Lenders enjoined from charging usurious interest

The court entered an order enjoining lenders, who deceived Virginia consumers through an illegal “pension sale” lending scheme and charged in excess of 12 percent interest in violation of the Virginia Consumer Protection Act, from collecting usurious interest and from further violations of the law. The court also imposed costs and attorney’s fees.

Background

On March 6, 2018, the commonwealth filed this suit, alleging that defendants had deceived Virginia consumers through an illegal “pension sale” lending scheme in violation of the Virginia Consumer Protection Act. During the period from June 2011 through at least April 2018, defendants advertised to and solicited at least 1,042 Virginia consumers, and made at least 1,058 loans to Virginia consumers.

Defendants employed misrepresentations to effectuate an illegal lending scheme in which FIP attempted to disguise its closed-end, installment loans as purported “sales” of pension payments. Defendants disguised those loans as sales to attempt to avoid Virginia and federal consumer lending laws, including, but not limited to, the Virginia usury statutes.

Due to six misrepresentations made by FIP in connection with the offering and making of each loan, due to Scott Kohn’s ownership and management of FIP, and due to Mr. Kohn’s active participation in FIP’s illegal conduct, defendants are jointly and severally liable for 6,348 discrete violations of § 59.1-200(A)(5) and a total of 12,696 VCPA violations.

The corporate defendants did not qualify for any exception to the 12 percent annual interest limitation prescribed by Code § 6.2-303(A), and, as a consequence, all loans the corporate defendants made to Virginia consumers during the relevant period that call for the payment of more than 12 percent interest per annum are usurious.

Prior to filing its complaint, the commonwealth offered defendants the opportunity to explain that no violations of the VCPA occurred or to execute an assurance of voluntary compliance. Defendants failed to demonstrate that no violations occurred and did not agree to resolve the matter through execution of an AVC that was acceptable to the commonwealth.

On April 9, 2018, FIP filed a demurrer, and Mr. Kohn filed a motion to dismiss for lack of personal jurisdiction. After reviewing the parties’ memoranda and giving all parties an opportunity for oral argument, this court overruled all aspects of FIP’s demurrer and required FIP to answer the complaint within 21 days. The court also denied each jurisdictional argument raised by Mr. Kohn and required Mr. Kohn to answer or to respond otherwise to the complaint within 21 days.

Despite awareness of, and prior participation in, these proceedings, defendants failed to answer or to respond otherwise to the complaint. Defendants are therefore in default by operation of Rule 3:19(a) of the Rules of the Supreme Court of Virginia.

Analysis

Pursuant to the VCPA, defendants and the corporate defendants’ members, managers, officers, employees, agents, successors and assigns are hereby permanently enjoined from violating § 59.1-200 of the VCPA; all contracts entered into by Virginia consumers and defendants are hereby declared usurious to the extent such contracts were made at rates exceeding 12 percent interest per annum; and defendants and the corporate defendants’ members, managers, officers, employees, agents, successors and assigns are hereby permanently enjoined from collecting usurious interest on all loans made to Virginia consumers, which amount totals $20,098,159.63.

Pursuant to the VCPA, the commonwealth, as trustee, shall have judgment against and recover from defendants, jointly and severally, the sum of $414,473.72 with interest from the date of this permanent injunction and final judgment at the judgment rate of 6 percent per annum, for the use and benefit of, and restitution to, those Virginia consumers who were identified through the Affidavit of Kaci C. Sutherlin and its exhibits and whose losses were proven at trial.

Pursuant to the VCPA, the court shall retain jurisdiction of this matter for 200 days after entry of this permanent injunction and final judgment for the purpose of entering, upon motion of the Attorney General, such additional orders as are necessary to restore to all other victims identified within 180 days the monies they have lost due to violations of the VCPA.

Pursuant to the VCPA, the commonwealth shall have judgment against and recover from defendants, jointly and severally, the sum of $31,740,000 for civil penalties, with interest from the date of this permanent injunction and final judgment at the judgment rate of 6 percent per annum. Pursuant to Virginia Code § 59.1-206, the commonwealth shall have judgment against and recover from defendants, jointly and severally, the sum of $198,000 for its costs and attorney’s fees, with interest from the date of this permanent injunction and final judgment at the judgment rate of 6 percent per annum.

Commonwealth of Virginia, ex rel. Mark R. Herring, Attorney General v. Future Income Payments LLC, Case No. CL18000527-00. Nov. 14, 2018. Hampton Cir. Ct. (Jones). VLW No. 018-8-102, 6 pp.