Payment Processor Settles With Massachusetts Attorney General For Prematurely Sending Charges To Debt Settlement Company | Troutman pepper

[co-author: Trey Smith]

On November 7, Massachusetts Attorney General Maura Healey announced $600,000 regulation with Oklahoma-based payment processor Global Holdings. Attorney General Healey claimed that Global Holdings violated Massachusetts’ unfair and deceptive practices law by sending debt settlement firm DMB Financial LLC (DMB) its fees before the federal telemarketing sales rule failed. authorizes debt settlement companies like DMB to receive its fees.

Consumers hire a debt settlement company to negotiate with their creditors in an effort to reduce each consumer’s debt to a particular creditor. Under the federal telemarketing sales rule, a debt settlement company cannot request or receive payment of its fees until: (1) the debt settlement company “renegotiates, settles, reduces or otherwise changed the terms of at least one debt pursuant to a settlement agreement”; and (2) the consumer has made at least one payment under that settlement agreement. The Telemarketing Sales Rule also requires that costs of the debt settlement company are proportional to the amount and/or percentage of the renegotiated debt.

The telemarketing sales rule allows a third party – here, Global Holdings – to hold consumer funds, including fees payable to the debt settlement company, in an account until payments are made to the debt settlement company and to creditors. under the settlement agreement. Under the telemarketing sales rule, payment processors such as Global Holdings cannot authorize payment of fees to the debt settlement company until payment terms are met. Also under the Telemarketing Sales Rule, payment processors and other third parties can be held liable if deemed to “provide substantial assistance or support” when the business “knows or knowingly avoids knowing” that a debt settlement company was acting in violation of telemarketing. Sale rule. 16 CFR § 310.3(b).

In that case, Attorney General Healey alleged that Global Holdings aided and abetted DMB’s violation of the Telemarketing Selling Rule by sending DMB’s charges before DMB obtained the charges under the Telemarketing Selling Rule. telemarketing, and that such aiding and abetting violated Massachusetts state law which prohibits unfair dealings and deceptive acts.

Although we have seen the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) take legal action against debt settlement companies for alleged violations of the telemarketing sales rule, it is rare that a state regulator is filing a separate lawsuit against a debt settlement company, which is what happened here. Usually, the state regulator joins the CFPB in a joint federal action in which the CFPB takes the lead. Last year, however, DMB entered into separate agreements with state of massachusetts and the CFPB.

While we’ve also seen the FTC and CFPB bring enforcement actions against payment processors for allegedly aiding and abetting telemarketing sales rule violations, this case is unique in that the state regulator has brought enforcement action against the processor without the federal regulator as a party to the lawsuit. It is somewhat surprising that this is not a joint action by the CFPB and the state regulator against Global Holdings given that in 2014 Global Holdings settled a lawsuit that the CFPB had filed against it . In the 2014 lawsuit, the CFPB made similar telemarketing sales rule allegations about another debt settlement company for which Global Holdings processed payments.

The unique enforcement procedures in this case don’t end with the lack of a joint trial by state and federal regulators. In this case, Attorney General Healey’s lawsuit against Global Holdings differed from other state regulator lawsuits in that it alleged that the defendant engaged in unfair and deceptive practices, as defined by US law. state, for violating a material federal law. In recent history, the federal regulator, namely the CFPB, alleged that the defendants engaged in unfair and deceptive practices (as defined by the federal Consumer Financial Protection Act) resulting from violations of substantive state laws.

It wouldn’t surprise us to see more cases like this from state regulators, because Fifth Circuit opinion in Community Financial Services Association of America vs. CFPB will challenge the ability of the CFPB to continue to pursue enforcement actions without receiving motions to dismiss based on constitutional grounds. State regulators may find it less burdensome to move forward without enforcement goals calling into question the co-plaintiff’s very existence.


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Elaine R. Knight