A federal judge in North Dakota has dismissed an action by the Consumer Financial Protection Bureau against a third-party payment processor.
The CFPB alleged “unfair, deceptive, or abusive acts or practices” against Intercept Corporation for permitting unauthorized and illegal withdrawals from consumer accounts by their clients. The CFPB’s initial complaint can be found here. The judge’s ruling dismissing the case can be found here.
The CFPB alleged that Intercept processed payments for clients “without adequately investigating, monitoring, or responding to red flags” that the bureau says indicated some clients were breaking the law or deceiving customers. These red flags included “high rates of returned payments for insufficient funds or unauthorized debits” and “complaints and warnings from banks and consumers,” neither of which is uncommon in the industry.
At the time of the complaint, CFPB Director Richard Cordray said, “Intercept ignored clear signs of brazen fraud. Companies cannot turn a blind eye to wrongdoing when they process payments from consumer banking accounts on behalf of clients that are breaking the law.”
Judge Ralph R. Erickson of the U.S. District Court for the District of North Dakota disagreed. “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.
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. Though the CFPB alleged that Intercept was complicit in the dubious transactions of its clients, the court held that the CFPB complaint lacked “sufficient factual support” to back up Intercept’s “allegedly unlawful acts or omissions.”
Significantly, the ruling raises the bar on CFPB UDAAP actions, which have become a potent weapon in the bureau’s regulatory arsenal. The bureau has alleged UDAAP violations more than 150 times across many industries since 2014.
“A complaint containing mere conclusory statements without sufficient factual allegations to support the conclusory statements cannot survive a motion to dismiss,” stated the opinion. Judge Erickson noted that no specific violations of any industry standard or law were raised.
UDAAP actions historically have been based upon harm done to specific consumers, yet “nothing in the complaint allows the defendants or the court to ascertain whether any potential injury was or was not counterbalanced by benefits to the consumers at issue,” Erickson wrote.