CFPB Flexes Enforcement Muscles Against Payment Processors

WASHINGTON — The Consumer Financial Protection Bureau’s $1.4 million fine against a large third-party processor for debt relief companies underscores how regulators are increasingly holding financial firms responsible for their clients' business practices.

The CFPB said Thursday that it charged one of the nation's largest payment processors, Washington-based Meracord LLC, for processing $11.5 million in illegal upfront fees from consumers on behalf of debt-relief service providers. The agency has already taken action against a handful of providers that Meracord processed payments for, which ultimately spurred the CFPB's investigation into the company.

"The message we are sending today reinforces a point we have made before: we are working to ensure federal consumer laws are being followed at every stage of the process, including by those who unlawfully facilitate illegal conduct by others," said the CFPB's Deputy Director Steve Antonakes, during a call with reporters Thursday. "If a business is enabling bad actors that hurt consumers, then we will use our authority to stop them. We are making the point here and it applies to all companies that do business with consumer financial providers."

Since October 2010, Meracord processed $11.5 million in illegal payments for 11,000 affected consumers who sought debt relief from roughly 250 service providers, including a handful that the CFPB has already taken action against, the agency's order said.

These accused providers were Payday Loan Debt Solution and American Debt Settlement Solutions which the CFPB has already obtained judgments against. Additionally, the bureau has pending complaints against four other providers involved: Mission Settlement Agency, Premier Consulting Group and the separate law offices of Michael Levitis and Michael Lupolover.

Observers said recent multi-agency efforts to go after the third-party providers have become the quickest way to choke off any illegal activity that started with debt-relief companies or lenders.

"Rather than prosecute hundreds of cases against lenders that regulators think are violating the law, they realize a lot of debt settlement companies and lenders outsource to third party providers," said Alan Kaplinsky, who heads the consumer financial services group at Ballard Spahr. "By going after third parties if you can get them to stop servicing what appears to be an illegal activity, that's a very efficient way in their mind of the regulators of stopping the activity overall."

Any bank ties to Meracord could potentially spark the CFPB's interest, but officials said it was not a part of the case filed on Thursday.

"Every payment processor sends money to banks and collects money from banks and the processing of payments. To the extent that there have been banks involved that were doing anything wrong, that would be something we're concerned about," said Lucy Morris, a deputy enforcement director at the CFPB. "This case is not about that today."

The CFPB has asked a federal district court to approve its consent order against Meracord and its chief executive officer, Linda Remsberg, to stop processing payments for debt-settlement and mortgage-settlement firms in addition to paying the civil money penalty.

According to the order, the CFPB claims Meracord was aware of the illegal activity and Remsberg "has personally profited from Meracord's wrongdoing: over the last several years" and she was paid "considerable amounts in income and disbursements."

The defendants have agreed to the order without denying or admitting guilt, thereby waiving their rights to contest the order.

The CFPB is also requiring that Meracord and its CEO provide highly detailed and personal information to the bureau upon request for the next three years. This includes personal records of people who provided a third-party service - "employee or otherwise" - and consumers' files containing the names, addresses, phone numbers, and amounts paid or contested. It also requested that the company and Remsberg send compliance reports to the bureau whenever there is any business change or profession change by Remsberg, down to even if she moves personal residence for the next three years.

"The CFPB has made it clear that just because you're not a provider, your part of the overall business scheme is still being utilized for consumers," Kaplinsky said. "You're fair game and the CFPB is going to go after you if they don't like the underlying activity."