On June 5, 2015, the Consumer Finance Protection Bureau (the “CFPB”) argued that a lawsuit against four payment processors for their involvement in a debt collection scheme should not be dismissed. According to the CFPB’s complaint (found here), filed on March 26, 2015, this scheme involved Marcus Brown and Mohan Bagga and their firm Universal Debt & Payment Solutions, LLC, (the “Debt Collectors”) calling consumers to collect payment on debts that were not owed or that creditors were barred by law from collecting. They used tactics barred by the Fair Debt Collections Act to collect these phantom debts, including threatening to contact the consumer’s employer and threatening to have the consumer arrested if the debts were not immediately paid.
According to the CFPB, the consumer’s payment information was then provided to payment processors Global Payments, Inc., Pathfinder Payment Solutions, Inc. and Frontline Processing Corp. (the “Payment Processors”), who facilitated the withdrawal of funds from the consumer’s account and deposit of funds into the Debt Collectors’ accounts. This gave the Debt Collectors an air of legitimacy and allowed the Debt Collectors to efficiently process a high volume of collections. The CFPB alleges that the Payment Processors “knew or should have known that the Debt Collectors were engaged in unlawful conduct.”
The CFPB argues that the Payment Processors are both “covered persons” and “service providers” under the Consumer Financial Protection Act’s prohibition on unfair services because the collection of payment by the Debt Collectors would not have been possible without the assistance of the payment processors. In response, Pathfinder argues that such an expansive view of “covered persons” and “service providers” is too broad and would stretch liability under the Act to any service used by debt collectors, “from telephone service providers to janitors.”