On September 1, 2015, the Consumer Financial Protection Bureau (“CFPB”) won an important decision in which a federal court, for the first time, interpreted the meaning of “recklessly provid[ing] substantial assistance” under the Consumer Financial Protection Act (“CFPA”). Perhaps since it was an order denying the defendants’ motions to dismiss released just before the Labor Day weekend, it has not received much attention. But it has wide-ranging implications for those business-to-business (“B2B”) companies that may have previously thought they could fly below the CFPB’s radar.
The case, CFPB v. Universal Debt & Payment Solutions, LLC, et al., arose from a scheme by some allegedly fly-by-night companies that were collecting “phantom” debt – that is, debt that consumers did not owe. In March 2015, the CFPB filed a complaint in the Northern District of Georgia against not only the alleged phantom debt collectors and their owners, but also against the much larger payment processors that enabled them to take debit and credit card payments. Since the payment processors did not provide services directly to consumers, the CFPB alleged that they were “service providers” to the debt collectors, and that they had engaged in unfair practices in connection with debt collection. In denying the defendants’ motions to dismiss, the court held the CFPB had alleged facts sufficient to support this count.
In addition – for the first time in a litigated case – the CFPB included a count alleging that the payment processors also violated section 1036(a)(3) of the CFPA by recklessly providing substantial assistance to companies. Following a thorough discussion of what it means to “recklessly provide substantial assistance,” the court found that the CFPB had alleged facts sufficient to support this count. This client alert summarizes the key points of the court’s order.
This growing trend demonstrates that FinTech companies in the debt servicing industry should keep up with CFPB regulatory enforcement, regardless of whether the company is dealing directly with consumers.