In the August 2011 and October 2011 issues of The Insurance Forum, I wrote major articles about the practices of factoring companies that pay cash to annuitants and in exchange receive the annuitants' annuity payments. In No. 115 (September 11, 2015), I said the federal Consumer Financial Protection Bureau (CFPB) and the New York State Department of Financial Services (DFS) filed a lawsuit against two annuity factoring companies and three individuals associated with those companies.
The CFPB/DFS Complaint
On August 20, 2015, CFPB and DFS filed their complaint. The company defendants were Pension Funding LLC and Pension Income LLC, both based in Huntington Beach, California. They were related companies that extended consumer credit, serviced consumer loans, and transmitted money in connection with their loan business. The individual defendants were Steven Covey, Edwin Lichtig, and Rex Hofelter, who were senior officials of the two companies. The case was assigned to U.S. District Judge Josephine L. Staton. President Obama nominated her in February 2010, and the Senate confirmed her in June 2010.
The plaintiffs alleged that the defendants denied their product was a loan, failed to disclose fees or interest rates, and claimed the cost could be as little as 13 percent. The plaintiffs also alleged that the transactions had an average interest rate of 28.56 percent, in excess of the New York State civil usury and criminal usury rates. Further details about the allegations are in No. 115 and in the complaint I offered to readers.
The complaint included seven counts. The first three related to New York State's Consumer Financial Protection Act of 2010 (CFPA), and were asserted by CFPB and DFS. The other four were asserted by DFS. The seven counts were (1) unfair acts or practices in violation of CFPA, (2) deceptive acts or practices in violation of CFPA, (3) abusive acts or practices in violation of CFPA, (4) usury, (5) false and misleading advertising of loans, (6) intentional misrepresentation of a material fact regarding a financial product, and (7) unlicensed money transmitting. The plaintiffs sought injunctive relief, damages, redress to harmed consumers, disgorgement of ill-gotten revenues, civil money penalties, and plaintiffs' costs in bringing the action. (See CFPB v. Pension Funding, U.S. District Court, Central District of California, Case No. 8:15-cv-1329.)
Subsequent Developments
On October 7, 2015, the plaintiffs applied for a preliminary injunction and the appointment of a receiver. On October 23 Lichtig, Hofelter, and the two company defendants answered the complaint. Covey ignored the complaint. On October 30 the four defendants other than Covey opposed the application for a preliminary injunction. On December 23 the clerk entered a notice of default relating to Covey.
On January 22, 2016, the plaintiffs and the four defendants other than Covey filed a joint application for a stipulated final judgment and order. On the same day the plaintiffs applied for a default judgment relating to Covey.
On February 10 Judge Staton issued a stipulated final judgment and order relating to the four defendants other than Covey. Among other things, she permanently enjoined Lichtig and Hofelter from engaging directly or indirectly in any "pension-advance" products or services; permanently enjoined Lichtig, Hofelter, and the two company defendants from engaging directly or indirectly in servicing or providing any financial products or services in New York State without the requisite license; appointed Krista Freitag of E3 Advisors as the permanent receiver of the two company defendants; ordered Lichtig and Hofelter to pay $282,000 and $40,000, respectively, to the receivership estate; and ordered Lichtig and Hofelter to cooperate with the receiver.
On July 11 Judge Staton issued a default judgment and order relating to Covey. Among other things, she permanently enjoined Covey from engaging directly or indirectly in any pension-advance products or services, permanently enjoined him from engaging directly or indirectly in servicing or providing any financial products or services in New York State, ordered him to disgorge $578,182 representing profits from the conduct alleged in the complaint, ordered him to cooperate with the receiver, and ordered him to meet certain reporting requirements.
The Receivership
On July 11, according to the docket, the case was terminated. The only documents filed since then have been reports filed by the receiver, bills for her time and expenses, and other items related to the receivership.
As mentioned, the receiver was appointed on February 10. Thus far she has issued three interim reports—on April 29, July 28, and November 11. In each report she summarizes the case, shows amounts recovered for the receivership estate, and describes other activities. The November 11 report, for example, shows cash of $689,737 as of January 7, 2016, cash of $2,500,797 as of September 30, 2016, and the collections and disbursements during that period.
General Observations
For many years I have been convinced that the business of buying streams of annuity payments from annuitants by paying cash to the annuitants is fraught with potential problems. Two major problems are the refusal of factoring companies to acknowledge that the arrangements are loans, and the failure to disclose the interest rates imposed on annuitants who accept cash in exchange for annuity streams. The CFPB/DFS case illustrates these and other problems in the so-called pension-advance business. I think the case should be studied closely by persons interested in protecting the financial interests of annuitants.
Available Material
In No. 115, I offered a complimentary 29-page PDF consisting of the August 2015 CFPB/DFS complaint and the two 2011 articles in the Forum about annuity factoring companies; that package is still available. Now I offer a complimentary 37-page PDF consisting of Judge Staton's 15-page February 10 stipulated final judgment and order relating to the four defendants other than Covey, her 12-page July 11 default judgment relating to Covey, and the receiver's 10-page November 11 third interim report. E-mail jmbelth@gmail.com and ask for the December 2016 package about the CFPB/DFS lawsuit against two annuity factoring companies and three individuals.
