Federal judge chastises CFPB, dismisses lawsuit

The court formally sanctioned the bureau for its conduct during the discovery process of a lawsuit, striking four counts from the CFPB’s initial suit.

Last week, a federal judge in Georgia issued a ruling that chastised the Consumer Financial Protection Bureau. The court formally sanctioned the bureau for its conduct during the discovery process of the lawsuit against Atlanta-based payments processor Global Payments and three others.

The court struck four counts from the CFPB’s original complaint, and with no claims remaining against them, the court dismissed the defendants who sought the sanctions from the case. The judge also dismissed defendant Global Connect LLC from the case in the same ruling, which can be found here.

The original lawsuit, filed in 2015, charged several debt collectors and their payment processor partners – among them Global Payments, Frontline Processing, Pathfinder Payment Solutions and Electronic Merchant Systems – with being “the ringleaders of a robo-call phantom debt collection operation” that violated the unfair, deceptive, or abusive acts or practices (UDAAP) portion of the Dodd-Frank Act. The CFPB argued the payment processors should be held liable because they should have recognized that chargebacks connected with the scheme were suspicious and likely connected to fraud. The payment processors denied any wrongdoing.

During litigation, the four processors served the CFPB with Rule 30(b)(6) deposition notices, requiring the bureau to produce a representative of the organization to answer factual questions from the defendants. Over the bureau’s strenuous and repeated objections, the court held that the depositions would go forward and a CFPB representative was required to answer questions about the facts underlying the CFPB’s allegations.

The representatives produced by the bureau, however, read their answers off scripts “to deliver rote, sometimes, unresponsive answers,” and were unable or unwilling to respond to follow up questions outside the scripts. Further, the representatives claimed not to have discovered a single exculpatory fact during their investigation. In addition, the CFPB representatives repeatedly asserted work product privilege, even following clarification from the court that questions regarding the factual bases for allegations were not privileged. The court found that the CFPB’s continued assertion of privilege objections showed “blatant” and “willful” disregard for the court’s instructions.

The court held that these actions violated its repeated discovery orders. Concluding it was not “optimistic that reopening the depositions would be fruitful” in light to the CFPB’s pattern of conduct, the court issued the sanctions. The judge held that the violations warranted the substantial sanction of dismissing the counts related to the defendants who conducted the depositions, stating that it did not believe a lesser sanction would be effective in remedying the bureau’s action. Though the bureau may appeal this matter, the sanctions constitute a striking rebuke to the bureau.