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Volume XII, Number 148

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CFPB Bans Payment Processor for Engaging in Fraudulent Practices

On January 18, the CFPB filed a proposed final judgment against an Illinois-based third-party payment processor and its founder (collectively, “defendants”), which ceased operations almost three years ago, settling claims that the defendants facilitated payments for telemarketing fraudsters targeting seniors.

As a third-party payment processor, the company processed over $70 million in remotely created check payments, which are created by a payee or service provider and drawn from a consumer’s bank account.  The checks were often authorized by the consumer via telephone or the internet and did not require handwritten signatures.  The CFPB accused defendants of facilitating payment processing for client companies that used telemarketing schemes to trick seniors into purchasing expensive and unnecessary antivirus software and services, where such software and services could actually be accessed for free.  The CFPB further found that the defendants harmed consumers by continuing to process check payments despite nearly 1,000 consumer complaints, police inquiries, bank inquiries, and payment return rates over 20%.

The proposed settlement will require the defendants to pay a $500,000 civil monetary penalty to the CFPB.  It would also permanently bar the defendants from payment processing, consumer lending, deposit-taking, and financial-advisory services, as well as engaging in debt collection and telemarketing activities related to consumer financial products.

Putting in Into Practice:  The settlement illustrates the CFPB’s broad exercise of jurisdiction to bring enforcement actions against payment processors providing services to merchants, and not merely those providing services directly to consumers (we previously discussed this latest trend in earlier Consumer Finance & FinTech Blog posts hereherehere, and here).  As the CFPB continues to pursue cases and assert jurisdiction over merchant-facing payment processors, it may compel payment processors to monitor the activities of their clients for which they provide services.  This would no-doubt portend a new CFPB-styled “Operation Choke Point,” which was the name of the 2013 Department of Justice initiative to investigate financial institutions for their role in processing payments to certain categories of lawfully operating merchants that had been associated with high-risk activities.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 21
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
 Matthew T. Lin Associate Los Angeles Government Contracts, Investigations & International Trade
Associate

Matthew Lin is an associate in the Government Contracts, Investigations and International Trade Practice Group in the firm's Los Angeles office.

During law school, Matthew served as an extern with the Criminal Division of the United States Attorney's Office for the Central District of California. Prior to law school, Matthew worked with the Los Angeles City Controller’s Office performing data analytics on the City’s financial, economic, and employment data.

213-617-4281
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