A firm accused of scamming 9/11 first responders and former NFL players into giving them large chunks of their compensation funds via costly advance payment deals has been sued by federal and state authorities.
RD Legal Funding, based in Cresskill, New Jersey, was sued by the Consumer Financial Protection Bureau and the New York State Attorney General’s office, the agencies announced Tuesday. The firm is accused of persuading victims who were awaiting payouts to accept advance payments from RD Legal, then pay large fees when their settlement payments arrived.
In one case the CFPB says was typical, a first-responder victim paid $33,000 for an $18,000 advance on a $65,000 payout from the Zadroga Fund, set up by Congress to compensate 9/11 first responders dealing with high medical costs.
RD Legal also is accused of targeting former NFL players diagnosed with neurodegenerative diseases and thus entitled to payments from a class action lawsuit settlement, the CFPB said.
“It is unconscionable that RD Legal scammed 9/11 heroes and NFL concussion victims out of millions of dollars,” said CFPB Director Richard Cordray, in a press release announcing the action. “We allege that this company and its owner lined their pockets with funds intended to cover medical care and other critical expenses for people who are sick and sidelined. Our lawsuit seeks to end this illegal scheme and get money back to those entitled to receive it.”
RD Legal also is accused of telling consumers they would speed up the payout process by cutting through red tape when the firm had no ability to do so. RD Legal also allegedly failed to provide advances to consumers for months after they were promised.
“The allegations contained in that lawsuit and accompanying press statements are outrageous and without merit,” said David K. Willingham, counsel for RD Legal, in an emailed statement. “Indeed, in January 2017, RDLF was forced to take action and sued both the CFPB and NYAG for engaging in an inappropriate overreach of their legal authority and failing to engage with RDLF on basic legal issues surrounding its contracts for the purchase and sale of the legal receivables at issue in both lawsuits. The claims made today by the CFPB and NYAG misunderstand and falsely characterize clear documents with those parties as “loans,” and falsely state that RDLF is ‘scamming’ the affected parties when it did nothing more than provide immediate liquidity – in the form of an arm’s length transaction – to people who voluntarily sought the benefits of early funding.”
Alleged Actions ‘Simply Shameful’
“The alleged actions by RD Legal — scamming 9/11 heroes and former NFL players struggling with severe injuries—are simply shameful,” said New York Attorney General Eric Schneiderman, in the same press release issued by the CFPB. “RD Legal used deceptive tactics to charge unlawfully high interest rates for advances on settlement and compensation funds, allowing them to profit off the backs of these unsuspecting individuals.”
The “funding fee,” in industry language, can often be around 100%, as it was in the examples cited above by the CFPB.
This is not the first time RD Legal has caught the attention of federal authorities. Last year, it was sued by the Securities and Exchange Commission for allegedly defrauding investors who had bought into its hedge fund, designed to raise money to make such advance payouts. RD Legal denies those accusations.
The American Legal Finance Association, a trade association that represents consumer legal funding companies, says these payouts should not be regulated as loans because they are “non-recourse transactions,” meaning there is no collateral, and there’s no guarantee that the advance will be repaid.
“Consumer legal funding is used by victims of accidents who are struggling to make ends meet while they wait for a resolution in their case who have typically exhausted other financial options and often do not have access to traditional forms of credit,” the organization says on its website. “Legal funding fills a void in the financial products arena.”
But consumer advocates say it’s critical that federal authorities regulate bank-like activities from non-bank entities.
“Gone are the days when the financial services industry was dominated by hometown banks that served customers well and gave their kids a lollipop. Today, nonbank financial companies offer products to millions of consumers,” said Rohit Chopra, senior fellow at the Consumer Federation of America, in a statement reacting to Tuesday’s lawsuit. “Americans need a strong consumer agency to restore law and order to the financial services industry. This oversight isn’t just a win for consumers, it’s a win for every lender who shouldn’t have to compete against fraudsters.”