Pathfinder Payment Solutions, Inc., one of the defendants in a Consumer Financial Protection Bureau enforcement action in 2015, has pushed back in federal court by filing a motion seeking sanctions against the bureau for frivolously naming them in the original suit. Pathfinder’s brief in support of the motion for sanctions can be found here.
The original 2015 complaint charged a host of “debt collection” companies with fraud. They were attempting to induce consumers to pay debts that never existed. But the action also named a number of payment processors, including Pathfinder, as defendants for “enabling” the debt collectors in their scheme. Those defendants were charged with “providing substantial assistance” to “unfair or deceptive conduct.” The complaint said the payment processors “facilitated large-scale fraud” by contracting with them when “they knew, or should have known, that the debt collectors were engaged in unlawful conduct.”
The CFPB’s complaint focused on spikes in Pathfinder’s rate of chargebacks. The CFPB claimed that high rates of chargebacks through the Pathfinder system from two of the debt collection companies should have caused Pathfinder to stop working with those companies. The CFPB complaint fails to mention a single specific violation of law, and Pathfinder claims that there was never a month out of the ordinary.
Pathfinder’s response has been robust. They have filed a motion pursuant to Rule 11 of the Federal Rules of Civil Procedure, which states that a court may sanction attorneys or parties who submit pleadings for an improper purpose or that contain “frivolous arguments or arguments that have no evidentiary support.” According to the motion, Pathfinder can show that “the CFPB deliberately disregarded the law, consciously distorted the facts against Pathfinder, and should be sanctioned for this conduct. The CFPB’s case against Pathfinder has always been a farce.”
“In the payment processing services industry, chargebacks are a fact of life,” stated Pathfinder’s motion. They claim that the Bureau’s approach to them “is the sort of second-guessing regulatory tunnel vision that would bring the entire credit card processing industry to a screeching halt.” The complaint cites “excessive chargeback volume” and “high rates” of chargebacks, but never defines those terms. “Pathfinder’s conduct was commensurate with every applicable industry or internal standard,” they said.
“Enormous power should not be wielded with reckless abandon,” Pathfinder argues. “But at best, the CFPB’s arguments against Pathfinder are unscrupulous; at worst, they are dishonest and cynical. The CFPB and its attorneys are sophisticated litigants. Rule 11 is designed to protect defendants from these abuses of power.”