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The CFPB Didn’t Play Nice, So a Judge Tosses Its Claims Against Merchant Acquirers
August 26, 2017

By Jim Daly
@DTPaymentNews

After chastising the Consumer Financial Protection Bureau for way it handled itself in its 2015 lawsuit against allegedly fraudulent debt collectors and their payment processors, a federal judge on Friday threw out the CFPB’s claims against the processors.



The case is unusual in that Judge Richard W. Story of U.S. District Court in Atlanta imposed sanctions in the form of dismissal of the CFPB’s case against some of the defendants—four merchant acquirers, including Global Payments Inc.—before the case could be decided on its merits.

Story did this after agreeing with the processors’ claims that the CFPB tried to avoid being questioned during the deposition part of the case, sometimes by asserting privilege that it wasn’t required to answer questions even after the court ordered it to do so, and failed to produce a knowledgeable witness who could explain the Bureau’s case.

“The CFPB has put up as much opposition as possible at every turn,” Story wrote in his decision. “And in doing so, it has recycled many of the same arguments over and over.

“The deposition transcripts show that the CFPB’s approach comes in two forms,” the judge continued. “The first is to bury the defendants in so much information that it cannot possibly identify, with any reasonable particularity, what supports the CFPB’s claims. The second is to assert privilege objections to questions that the court has repeatedly ordered to be answered. Neither form is proper, and together they demonstrate a willful disregard of the court’s instructions.”

A CFPB spokesperson could not be reached for comment over the weekend.

The case began in April 2015 when the CFPB also named four merchant processors, Global Payments being the biggest, in a lawsuit against six people and their associated debt-collection companies. The debt collectors allegedly used robo-calls in their attempts to collect millions of dollars in so-called “phantom debts” from consumers that the consumers either did not owe or were not owed to the debt collectors themselves.

Besides Atlanta-based Global Payments, the lawsuit named two independent sales organizations that fed transactions to Global, Pathfinder Payment Solutions Inc. and Frontline Processing Corp. The CFPB also named as a defendant Cleveland-based merchant processor Electronic Merchant Systems (EMS).

The processors facilitated the debt collectors’ fraud by enabling them to accept consumers’ payment cards when they either knew, or should have known, that the collectors were engaged in unlawful conduct, the CFPB said.

Pathfinder soon filed a motion to dismiss the case, accusing the CFPB of “regulatory overreach” and following the Operation Choke Point model. Launched in 2013 by the U.S. Department of Justice, Operation Choke Point was a federal government effort to rein in fraudulent merchants by denying them access to the payment system.

Critics accused the Obama Administration of going beyond the bad guys and trying to shut down legal but disfavored industries, such as payday lenders and gun dealers. Earlier this month, a DoJ official signaled that Operation Choke Point has ended.

A spokesperson for Global Payments could not be reached Saturday.


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