When is a penalty not a penalty? This morning, the Consumer Financial Protection Bureau issued a consent order that makes a mockery of consumer protection laws, and in doing so, permits an unscrupulous credit broker to walk away unscathed even after the Bureau demonstrated that his actions were deceptive and harmful to service members.
The CFPB found that Mark Corbett, a broker of high-interest credit contracts, misrepresented the terms of loans originated in exchange for future cash flows on the pensions of veterans. The Bureau identified four violations:
1) Misrepresenting that the loan contracts were valid and enforceable. Veteran’s pension payments are not assignable under federal law.
2) Misrepresented the nature of the product.
3) Misrepresented when the veterans would receive their funds.
4) Failed to disclose the correct interest rate.
Contracting to receive pension proceeds owed to a veteran is prohibited under a series of laws collectively referred to as the Federal Anti-Assignment Acts.
38 U.S.C. 5301 (a) “Non-assignability and exempt status of benefits” prohibits any agreements to purchase military pensions or benefits. 37 USA 701 (c) says that “enlisted member of the Army, Navy, Air Force, or Marine Corp may not assign his pay, and if he does so, the assignment is void.”
The CFPB said that Corbett brokered contracts for the Doe Companies to assign pensions owed to veterans from 2011 to 2019.
At various times, Corbett operated websites called buyyourpension.com, vapensionloans.com, veteransbenefitsleverage.com, buyoutyourpension.com, and buyyourannuity.com.
For those violations, the Bureau levied a civil money penalty of $1. The penalty is payable to the CFPB’s Civil Money Penalty Fund – meaning that veterans will not receive any relief whatsoever.
The Bureau agreed to Corbett’s request that he not have to admit to any of the findings of fact in the Consent Order.
My hunch is that the CFPB chose this amount because you cannot penalize someone for less than one dollar.
Why spend tens or hundreds of thousands of dollars on staff time to build a successful case against a person and then fine them for $1? Do the people in enforcement at the CFPB believe they work with or against the staff that handles investigations? Somewhere, Bartleby the Scrivener is smiling.
Investigators: “How much should we penalize this person for violating the Federal Anti-Assignment Act?”
Enforcement: “I would prefer not to.”
The CPFB Applies an Ability to Repay Standard
The CFPB defended its penalty because Corbett could not afford to pay more.
In Section VI, part 41 the Bureau writes that “having an inability to pay…Respondent must pay a civil money penalty of $1 to the Bureau.”
Most people do not receive similar terms.
If this standard were applied more widely, then wage garnishment would probably be a thing of the past.
Oddly enough, the CFPB’s final rule governing payday lending centered itself on an ability-to-repay standard, yet the CFPB has now opened up the rule with the likely intent of eliminating ability-to-repay as a basis for underwriting.
The new team at the CFPB has argued that under an ability-to-repay standard, payday lenders would experience “irreparable harm” and that many would choose to close their doors altogether.
The fact that the CFPB used the phrase irreparable harm is telling, as high-cost lending trade group Community Financial Services Association of America has used the same term to describe the impact of the rule. (See “Bureau’s Small-Dollar Loan Rule Already Causing Irreparable Harm to Businesses in Advance of 2019).