[co-authors: Anne Doherty and David Reidy]

In the latest sign of regulatory scrutiny of asset-advance companies offering consumers what regulators believe are in fact regulated “credit” under federal law and “loans” under state law, the Bureau of Consumer Financial Protection (BCFP) filed its first new lawsuit under Acting Director Mulvaney last Thursday. The complaint, filed in the Central District of California, alleges that a so-called pension-advance company, Future Income Payments, LLC, its President and affiliates falsely marketed high-interest loans as mere purchases of consumers’ rights to future cash income streams on pension and other assets.

This action continues the Bureau’s and state regulators’ focus on such asset-advance enterprises: see action against Pension Funding, LLC and others here; action against RD Legal Funding, a litigation settlement advance company, here; and the Bureau’s 2015 “Consumer advisory: 3 pension advance traps to avoid.” In its new complaint, the BCFP complaint alleges that the defendants failed to treat their products as “credit” and “loans,” and alleges violations of the Truth-in-Lending Act and the Consumer Financial Protection Act for (i) failure to follow federal credit disclosure requirements, (ii) engaging in deceptive marketing practices, and (iii) failure to follow various state laws governing “loans.”

In this case, the BCFP specifically alleged that Defendants, based in Irvine, CA, lured senior citizens, disabled veterans, and other vulnerable consumers into borrowing money at deceptively high interest rates. The company allegedly offered consumers lump-sum payments of up to $60,000 in exchange for their assigning to the company a larger amount of their future pension and other income streams. Marketing the product as a “purchase” and not a loan, the company allegedly claimed that the advance was interest-free and a useful way to pay off credit card debt. In fact, the Bureau alleges, the discount applied to consumers’ future income streams was a disguised form of interest, equivalent to rates of up to 183%.

Interesting, though, the Complaint does not address exactly why the challenged transactions are, in fact, extensions of “credit” under the federal Truth-in-Lending Act’s definition of that term and “loans” under state law. We will continue to track the Bureau’s analysis of those issues, because they are arising repeatedly as Fintech and other new companies develop new products that seek, in a wide variety of forms, to offer consumers advances in exchange for future cash streams.