A lawsuit filed late last month by the Consumer Financial Protection Bureau (CFPB) accuses a network of companies of engaging in sham collection operations targeting “phantom” debts. But the action also names a number of legitimate payment processors and a voice broadcasting service as defendants for “enabling” the debt collectors in their scheme.

The complaint, filed March 26 but unsealed last week, charges a host of shady “debt collection” companies with outright fraud for their efforts in attempting to get consumer to pay debts that never existed. Named in the suit are Buffalo-area companies with names including Universal Debt & Payment Solutions, LLC; Universal Debt Solutions, LLC; WNY Account Solutions, LLC; WNY Solutions Group, LLC; Check & Credit Recovery, LLC; Credit Power, LLC, collectively referred to as “The Debt Collectors” in the suit.

The CFPB said that The Debt Collectors used collectors and automated telephone broadcasting services to contact consumers and threaten them with false allegations of check fraud and false claims of debt owed, which would result, according to the Debt Collectors, in service of a “financial restraining order,” notification to the consumer’s employer of the alleged fraud or debt, garnishment of wages, and arrest, unless the consumers paid the alleged debt.

The Debt Collectors refused to identify the issuer of the supposed debt to consumers, but convinced consumers of their legitimacy by providing the consumer’s personal information, including date of birth, place of employment, and Social Security number. In most, if not all, cases, consumers did not owe any debt the Debt Collectors had a right to collect.

The CFPB is seeking civil penalties, permanent injunctive relief, restitution, disgorgement for unjust enrichment, and other “appropriate relief” from the Debt Collector companies and several individuals named in the suit under the FDCPA and the Bureau’s UDAAP authority.

But the Bureau also names a number of technology providers that cater to the ARM industry as defendants for “providing substantial assistance to the Debt Collectors’ unfair or deceptive conduct.”

The CFPB alleges that four payment processors, including one that is publicly traded and was formed under joint ventures with financial services firms like National Data Corp. and HSBC, “failed to follow policies and procedures to prevent consumer harm.”

“The Payment Processors facilitated the Debt Collectors’ large-scale fraud by enabling the Debt Collectors to accept payment by consumers’ bank cards when the Payment Processors knew, or should have known, that the Debt Collectors were engaged in unlawful conduct,” the CFPB said. “By enabling the Debt Collectors and other persons who collect debt to accept credit and debit card payments, the Payment Processors enabled them to efficiently accept payments and convince consumers that they were credible merchants.”

The payment processors did terminate their merchant accounts with the Debt Collector companies in April 2014 after receiving complaints.

The charges against the voice broadcaster, also a legitimate and respected business in the ARM space, are very similar. The CFPB said the company, “provided this service when it knew, or should have known, that the messages it broadcast for the Debt Collectors were unfair or deceptive, and materially contributed to the Debt Collectors’ scheme.”

Depending on the resolution of the action, the case could have a chilling effect on the technology environment in the debt collection industry. This case will need to be closely watched by ARM stakeholders.

On Tuesday, the judge in the case did grant the CFPB a preliminary injunction against the Debt Collector companies and individuals named. The injunction carries an asset freeze and expedited discovery. But none of the technology vendors are named in the order granting the injunction; it pertains strictly to the Debt Collector defendants.


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