that they are extensions of credit.