Consumer Financial Protection Bureau

CFPB and NYDFS Sue Pension Advance Companies for Allegedly Abusive Business Practices

The Consumer Financial Protection Bureau (“CFPB”) and the New York Department of Financial Services (“NYDFS”) filed a lawsuit against Pension Funding, LLC, Pension Income, LLC, and three of the two companies’ managers for allegedly violating the Dodd-Frank Wall Street Reform and Consumer Protection (Dodd-Frank) Act by engaging in abusive conduct that deceived consumers about the costs and risks of pension advance loans. Notably, the complaint, in part, asserts Dodd-Frank’s novel “abusive” standard in alleging that that the companies deceptively marketed the loan transactions as a sale of future pension income, failed to disclose fees and interest rates, and advised consumers that a transaction was in their best financial interests when it was not. This case is the latest of recent CFPB enforcement actions and lawsuits that continue to add substance to the definition of “abusive” conduct, an additional tool for the CFPB created by the Dodd-Frank Act in 2010 to regulate business practices.

Consumer Protection

Six Attorneys General Reach Proposed Settlement with RadioShack Over Gift Card Priority in Company Liquidation

Six AGs, led by Texas AG Ken Paxton, reached a proposed settlement with RadioShack over concerns about the redemption and priority to be given to holders of $46 million in unused gift cards, as part of the company’s bankruptcy liquidation. According to the lawsuit filed by AG Paxton, the AGs’ sought priority status for the redemption of unused gift cards by consumers, standing to file a proof of claim for the balance of unredeemed gift cards on behalf of consumers in their state, and unredeemed gift card funds to be turned over to the state where purchased as unclaimed property. RadioShack’s proposed liquidation plan provided consumers with 60 days from the effective date to file claims to recover the value on their cards. Under the proposed settlement agreement, claims by gift card holders will be given priority and receive full value, unless the cards were received as part of promotional giveaways, merchandise returns, or not paid for by any consumer, in which case they will be treated as general unsecured claims. As reported in May, this follows efforts by 38 AGs, led by AG Paxton, to protect the personally identifiable information of RadioShack’s consumers in the wake of the liquidation plan.

Environment

Massachusetts Attorney General Settles with Owner and Builder for Damaging Protected Wetlands, Wildlife Habitats

Massachusetts AG Maura Healey settled with Palmer Motorsports Park, LLC, and J. Read Corp., the owner and builder of a sports car race track, for allegedly violating the Massachusetts Wetlands Protection Act, the Clean Waters Act, the Massachusetts Endangered Species Act, and associated regulations during construction of a race track facility in Massachusetts. According to AG Healey, the owner, builder, and the builder’s subcontractors allegedly destroyed or damaged wetlands and breeding habitats for protected species by, among other things, engaging in improper construction, extensive blasting, use of heavy machinery beyond the permitted area, and discharging fill material into protected areas without proper notice and permitting. Under the settlement, the owner and builder will each pay $125,000 and give title to 200 acres of land to the Commonwealth for conservation as a wildlife habitat and open space.

False Claims Act

Massachusetts Attorney General Settles with Construction Companies for Alleged State False Claims Act Violations

Massachusetts AG Maura Healey reached a settlement with three construction companies, CTA Construction Company, Inc., MDR Construction Company, Inc., and Luxor Equipment Corporation, Inc., n/k/a Margen, Inc., which with the state had contracted for construction projects, that resolves allegations that the companies violated the Massachusetts False Claims Act by falsely certifying compliance with equal opportunity requirements. According to AG Healey, CTA, acting as the general contractor on the projects, falsely claimed minority owned business enterprise (“MBE”) credits for its subcontracts with Margen and MDR, even though the work was managed and performed by MDR and CTA, both of whom are non-MBEs. Under the settlement, CTA, MDR, and Margen will pay $1.05 million, $150,000, and $200,000, respectively, to resolve the allegations.

Medicaid Fraud

New York Attorney General Settles with Multiple Heath Care Providers for Alleged Medicaid Fraud

New York AG Eric Schneiderman reached a settlement with Empire State Home Care Services, Inc. (“Empire”), a home care agency, over allegations it improperly reported its home health aide hours and administrative and general expenses on cost reports, which inflated their reimbursement rates under Medicaid. AG Schneiderman and federal prosecutors reached similar settlements with SpecialCare Hospital Management Corporation (“SpecialCare”), its chief executive officer, and three New York hospitals for allegedly submitting false claims to Medicaid for unlicensed and medically unnecessary inpatient detoxification services, as well as engaging in an illegal kickback scheme. Under the settlements, Empire and SpecialCare will each pay $6 million, and the three hospitals will pay over $2.1 million. SpecialCare, and its CEO, also agreed to cease doing business with any Medicaid or Medicare providers or managed care organizations in the state for five years.

Pharmaceuticals

New York Attorney General Settles with Opioid Manufacturer Over Improper Marketing and Sales Allegations

New York AG Eric Schneiderman reached a settlement with Purdue Pharma, L.P. (“Purdue”), a pharmaceutical manufacturer of the opioid, OxyContin, over allegations  that the company engaged in improper sales and marketing of the drug. According to AG Schneiderman, Purdue allegedly failed in some cases to prevent sales staff from promoting the drug to health care providers who may be involved in abuse and illegal diversion of opioids.  Additionally, the company allegedly failed to clearly disclose financial relationships with doctors and health care professionals providing testimonials on a website maintained by the company that was advertised as neutral and unbiased. Under the settlement, the company will pay $75,000 in penalties and costs, strengthen its existing program that aims to prevent sales staff from promoting the drug to certain health care providers, and disclose financial relationships with any individuals who appear on the company funded website.

State AGs in the News

Nevada Attorney General Settles with K-12 Test Distributor for Breach of Contract

Nevada AG Adam Paul Laxalt settled with Measured Progress, Inc., for allegedly failing to deliver a testing system to administer standardized tests to grade school students. According to AG Laxalt, Measured Progress was contracted to deliver Nevada’s Criterion Referenced Tests to students in grades three through eight, but allegedly provided a system that failed to meet expectations and prevented students from completing the examinations, which, as a result, invalidated their scores. Under the settlement, the company will reduce its fees under the contract by $789,021 and provide a testing preparation product valued at $510,000.