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03.28.17

Federal Judge Dismisses CFPB Suit against Payments Processor

court_gavel_justice_311956964_smA federal judge has dismissed an unfair, deceptive or abusive acts or practices (UDAAP) lawsuit filed by the CFPB against a North Dakota-based payment processor. The federal agency had accused Intercept Corp. of permitting unauthorized and other illegal withdrawals from consumer accounts by its clients.

The CFPB failed to make its case, ruled Judge Ralph R. Erickson of the U.S. District Court for the District of North Dakota. “Although the complaint contains several allegations that Intercept engaged in or assisted in unfair acts or practices, it never pleads facts sufficient to support the legal conclusion that consumers were injured or likely to be injured,” he wrote. He added that the CFPB complaint lacked “sufficient factual support” to back up Intercept’s “allegedly unlawful acts or omissions.”

The CFPB can refile its suit or appeal, though the agency had no immediate comment when the decision was released.

Intercept’s clients have included consumer lenders such as payday lenders, auto title lenders, sales finance companies and debt collectors. Intercept provides its clients with access to banks to debit and credit funds electronically from consumers’ bank accounts. The CFPB alleged in its complaint that Intercept processed payments for many clients despite numerous signs that those clients were engaged in fraudulent or illegal transactions, and that even though Intercept knew or should have known of this illegal behavior, it continued to process for these companies anyway.

“According to the court, the CFPB failed to show that Intercept violated any industry standards, injured any consumers, interfered with consumers’ ability to understand the terms of their dealings with Intercept’s clients, or took unlawful advantage of consumers,” wrote Kurt E. Lentz, Justin R. Ovitz and Joshua D. Davey, attorney for McGuire Woods LLP, in a recent blog. The ruling signals “that the CFPB cannot merely allege the existence of industry rules and standards in order to state a claim. Rather, the CFPB must allege facts showing that a defendant’s conduct violated those rules.”

Intercept had tried, and failed, to argue that the company wasn’t governed by the CFPB, the lawsuit was beyond the statute of limitations and that the agency itself was unconstitutional. The federal agency is fighting another court ruling that its structure is unconstitutional because it’s led by a single director who can only be removed by the president for just cause. The agency also faces questions about its final prepaid accounts rule and its ability to regulate.

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Image Credits: Piotr Adamowicz/Shutterstock

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