One of the largest payment-processing companies helped debt-relief firms impose illegal upfront fees on struggling consumers, according to the Consumer Financial Protection Bureau. The agency fined the firm, Meracord, $1.3 million on Thursday.
The enforcement action is part of a broad crackdown on companies that take advantage of people trying to eliminate debt. The bureau is going after not just individual firms, but also the infrastructure that lets them withdraw money from consumers’ accounts.
“If a business is enabling bad actions that hurt consumers, then we will use our authority to stop them,” Steven Antonakes, deputy director of the CFPB, said on a call with reporters. “We are making the point here, and it applies to all companies that do business with consumer financial providers.”
Debt-relief companies help consumers mired in debt by negotiating settlements with creditors. When consumers sign up with these firms, they are often instructed to stop paying their debts and make monthly payments to a payment processor while the debts are negotiated.
Federal law, however, bars debt-relief firms from demanding payments before settling any debts, in order to protect consumers from spending money on services that may not materialize. Antonakes said Tacoma, Wash.-based Meracord should have known that it was processing upfront payments in violation of the law.
In addition to the fine, Meracord and its chief executive, Linda Remsberg, are banned for life from processing payments of any kind for providers of debt or mortgage relief. The company will have to submit reports to the bureau to ensure its compliance with the order, which is subject to court approval.
“We are pleased to have this matter concluded so we can focus our resources on providing compliant payment services in the emerging payments and financial technology space, and to resolve the uncertainties inherent in such a review,” Remsberg said in a statement.
Officials at Meracord said the company has been phasing out third-party payment processing for debt- and mortgage-relief providers since the beginning of the year, after a decade in the business. The company noted that the settlement does not include any findings of wrongdoing or determinations that Meracord violated the law.
Antonakes said the CFPB zeroed in on Meracord through investigations into several debt-relief providers that allegedly charged illegal fees, including Mission Settlement Agency, the Law Office of Michael Levitis, Premier Consulting Group and the Law Offices of Michael Lupolover.
In building cases against those companies, the bureau discovered that Meracord had processed at least $11 million in unlawful fees from October 2010 to July 2013. More than 11,000 consumers across the country were charged upfront fees, and nearly 5,000 of them had none of their debts settled.
The bureau plans to reimburse those consumers using money from its civil penalty fund. Eligible consumers will be notified in the near future, it said.
The Meracord case marks the CFPB’s third consent order against a firm involved in debt relief. American Debt Settlement Solutions paid $15,000 in civil penalties in June, while Payday Loan Debt Solution paid $5,000 in fines in December for charging advance fees to consumers.
Regulators have grown wary of debt-relief firms in the wake of the financial crisis. The number of debt-settlement firms exploded from 100 in 2007 to 1,000 in 2010, according to the American Fair Credit Council, an industry trade group. Not every firm engages in abusive practices, but a growing number have been fined by the Federal Trade Commission, the agency that shares oversight of the industry with the CFPB.
“Millions of people have experienced deep financial problems after losing their jobs and much of their savings,” Antonakes said. “Many of these consumers were targeted by debt-settlement companies promising to help them get out of debt.”