A controversial Chevy Chase company that reaped immense profits from deals with victims of lead paint poisoning in Baltimore has been accused of deceptive practices and breaking federal law, according to a lawsuit filed in federal court Monday by the Consumer Financial Protection Bureau.
The suit alleges that Access Funding violated the Consumer Protection Act by aggressively pursuing victims of lead paint poisoning, many of whom were mentally impaired, and persuading them to sell large payouts for a fraction of their value under false pretenses. The agency has asked the U.S. District Court in Baltimore to stop what it calls an “illegal scheme,” ban the company from participating in an industry that deals with some of the nation’s most vulnerable residents, and order it to pay damages to former customers.
“Many of these struggling consumers were victimized first by toxic lead, and second by a company that saw them as little more than income streams to be courted and harvested,” CFPB Director Richard Cordray said in a statement. “The Consumer Bureau is fighting to help vulnerable consumers who were swindled out of their settlements, and to prevent future abuses.”
Access Funding executives did not respond to requests for comment Monday.
The lawsuit marks the second time this year that a government agency has sued Access Funding, its executives and a lawyer that frequently worked with the company. In May, the Maryland Attorney General’s Office accused the firm of committing fraud and deceiving court officials. Maryland’s lawsuit, filed in state court, is still pending.
The company, which has changed its name to Reliance Funding, did the bulk of its business in Maryland, where between 2013 and 2015 it struck at least 158 deals, predominantly with people who had been poisoned by lead paint as children, the federal suit states. Those deals, approved in Maryland courts, allowed the company to purchase for $7.5 million settlements that would have paid out $32.6 million, according to the Maryland attorney general.
“If there ever was a case that cried out for this kind of attention, it was this one,” said Rep. Louise M. Slaughter (D-N.Y.), who urged the federal agency last year to investigate the industry after reading news reports in The Washington Post. “Here are people who are egregiously treated in the first place and then along comes these sharkies, and it happens again.”
“They basically prey on those who are most vulnerable,” said Rep. Elijah E. Cummings (D-Md.), who also called for inquiries last year. “These are folks who are going out there searching for victims.”
The lawsuit involves a little-known industry that purchases payouts called structured settlements, which lawyers often recommend for clients who either have mental disabilities or are inexperienced at managing money. Unlike traditional lawsuit settlements, which are paid out immediately in a lump sum, structured settlements are dispensed in smaller, incremental payments stretching across decades. Baltimore, with its history of lead paint poisoning, has many recipients of structured settlements. Most are African American.
To keep people from recklessly selling these payments for an immediate lump sum, Maryland, along with almost every other state, passed legislation establishing protective measures. It first said the deals had to be approved by a state judge who decides whether the arrangement is in the seller’s best interests. It also requires those wishing to sell their payments to receive the counsel of an independent, professional adviser — a vital fail-safe ensuring that people know exactly how much they’re giving up.
The latter measure is what got Access Funding in trouble with federal authorities. On almost every case Access filed, it was the same lawyer, Charles E. Smith, who advised recipients. Court filings allege that Smith had various business and personal ties with Access Funding executives. The federal agency says Smith “was paid directly by Access Funding for his purported . . . services” and deceived recipients into thinking they were getting independent advice when they were not.
Smith did not respond to a request for comment Monday. But in an email sent to The Post last year, Smith said: “I have no business partnerships with any company in the structured settlement purchasing industry . . . My independence is in no way compromised or at risk.”
Access Funding’s president, Michael Borkowski, in a statement last year, said: “Access Funding does not have any contractual, financial or business relationships with Mr. Charles Smith.”
Federal authorities, however, say that wasn’t the case. The lawsuit states that Access Funding associates sent customers prepaid cellphones so that Smith could have a number to call, and those discussions typically only lasted a few minutes. Sometimes, the company’s salespeople were on the same calls, listening as Smith imparted advice. Other times, recipients were asked to sign statements saying they’d been advised before they had even talked to Smith, authorities say.
Access Funding also provided advances to customers, who are allowed to back out of preliminary agreements, the lawsuit states. But these advances came with contracts that, according to the lawsuit, “stated that consumers were required to cooperate fully with the company in obtaining court approval for the contemplated transfer and that consumers would be liable for the advance if the transaction was not completed.”
Slaughter, when she heard about the lawsuit Monday, said she was “delighted” but unsatisfied. She said she wants the federal agency to investigate more companies that did deals with victims of lead paint poisoning in Baltimore.
“I don’t want to stop until we get them all,” she said.