The latest chapter in the CFPB’s “comprehensive effort to address consumer harm and to root out unlawful practices across the debt settlement industry” is a settlement announced yesterday with Global Client Solutions, “a leading debt-settlement payment processor,” its CEO, and the chairman of its parent company’s board of directors.  In its complaint filed in a California federal court concurrently with the proposed stipulated final judgment and consent order, the CFPB alleged that the defendants had violated the Telemarketing Sales Rule (TSR) by assisting and facilitating the charging of unlawful advance fees by debt-relief companies (DRCs) and that such unlawful conduct also violated the Consumer Financial Protection Act.  The consent order requires the defendants to pay over $6 million in relief to consumers as well as a $1 million civil penalty. 

According to the CFPB’s complaint, since October 2010, Global processed tens of millions of dollars in allegedly illegal advance fees from tens of thousands of consumers on behalf of hundreds of DRCs across the country.  The CFPB alleged that after a consumer enrolled in a debt relief program, the DRC would instruct the consumer to stop making payments to creditors and instead make payments to Global for deposit in a custodial account.  The CFPB claimed that at the time Global transmitted advance fees to DRCs, it knew that it had not yet transmitted any funds from consumers’ custodial accounts to creditors.  The CFPB also claimed that Global had received hundreds of complaints from or on behalf of consumers. 

In addition to requiring payment of consumer redress and a civil penalty, the consent order prohibits the defendants from continuing to engage in the unlawful conduct alleged in the complaint and requires them to engage in “reasonable screening” of current and prospective DRC clients.  The consent order specifies certain information that the defendants must collect from current and prospective DRCs as part of “reasonable screening,” including additional information that must be collected from any DRCs claiming not to be subject to the TSR.  It also requires the defendants to take reasonable steps to assess the accuracy of such information and specifies what those steps must include.  

The consent order provides that the defendants must continue to monitor DRC clients and establishes various steps they must take as part of “monitoring.”  Those steps consist of: (1) semi-annual audits of each DRC’s compliance with the TSR and the Dodd-Frank UDAAP prohibition, (2) reviewing and investigating complaints received about a DRC, (3) calculating on a monthly basis for each DRC the unauthorized return rate for ACH debit transactions, and (4) conducting “a reasonable investigation” for any DRC whose unauthorized return rate exceeds 0.5% or as to which Global has received an amount of complaints that exceeds certain thresholds. (The settlement’s 0.5% unauthorized return rate threshold matches the lower threshold for such returns proposed by NACHA in November 2013.) 

During an investigation, Global must suspend all payments to the DRC until the DRC has implemented any required remediation and Global has updated and verified the information it collected from the DRC as part of “reasonable screening.”  Global also agrees in the consent order to retain a third party monitor to conduct a review of Global’s business and develop a plan to address any deficiencies identified by the monitor and implement the monitor’s recommendations.  The consent order also includes Global’s agreement to be subject to the CFPB’s supervisory authority for 3 years. 

The vast majority of the CFPB’s settlements have been in the context of an administrative proceeding and did not involve the filing of a complaint by the CFPB in a federal court.  The CFPB’s filing of a complaint against Global concurrently with the consent order likely reflects the CFPB’s desire for the Global defendants to be subject to the more severe consequences that attach to violating a court order than an administrative consent order.  Should the Global defendants violate the injunction entered by the court, the CFPB could move to have them held in contempt of court. 

Last year, the CFPB took a similar approach of filing a federal court complaint concurrently with a consent order in connection with its settlement with Meracord, another “leading payment processor” for DRCs.  Like Global, the CFPB alleged that Meracord had violated the TSR by assisting and facilitating the charging of unlawful advance fees by DRCs.  However, in its announcement of the Meracord settlement, the CFPB explained that its decision to target a payment processor was based on the processor’s position as a “centralized chokepoint” for unlawful DRCs.  Perhaps the CFPB’s decision not to use similar language in announcing the Global settlement reflects the strong criticism that lawmakers and industry have recently directed at “Operation Choke Point,” the coordinated federal multiagency enforcement initiative targeting banks serving online payday lenders and other companies that have raised regulatory concerns.