The Consumer Financial Protection Bureau is once again casting its shadow over an industry where its jurisdiction may be questionable. The CFPB filed a federal lawsuit in Pennsylvania recently against J.G. Wentworth, a company that provides liquidity to customers by purchasing future streams of income, such as structured settlement and annuity payments.
Although most agree that the CFPB was created to focus on residential mortgages, the bureau itself has been enlarging its scope. In the past year or so, virtually no area of the consumer financial services industry has escaped its attention. Recent cases include actions against mobile phone providers, collection law firms and data security companies. Most recently, the CFPB suffered a setback in federal court when a judge rebuked the bureau’s plan to regulate for-profit college accreditors by launching an investigation outside of its statutory authority.
In the current case, the CFPB seeks to enforce a civil investigative demand (CID) issued to Wentworth “to determine whether persons involved in advancing funds in exchange for the rights to future payments from structured settlements or annuities” violates federal consumer financial laws. Wentworth is being asked to hand over documents and records. The bureau will scrutinize Wentworth’s business looking for violations of the Unfair Deceptive and Abusive Acts and Practices (UDAAP) language.
J.G. Wentworth argued in a petition to the court that the CFPB lacks jurisdiction over the structured settlement and annuity payment purchasing activities that are the subject of the CID, and as a result, lacks the authority to continue its investigation. “J.G. Wentworth’s business of purchasing structured settlement and annuity payments is not a consumer financial product or service” under Dodd-Frank, they claim.
Wentworth argued that subjecting their business to CFPB jurisdiction would be disastrous. They cite the fact that the CFPB has used enforcement actions to regulate debt buying and collection activities, auto lending, small dollar loans and other areas despite neither having plans for a formal rule making on the same activities, or no intention to write black and white rules at all. As an example, Wentworth pointed to a rule the CFPB proposed in early June that would require all lenders to determine whether consumers will be able to repay loans. The complex proposal includes a “full-payment” test that would push lenders to determine upfront whether consumers can afford to repay their loans without reborrowing.
“If that proposed rule becomes final, it will put out of business a large segment of our industry because they won’t be able to operate under these very stringent regulations,” Wentworth said.