The Consumer Financial Protection Act of 2010 and the Telemarketing and Consumer Fraud and Abuse Prevention Act regulate certain actions of debt relief service providers. Specifically, those Acts prohibit debt relief service providers from requesting or receiving fees from consumers until after the service provider has successfully renegotiated at least one of the consumer’s debts and the consumer has made at least one payment under the renegotiated plan.
On August 25, 2014, the Consumer Financial Protection Bureau (the “CFPB”) filed a Complaint and submitted to the United States District Court for the Central District of California a proposed consent order against Global Client Solutions, LLC (“GCS”) for violating those laws.
The Complaint alleges that GCS violated the law by providing “substantial assistance” to its debt relief service clients by processing the illegal fee payments. Specifically, the Complaint alleges that GCS “knew or consciously avoided knowing” that its clients were charging illegal fees and thereby violated the prohibition on “assisting and facilitating others’” violations.
Pending court approval, the Order specifically finds that GCS does not admit or deny any of the CFPB’s allegations but does require that GCS:
(1) stop processing fees for entities that GCS “know[s] or consciously avoid[s] knowing” are “requesting or receiving unlawful” fees;
(2) perform a “reasonable screening” of all of its clients that provide debt relief services to determine if the clients are complying with applicable law;
(3) “continue to monitor each . . . client pursuant to the reasonable screening requirements” including semi-annual audits of those clients;
(4) pay the CFPB $6,099,000 to be distributed as restitution; and
(5) pay the CFPB an additional $1,000,000 as a civil penalty.
This action follows the CFPB’s earlier action against Meracord, LLC for nearly identical allegations of wrongdoing. In a CFPB press release on the GCS settlement, CFPB Director Richard Cordray is quoted as stating that “Global Client Solutions made it possible for debt-settlement companies across the country to charge consumers illegal fees. Consumers struggling to pay off a debt are among the most at risk and deserve better. We will continue to crack down on illegal debt-settlement firms and the companies that help these operations collect illegal fees from consumers.”
Understanding that the Order pending against GCS is a negotiated settlement, the proposed provisions of the Order are extreme. To require that a payment processor audit and screen its customers to avoid allegations of wrong-doing is indisputably onerous. Such provisions, even in the context of a settlement, raise serious questions about the steps payment processors need to take to protect themselves from the potential liability associated with serving debt relief service providers. Are you ready?