State Enforcement: Attorneys General Tackle Pension Sales and Robosigning

Financial Services Law

State regulatory oversight continues, with Virginia Attorney General Mark R. Herring winning a $50 million court order, albeit by default judgment, against a pension sale company and a coalition of 42 state attorneys general working together to reach a deal over unlawful debt collection.

What happened

In Virginia, AG Mark Herring obtained a $50 million default judgment against a company that engaged in a purported “pension sale” scheme. The company and its owner—no stranger to litigation—offered illegal, high-interest loans disguised as “pension sales,” the AG alleged in a March 2018 complaint.

Although the defendants relabeled common loan terms with sales terminology (dubbing the company a “buyer” rather than a lender and the contract as a “purchase and sale agreement,” for example), Virginia claimed (much like an earlier CFPB suit) that the agreements met the state’s definition of a loan as the “delivery by one party to and receipt by another party of a sum of money upon agreement, express or implied, to repay it with or without interest.”

The defendants would ascertain the amount of a pensioner’s monthly payment and then offer a loan, the repayment of which would be based on a monthly payment of principal and interest equal to the monthly pension amount, the AG said.

According to the complaint, the defendants targeted the particularly vulnerable population of pensioners over a six-year period via online ads as well as telephone and email solicitations.

Many of the 650 pensioners in the commonwealth who agreed to a loan complained to the AG’s Office. “I … made a Pension Loan thru my computer for the sum of $5,500,” one consumer said. “After receiving the final printed out contract, [I] was informed that I would have to pay the difference of $35,420 and was under stress when the final contract stated that I would have to pay that amount for a $5,500 loan.”

The alleged scam was intended to avoid consumer lending laws and regulations and to collect interest on loans at deliberately high, illegal rates, in violation of the Virginia Consumer Protection Act (VCPA).

In November, Judge Bonnie L. Jones entered a default judgment against the defendants, awarding $20,098,159.63 in debt forgiveness for borrowers, a civil penalty of $31,740,000, $414,473.72 in restitution and $198,000 in costs and attorneys’ fees. The order also declared the company’s agreements with Virginia consumers usurious and illegal and prohibited the defendants from future violations of the VCPA.

AG Herring was also one of the 42 attorneys general who reached a settlement with one of the country’s largest debt buyers and its subsidiaries over charges the companies ran afoul of state consumer protection laws by engaging in robosigning.

According to the attorneys general of Alaska, Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington and Wyoming, the companies attempted to file legal actions against consumers in large volume without verifying with the courts the information printed on documents.

Pursuant to an assurance of voluntary compliance/assurance of discontinuance, the companies agreed to pay $6 million to the states as well as set aside another $25,000 per state for consumer restitution.

The companies are also required to comply with a host of debt collection policies and practices, such as refraining from collecting or attempting to collect a debt unless it has in its possession specified information, determining whether a debt has a special status (bankruptcy or a service member debtor, for example) before beginning collection and signing affidavits only when the facts stated in the document are based on the affiant’s review of pertinent records in the company’s possession.

To read the Virginia AG’s complaint, click here.

To read the AGs’ assurance of voluntary compliance/assurance of discontinuance, click here.

Why it matters

State attorneys general continue to fill the enforcement void, most recently with actions targeting a pension sale company and debt collectors engaged in robosigning. Don’t expect state efforts to change in the new year, whether or not the new CFPB director stays the course begun by Mick Mulvaney. 



pursuant to New York DR 2-101(f)

© 2022 Manatt, Phelps & Phillips, LLP.

All rights reserved