On November 21, the Consumer Financial Protection Bureau filed a lawsuit in a Maryland federal court against Access Funding, a company that purchases structured settlement payments in exchange for a discounted lump sum. The Bureau also sued the company’s Chief Executive Officer, Chief Operating Officer, and an outside attorney who provided “independent professional advice” to consumers who were about to enter into a transaction with Access Funding.
According to the Complaint, Maryland state law, and the state laws in almost every other state, require a person to receive advice from an independent professional before the person can sell his or her rights to a structured settlement payment in exchange for a lump sum of cash. The independent professional is required to advise consumers on the “financial, legal, and tax implications of a transfer.” The Complaint alleges that Access Funding improperly steered consumers to the defendant attorney to provide this advice.
The Complaint alleges that the defendant attorney engaged in unfair, deceptive, and abusive conduct by failing to inform consumers that Access Funding paid his fees, and that he provided what amounted to boilerplate advice when he failed to evaluate each consumer’s individual circumstances. The Bureau alleges that Access Funding’s practices were improper in that they substantially assisted the attorney and took advantage of consumers’ alleged lack of understanding of the consequences of the sales.
Although the crux of the Complaint focuses on the alleged state law violation, the Bureau alleges that it has jurisdiction over the defendants because “Access Funding provided advances to consumers that were to be repaid through a deduction from the proceeds of structured-settlement transfers once those transactions were completed. These advances were extensions of credit to consumers, and therefore consumer-financial products or services, under
§ 1002 of the [Consumer Financial Protection Act].” Although attorneys are exempt from the CFPA in this context, the Bureau has successfully brought lawsuits against attorneys for allegedly engaging in conduct that was within the Bureau’s jurisdiction. The Bureau made the same argument here, arguing that the attorney is within its enforcement jurisdiction “because he provided ‘financial advisory services’ in the form of advice to consumers regarding these transactions.”
The Bureau has successfully argued that it can bring an enforcement action under its authority to prevent unfair, deceptive, and abusive acts and practices when a lender allegedly violates state usury laws. Through this Complaint, the Bureau is attempting to expand that authority to include state laws that address structured settlement factoring. We have previously written about lawsuits that the government has filed against payment processors arising out of merchants’ alleged violations of state and federal laws. The lawsuit against Access Funding is yet another reminder that entities that process for companies that engage in structured settlement factoring should perform due diligence checks to make sure that these companies are aware of the state laws they are required to follow.