A new CFPB enforcement action filed in federal district court in Atlanta and unsealed last week targeting an alleged debt collection scam names as defendants not only the debt collectors and their individual principals but various companies alleged to have been “service providers” to the collectors, including payment processors.  Both the CFPB and the FTC have previously brought actions against payment processors for companies involved in alleged debt settlement or relief scams.  The CFPB claims in the new action that the payment processors are subject to its enforcement authority as both “covered persons” and “service providers” under the CFPA.

The CFPB’s complaint alleges that the debt collectors, using information purchased from debt and data brokers, made phone calls to consumers in which they threatened arrest or notice to a consumer’s employer unless the consumers agreed to settle debts falsely claimed to be owed.  The complaint charges that the payment processors facilitated the alleged scheme by enabling the debt collectors to accept credit and debit card payments.  According to the complaint, the processors engaged in deficient underwriting when they agreed to provide services for the debt collectors and failed to appropriately monitor the debt collectors’ accounts, including by ignoring signs that the debt collectors were committing fraud such as high chargeback volume.  The defendants also included a company that provided telephone broadcast services used by the debt collectors to deliver automated messages to consumers.

The complaint charges the debt collectors with numerous violations of the FDCPA and the CFPA’s prohibition of unfair or deceptive acts or practices.  The individual defendants are charged with providing “substantial assistance” to the debt collectors’ unfair or deceptive conduct, in violation of 12 U.S.C. section 5536(a)(3).  Section 5536(a)(3) makes it unlawful for “any person to knowingly or recklessly provide substantial assistance to a covered person or service provider in violation of the provisions of section 5531 [which prohibit unfair, deceptive or abusive acts or practices]…and notwithstanding any provision of this title, the provider of such substantial assistance shall be deemed to be in violation of that section to the same extent as the person to whom such assistance is provided.”

The payment processors and telephone broadcast service company are charged both with engaging directly in unfair acts or practices and providing “substantial assistance” to the debt collectors’ unfair or deceptive conduct.  The relief sought by the CFPB in the complaint includes injunctive relief, civil money penalties, disgorgement or compensation for unjust enrichment, and “such relief as the Court finds necessary to redress injury to consumers,” including rescission or reformation of contracts, refunds, restitution and damages.

On March 26, 2015, the district court entered an ex parte temporary restraining order that, in addition to other relief, froze the assets of the debt collectors’ and individual defendants, required the debt collectors and individual defendants to repatriate foreign assets, and gave the CFPB immediate access to the debt collectors’ business premises.

The TRO’s asset freeze applies to any financial institution or payment processor that receives actual notice of the TRO and “is in active concert or participation with” the debt collectors or individual defendants.  The TRO also includes a provision that directs any financial institution or other third party that is served with the TRO or has knowledge if it, and holds or controls any documents or assets of the debt collectors or individual defendants, to preserve such documents and assets and give the CFPB immediate access to documents and information about assets.

The TRO expires on April 14.  A hearing on the CFPB’s request for a preliminary injunction is scheduled for tomorrow (April 7).