CFPB’s Next Move in Processor Case Bears Watching

By Chris Bruce

The Consumer Financial Protection Bureau’s next move in an enforcement case could shed more light on the agency’s aggressive theory about the legal duties of payment processors ( Cons. Fin. Protection Bureau v. Intercept Corp. , D.N.D., 16-cv-00144, 3/17/17 ).

The CFPB’s suit against Fargo, N.D.-based Intercept Corporation in the U.S. District Court for the District of North Dakota says the company is a “covered person” subject to agency action because it provides payments or other processes to consumers. Intercept disagrees, saying it serves merchants, not consumers.

Judge Ralph R. Erickson March 17 dismissed the suit. He said the agency failed to muster facts to support its allegations of unfair acts or practices by Intercept. The ruling allows the CFPB to refile its claims, and any such move could be telling, according to attorney Oliver I. Ireland, a partner with Morrison & Foerster in Washington. Ireland said an amended complaint might include more detail on the CFPB’s theory of the case — that a payment processor that serves merchants has a legal duty to protect consumers served by those merchants.

“How they respond to this will be interesting,” Ireland told Bloomberg BNA. “The CFPB will have to spell out what they mean.”

CFPB Sues Intercept

The CFPB’s suit, filed in June 2016, said Intercept allowed consumer lenders, debt collectors, and other business clients to make unauthorized or illegal debits and charges from consumer bank accounts.

Intercept moved for dismissal in August 2016, arguing in part that it’s not a “covered person” subject to CFPB enforcement or its lawsuit. The company said it doesn’t deal directly with consumers, and therefore doesn’t meet the definition of a “covered person.”

Next Step Scrutinized

The issue of “covered person” status is an important question in the case, and one that Erickson touched on early on in his opinion. In reciting the facts, he said Intercept is a “covered person” and a “service provider” under the Dodd-Frank Act. However, Erickson didn’t elaborate.

Brian Melendez, a partner with Dykema who manages the firm’s Minneapolis office, said Erickson took the CFPB’s allegations as true in ruling on the motion to dismiss.

“The judge found that he could dismiss the CFPB’s claims without reaching the question of whether Intercept was, in fact, a ‘covered person’ — that is, even if the CFPB was right, its complaint still didn’t state a claim against Intercept,” Melendez said.

How the CFPB responds will be significant, according to Ireland, because the agency will have to show its cards. The CFPB’s basic argument, he said, is that a payment processor owes a duty to consumers when it processes payments for a merchant that will debit a consumer’s account.

“At law, the processor is acting as the agent of the merchant,” Ireland said. “The CFPB is departing from the historical architecture of that payment arrangement by saying that even though you’re the agent of the merchant you have a duty to police the merchant and protect the consumer. It’s kind of an aggressive theory.”

According to Ireland, the dismissal may require the agency to buttress its argument in order to press its case.

“The court seems to be saying that if that’s the theory, then the CFPB will have to spell out how consumers are being hurt and how it all squares with UDAAP,” Ireland said, referring to the CFPB’s authority against unfair, deceptive and abusive acts and practices. “It’s not clear whether this is just a drafting issue in terms of amending the complaint or whether it goes to the core of the CFPB’s theory.”

To contact the reporter on this story: Chris Bruce in Washington at

To contact the editor responsible for this story: Michael Ferullo at

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