• Payment Processors as CFPB "Chokepoints"
  • October 11, 2013 | Authors: Keith J. Barnett; B. Knox Dobbins; Robert J. Pile; Marc A. Rawls; Lewis S. Wiener
  • Law Firms: Sutherland Asbill & Brennan LLP - Atlanta Office ; Sutherland Asbill & Brennan LLP - Washington Office
  • This is how senior officials at the Consumer Financial Protection Bureau (CFPB or the Bureau) referred to payment processor Meracord, LLC and its owner and CEO upon the October 3, 2013 announcement of a consent judgment imposing a $1.376 million joint and several civil money penalty. The penalty, which is subject to federal court approval, relates to processing performed by Meracord on behalf of debt service relief providers (DSRPs) alleged to have violated the Telemarketing Sales Rule (TSR) by taking advance fees from consumers.

    By processing for the DSRPs, Meracord itself was alleged to have “assisted and facilitated” the TSR violations and thereby to have violated the TSR. The defendants, as is de rigueur, have neither admitted nor denied CFPB allegations.

    The CFPB alleged that the processing Meracord performed for DSRPs constituted an unfair, deceptive, or abusive practice under the 2010 Consumer Financial Protection Act. The Bureau did not allege any actual knowledge on the part of the defendants. It simply alleged that Meracord “knew” from the raw data it processed that it was paying fees to DSRPs on behalf of customers who had not received any debt relief payment.[1]

    The success of the Bureau in obtaining a settlement that imposes liability on a processor for its clients’ allegedly illegal actions differs dramatically from the lack of success private plaintiffs have had in trying to do the same. The CFPB’s action is evidence of a continuing trend towards attributing client conduct to processors as a means of cutting off the client’s economic lifeline. The risk of the Bureau holding a processor responsible for the actions of its clients would appear to be greater where, as in the Meracord case, the processor specializes in the industry and thus links itself more closely to particular clients in that industry than a general-purpose processor.

    Other items, particularly technical items with respect to the scope of jurisdiction of the Bureau, are noteworthy, but not surprising. The defendants had no contact or communication with consumers, other than to transmit funds to and from consumers’ bank accounts on the orders of DSRPs. Yet, the defendants were alleged to be “covered persons” subject to CFPB jurisdiction. Although the Bureau has other pending actions against debt relief firms in other federal district courts (some of which are mentioned in the complaint), no DSRP was joined as a defendant with Meracord and Remberg.

    However, what seems most important about the Meracord case is that now:

    1. Any processor for debt collectors, lenders, marketing firms, credit card companies, or other consumer financial products or services customers could be fined or penalized by the Bureau if clients violate a particular federal consumer protection statute or the largely undefined federal prohibition on unfair, deceptive, or abusive practices.
    2. The required knowledge or scienter for the Bureau to fine or penalize a processor may be established from a processor’s experience with an industry and from the un-reviewed or un-collated data it processed that later reflects legal violations.


    [1] A typical arrangement for a DSRP consists of a consumer, on the recommendation of the debt relief firm, ceasing to pay creditors and sending payments that would have been made to creditors to an account controlled by the DSRP at a processor. The CFPB alleged that the simple transmission of funds by Meracord to the DSRP from this account before any funds were transferred from the account to the consumer meant that Meracord “knew” advance fees were being paid.