CFPB Sues Payment Processor for Enabling Unauthorized Withdrawals and Other Illegal Acts by Clients

On June 6, the Consumer Financial Protection Bureau (CFPB) filed suit against payment processer Intercept Corporation and two of its owner-executives for allegedly enabling the company’s clients to make unauthorized and other illegal withdrawals from consumer accounts. The CFPB alleges that the company, its president, and its CEO violated the Consumer Financial Protection Act of 2010’s (Dodd-Frank Act) prohibition against unfair acts and practices by processing payments for clients without adequately investigating, monitoring, or responding to red flags that indicated some of Intercept’s clients were acting illegally and deceiving customers. The CFPB requested that the court award injunctive and monetary relief, as well as penalties.

The CFPB claims that Intercept and its executives allowed its clients—which include payday lenders, auto-title lenders, debt collectors, sales financing companies, and others—to steal millions from their respective customers by giving the clients access to the banking system. As a result, the agency claims that Intercept’s clients extracted money from consumers’ bank accounts using unauthorized and illegal charges. The CFPB further alleged that Intercept (1) ignored signs of illegality and (2) ignored consumers’ complaints about unauthorized debits.

First, the CFPB asserts that Intercept turned a blind eye to “clear signs of brazen fraud.” For instance, high rates of returned payments for insufficient funds or unauthorized debits may indicate that consumers did not consent to a withdrawal or were misled about the terms. Many of Intercept’s clients have annual payment return rates of 20 to 40 percent for network transactions, far more than the 1.5 percent industry average. The CFPB claims that Intercept did not investigate these rates or stop processing these clients’ transactions and suggests that it should have. Further, the CFPB claims that Intercept ignored state and federal enforcement actions taken against its clients.

Second, the CFPB claims that Intercept ignored complaints from banks and consumers regarding high return rates and unauthorized charges. The agency claims that once, Intercept entered into a trial period with a bank to process a limited number of payments but instead ran millions of dollars of transactions and generated high volumes of returns. The CFPB alleges that if banks raised concerns about consumers’ complaints against Intercept’s client, the company would find a new bank to process its payments. Intercept allegedly processed payments through eight different banks between 2008 and 2014.

The CFPB’s suit comes after Intercept filed a complaint on May 19 against the CFPB, alleging partiality and disregard for the Constitution’s separation of powers demonstrated by the grant of “sweeping power” to the agency’ Director. Intercept claims that the CFPB violated the Dodd-Frank Act by instituting a policy which prescribes that the CFPA’s three-year statute of limitations does not begin to run until the Director “determines that the regulated entity has violated the statute.” Intercept claims that the agency’s Director was not “impartial,” that he “determin[ed] a regulated entity’s liability” before the necessary, official administrative proceeding, and that the company’s fate was decided all before Intercept had an opportunity to present a defense.

For all its allegations, the CFPB seeks an injunction against Intercept and its executives to stop future violations of Dodd-Frank, requests monetary relief for consumers, and asks the court to impose penalties.

The CFPB’s complaint is available here: http://files.consumerfinance.gov/f/documents/3_16_cv_00144_ars_CFPB_v_Intercept.pdf.