CFPB Settles Action over Payment Processor’s Illegal Fees for $1.376 Million
On October 3, 2013, the Consumer Financial Protection Bureau (CFPB) announced a proposed settlement in its most recent enforcement action against Meracord LLC (Meracord), a debt-settlement payment processor. According to the CFPB, Meracord had allegedly helped other companies collect illegal upfront fees from more than 11,000 consumers since 2010 – nearly 5,000 of which had their accounts closed without any of their debts being settled. The CFPB asserted that these practices violated the Telemarketing Sales Act, which prohibits debt-settlement companies from charging consumers such fees before settling any of their debts.
Meracord and its CEO/owner will pay a $1.376 million fine and agreed to stop processing payments for debt-settlement companies and members of the related mortgage-settlement industry. Although restitution was not included in the settlement, the CFPB announced plans to provide an estimated $11.5 million to harmed consumers via its civil penalty fund. Subject to approval by a Washington federal judge, the settlement also provides that the defendants would be subject to monitoring by the CFPB and would be required to make reports to the CFPB to ensure their compliance.
“Today we are taking action against Meracord, a company that made it possible for debt-settlement companies across the country to charge consumers illegal fees,” said CFPB Director Richard Cordray. “By taking a stand against those who facilitate illegal activity, we can root out harmful behavior across the debt-settlement industry and better protect consumers.”
What does this mean?
The Meracord enforcement action falls in line with the CFPB’s recent, targeted focus on consumer harm in the debt-settlement industry. It has admittedly used Meracord as a “centralized chokepoint” to “efficiently and effectively help consumers who were charged millions of dollars in illegal fees by many of the debt-settlement companies using Meracord’s services.” Prior to the settlement, the CFPB had obtained judgments against two companies that had charged consumers illegal advance fees with Meracord’s assistance – Payday Loan Debt Solution, Inc. and American Debt Settlement Solutions, Inc. It has filed a complaint against four more – Mission Settlement Agency, the Law Office of Michael Levitis, Premier Consulting Group, LLC, and the Law Office of Michael Lupolover. These efforts reinforce the notion that the CFPB is concerned with using enforcement actions against payment processors to achieve broader industry reform.
Moreover, the Meracord action serves as another example of the CFPB extending its enforcement reach to, and obtaining a judgment against, a company’s CEO or principal. In 2012, the CFPB was successful in attacking a company’s principals in two California enforcement actions, CFPB v. Gordon and CFPB v. Jalan. Similarly, the FTC has recently obtained a $1.1 million penalty against a debt collection company, its owner, and principals in January of 2013. Company principals are at risk in CFPB and FTC enforcement actions.
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.
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