The CFPB/DFS Complaint
On August 20, 2015, CFPB and DFS filed their complaint. The company defendants were Pension Funding LLC and Pension Income LLC, both based in Huntington Beach, California. They were related companies that extended consumer credit, serviced consumer loans, and transmitted money in connection with their loan business. The individual defendants were Steven Covey, Edwin Lichtig, and Rex Hofelter, who were senior officials of the two companies. The case was assigned to U.S. District Judge Josephine L. Staton. President Obama nominated her in February 2010, and the Senate confirmed her in June 2010.
The plaintiffs alleged that the defendants denied their product was a loan, failed to disclose fees or interest rates, and claimed the cost could be as little as 13 percent. The plaintiffs also alleged that the transactions had an average interest rate of 28.56 percent, in excess of the New York State civil usury and criminal usury rates. Further details about the allegations are in No. 115 and in the complaint I offered to readers.
The complaint included seven counts. The first three related to New York State's Consumer Financial Protection Act of 2010 (CFPA), and were asserted by CFPB and DFS. The other four were asserted by DFS. The seven counts were (1) unfair acts or practices in violation of CFPA, (2) deceptive acts or practices in violation of CFPA, (3) abusive acts or practices in violation of CFPA, (4) usury, (5) false and misleading advertising of loans, (6) intentional misrepresentation of a material fact regarding a financial product, and (7) unlicensed money transmitting. The plaintiffs sought injunctive relief, damages, redress to harmed consumers, disgorgement of ill-gotten revenues, civil money penalties, and plaintiffs' costs in bringing the action. (See CFPB v. Pension Funding, U.S. District Court, Central District of California, Case No. 8:15-cv-1329.)
Subsequent Developments
On October 7, 2015, the plaintiffs applied for a preliminary injunction and the appointment of a receiver. On October 23 Lichtig, Hofelter, and the two company defendants answered the complaint. Covey ignored the complaint. On October 30 the four defendants other than Covey opposed the application for a preliminary injunction. On December 23 the clerk entered a notice of default relating to Covey.
On January 22, 2016, the plaintiffs and the four defendants other than Covey filed a joint application for a stipulated final judgment and order. On the same day the plaintiffs applied for a default judgment relating to Covey.
On February 10 Judge Staton issued a stipulated final judgment and order relating to the four defendants other than Covey. Among other things, she permanently enjoined Lichtig and Hofelter from engaging directly or indirectly in any "pension-advance" products or services; permanently enjoined Lichtig, Hofelter, and the two company defendants from engaging directly or indirectly in servicing or providing any financial products or services in New York State without the requisite license; appointed Krista Freitag of E3 Advisors as the permanent receiver of the two company defendants; ordered Lichtig and Hofelter to pay $282,000 and $40,000, respectively, to the receivership estate; and ordered Lichtig and Hofelter to cooperate with the receiver.
On July 11 Judge Staton issued a default judgment and order relating to Covey. Among other things, she permanently enjoined Covey from engaging directly or indirectly in any pension-advance products or services, permanently enjoined him from engaging directly or indirectly in servicing or providing any financial products or services in New York State, ordered him to disgorge $578,182 representing profits from the conduct alleged in the complaint, ordered him to cooperate with the receiver, and ordered him to meet certain reporting requirements.
The Receivership
On July 11, according to the docket, the case was terminated. The only documents filed since then have been reports filed by the receiver, bills for her time and expenses, and other items related to the receivership.
As mentioned, the receiver was appointed on February 10. Thus far she has issued three interim reports—on April 29, July 28, and November 11. In each report she summarizes the case, shows amounts recovered for the receivership estate, and describes other activities. The November 11 report, for example, shows cash of $689,737 as of January 7, 2016, cash of $2,500,797 as of September 30, 2016, and the collections and disbursements during that period.
General Observations
For many years I have been convinced that the business of buying streams of annuity payments from annuitants by paying cash to the annuitants is fraught with potential problems. Two major problems are the refusal of factoring companies to acknowledge that the arrangements are loans, and the failure to disclose the interest rates imposed on annuitants who accept cash in exchange for annuity streams. The CFPB/DFS case illustrates these and other problems in the so-called pension-advance business. I think the case should be studied closely by persons interested in protecting the financial interests of annuitants.
Available Material
In No. 115, I offered a complimentary 29-page PDF consisting of the August 2015 CFPB/DFS complaint and the two 2011 articles in the Forum about annuity factoring companies; that package is still available. Now I offer a complimentary 37-page PDF consisting of Judge Staton's 15-page February 10 stipulated final judgment and order relating to the four defendants other than Covey, her 12-page July 11 default judgment relating to Covey, and the receiver's 10-page November 11 third interim report. E-mail jmbelth@gmail.com and ask for the December 2016 package about the CFPB/DFS lawsuit against two annuity factoring companies and three individuals.
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Email: jmbelth@gmail.com
Blog: www.josephmbelth.com