CFPB, NY Securities Regulator Sue Companies Over Pension Advance Scheme

CFPB, NY Securities Regulator Sue Companies Over Pension Advance Scheme

Regulators teamed up on Thursday to sue two pension companies and three individual managers for allegedly misleading consumers about the costs and risks associated with taking advanced loans on their pensions.

The Consumer Financial Protection Bureau and the New York Department of Financial Services sued Pension Funding and Pension Income. Three of the companies’ individual managers, Steven Covey, Edwin Lichtig and Rex Hofelter were also named in the suit.

According to the complaint filed in California federal court, from 2011 through December 2014 the companies conned customers—most of whom were military veterans and retirees—into borrowing against their pensions by marketing their products as “pension advances,” rather than what they were—loans with high interest rates and fees attached to them.

“The defendants used blatantly deceptive practices to harvest the hard-earned pensions of seniors and military personnel,” Anthony Albanese, acting New York superintendent of Financial Services, said in a statement Thursday. “This scheme involved false advertising, illegal loans at high interest rates and other abusive tactics that our Department simply will not tolerate.”

The regulators claim the two California-based companies took advantage of consumers’ lack of understanding of the so-called “pension advances” and potential alternatives. Pension Funding and Pension Income allegedly marketed their services as a “sale” of customers’ future pension income, offering to pay consumers a lump sum of cash in exchange for customers agreeing to redirect all or part of their pension payments to the companies for the next 8 years.

But regulators claim that customers were required to make payments covering fees and interest on the advance, which had an effective annual interest rate of 28.56 percent, above and beyond the New York civil loan cap of 16 percent and the criminal cap of 25 percent. Additionally, Pension Funding and Pension Income didn't disclose any kind of annual interest rate to consumers, the regulators claim.

Steven Covey, Edwin Lichtig and Rex Hofelter, the individual managers named in the suit, allegedly designed and marketed the loans at issue and were responsible for the companies’ daily operations, according to the complaint. 

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