On April 22, the Maryland Court of Special Appeal told us that a class action settlement can’t buy you peace from the CFPB. That court ruled that a class settlement that purports to interfere with a state agency’s or the CFPB’s enforcement authority was unenforceable. The underlying dispute stems from two cases. The first is a class action brought by lead poisoning victims with cognitive impairments. And the second is a suit bought by government agencies for mishandling the rewards of the first case.

According to the CFPB’s Amended Complaint, class members in the first case were provided a structured settlement where they had the opportunity to transfer a portion of their future payment streams in exchange for a discounted immediate lump sum. Under Maryland’s Structured Settlement Protection Act (SSPA), structured settlement companies, such as the Access Funding Defendant, have to obtain the court’s approval before purchasing a payment stream. And most importantly, the SSPA requires that class settlement members consult with an independent professional advisor.

The settlement also included provisions that abrogated the government agencies’ ability to sue the Defendants, including:

  • A release of all class claims against the Defendants;
  • Irrevocably assigning and transferring to Defendants any recovery based on restitution, disgorgement of profits, or damages obtained by the government agencies for the benefit of the class; and
  • Barring the class members from receiving any benefits from any lawsuit or arbitration related to the released claims.

The CFPB and the Maryland AG alleged that the Defendants engaged in deceptive acts by:

  • Providing class members with an advance agreement that misrepresented their rights, including that the class members would be held liable for repaying any advance provided to them if they did not go through with transferring their rights to the structured settlement. However, in reality, the advances did not obligate the class members to complete the transfer.
  • Directing the vast majority of class members to an independent professional advisor (IPA) who was not truly independent or impartial, because of the advisor’s personal and business ties with the Defendants. In particular, class members knew neither that the Defendants had directly compensated the IPA for each IPA letter he provided, nor that the IPA was an attorney.

Furthermore, the IPA did not provide independent advice to a class member. For example, the IPA did not recommend any modifications to the contract, such as seeking additional money from the Defendants, selling fewer payments, or agreeing to a different duration of payments when those were possible outcomes. Also, the IPA did not discuss whether the transaction would be in the best interest of a class member or recommend that a class member not enter into the agreement.

As a result, CFPB sued both the Defendants and the IPA for not informing class members that the IPA was not actually independent and impartial, for having grossly unfair terms in the transfer of future rights, and for misleading the victims about their rights.

The court held that the terms of the settlement interfered too greatly with the enforcement authority of the government agencies and refused to enforce those terms, as a defense of the government actions. The court determined that requiring class members to assign any recovery that would ordinarily be held by the government agencies, such as restitution and disgorgement of profits, directly thwarts the ability of these government agencies to combat unjust enrichment. The court’s decision was inspired by legal and public policy grounds. Thus, private settlement agreements that propose to limit or bar a federal or state agency’s right to seek relief are likely unenforceable.