On January 4, a defendant in a Fair Debt Collections Practices Act case moved for sanctions against the Consumer Financial Protection Bureau, arguing that it never had proof that the defendant acted wrongfully when it filed suit in early 2015.  In support of its Motion, Pathfinder Payment Solutions, Inc. stated that the Bureau “knowingly exceeded its statutory authority, deliberately disregarded the law, [and] consciously distorted the facts against Pathfinder in the Complaint.”

In March 2015, the CFPB filed a Complaint against Pathfinder and two of its contractors, Universal Debt & Payment Solutions LLC (“UDPS”) and Credit Power, in the United States District Court for the Northern District of Georgia.  According to the Bureau, the contractors violated the FDCPA by collecting on “phantom” debts – debts that a consumer either does not actually owe or that a creditor cannot legally collect.  The Bureau contends that the contractors used a myriad of fictitious names to contact consumers and threaten them with arrest, wage garnishment, or “financial restraining orders,” all of which were unsubstantiated.  When consumers provided their payment information, the contractors passed along the information to payment processors, who then transferred funds from consumers’ bank accounts to debt collection firms.  The Complaint alleges that Pathfinder should have noticed that UDPS and Credit Power had disproportionate chargeback rates in select months and should have then stopped working with the contractors.

Pathfinder, which contends that it is not a payment processor but rather an independent sales organization and marketer of payment processing services, argued that discovery conclusively established that the company had done nothing wrong.  “The evidence demonstrates that Pathfinder’s monitoring conduct met industry standards and practices,” Pathfinder wrote.  “Discovery in this case established that UDPS and Credit Power chargebacks were not excessive in any single month—let alone the specific months cited by the CFPB.”  This Bureau’s failure to withdraw the Complaint in the face of this discovery requires sanctions against both the CFPB and its counsel, according to Pathfinder.

Pathfinder further argued in the Motion that the Complaint represents a fundamental misunderstanding of the payment processing industry and “the sort of second-guessing regulatory tunnel vision that would bring the entire credit card processing industry to a screeching halt.”

The case is Consumer Financial Protection Bureau v. Universal Debt & Payment Solutions LLC et al., Case No. 1:15-cv-00859.