Continuing its crackdown on companies that provide debt settlement services, the Consumer Financial Protection Bureau today announced that a payment processing company will pay $1.376 million to settle allegations that it collected illegal up-front fees from consumers.
The CFPB said Tacoma, Wash.-based Meracord LLC helped debt-relief service providers including lawyers wrongly take millions in fees from more than 11,000 consumers who enrolled in payment programs to reduce or eliminate their debts.
The CFPB is not closed during the government shutdown because it's funded by the Federal Reserve and is not subject to the appropriations process.
Under the Telemarketing Sales Rule, debt-relief providers are barred from charging consumers any fees for their services until the debts are actually paid. That’s where Meracord got in trouble. The company isn’t actually a debt-relief provider—it just processes payments on their behalf. (Often when consumers enroll in a debt-relief program, the provider tells them to stop paying their debts and instead make monthly payments to a processor like Meracord while the debts are negotiated.)
Between October 2010 and July 2013, Meracord allegedly processed more than $11 million in wrongful fees.
“Many debt-settlement companies could not operate their business without a payment processor like Meracord,” CFPB Deputy Director Steve Antonakes said in a conference call with reporters. “And in this instance, Meracord helped many of them collect money that should have gone to pay down a consumer’s debt but instead went to the debt-settlement companies in the form of illegal advance fees.”
He added, “It was apparent to us they were engaging in illegal activity that they should have known about.”
Meracord, which did not admit or deny the charges, was represented by Angelo Calfo of Calfo Harrigan Leyh & Eakes. He did not return a call seeking comment.
According to the CFPB, debt collection is a multi-billion dollar industry, with more than 4,500 debt collection firms in the country.
In May, the CFPB sued two lawyers, the Law Office of Michael Levitis in New York and the Law Office of Michael Lupolover in New Jersey, and two debt relief companies, alleging they charged thousands of consumers illegal advance fees and left some worse off financially. Meracord processed the payments for these entities.
“Through these cases, we also have been building our action against Meracord, whose assistance made their violations possible,” Antonakes said. He described it as a “chokepoint” strategy to “protect consumers who are being charged illegal fees by a broad array of debt-settlement companies that rely on Meracord’s services.”
In July, the CFPB issued a bulletin putting debt collectors on notice, specifying that “any entity subject to the Consumer Financial Protection Act of 2010, whether a third-party collector or a creditor collecting its own debts, can be held accountable for any unfair, deceptive, or abusive practices in collecting a consumer’s debts.”