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Financial Services Law Insights and Observations

Court rejects dismissal bid in veteran pension case

Courts RICO Military Lending Consumer Finance CFPB CFPA

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On March 5, the U.S. District Court for the District of South Carolina affirmed the recommendation of a Magistrate Judge and denied the motion of a law firm, one of its partners, and others’ (collectively, “defendants”) to dismiss an action alleging that the defendants violated the Federal Anti-Assignment Act (FAAA) and the Racketeer Influenced and Corrupt Organization Act (RICO). These alleged violations were based on the advance purchase of future military pension and disability benefits in exchange for current lump sum payments. According to the report of the Magistrate Judge, five military veterans (collectively, “plaintiffs”) alleged that the defendants operated a coordinated scheme to generate leads from veterans seeking money, and connected veterans to brokers and purchasers in order for the veteran to sell future pension and disability payments for a lump sum wire transfer. The plaintiffs also alleged the operators required the veterans to execute an insurance policy or structured asset agreement to ensure the loan is fully repaid upon the veteran’s death. The Magistrate Judge recommended the motions be denied, concluding that the plaintiffs sufficiently pled the details of the alleged scheme and that the defendants violated the FAAA by inducing veterans to enter into contracts to sell their retirement or disability benefits in advance of the date they are due and payable. Moreover, the Magistrate Judge found that the plaintiffs sufficiently alleged the individual plaintiffs violated RICO by engaging in a criminal enterprise that “coordinated various corporations and websites to buy the plaintiffs’ and other veterans’ benefits and funnel the proceeds through [a defendant]’s account.” Upon review of the report, the district court found “no clear error” by the Magistrate Judge, agreed with the recommendations, and denied the motions to dismiss.

As previously covered by InfoBytes, one of the individual defendants was recently fined $1 in civil money penalties by the CFPB for allegedly violating the Consumer Financial Protection Act by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments.

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