CFPB Wins MTD, But Loses On Scienter Standard For Aiding-And-Abetting Claims

A federal judge has rejected the CFPB's argument that the CFPA should incorporate a lower standard for "recklessness" than that to secondary liability under the Securities and Exchange Act of 1934 ("SEC Act"). On September 1, 2015, in one of the first decisions substantively interpreting standards for aiding and abetting under the CFPA, Consumer Financial Protection Bureau v. Universal Debt & Payment Solutions, LLC, No. 15 CV 00859 (N.D. Ga. Sept. 1, 2015), Judge Richard W. Story held that the standard for "recklessness" under the CFPA, as under the SEC Act, was "severe" recklessness, a higher bar than that for recklessness in civil law cases. Judge Story also adopted the standard that courts typically apply for "substantial assistance" under the SEC Act, holding that proximate cause was relevant but not a necessary element of an aiding-and-abetting claim under the CFPA.

The Complaint

The Bureau's complaint alleged three payment-processing companies (the "Payment Processors") aided and abetted a scheme by individuals who allegedly used improper threats and harassment to coerce individuals to pay phantom debts to their firm, Universal Debt & Payment Solutions, LLC. The Bureau claimed that by facilitating the efficient collection of consumer funds through payments by credit and debit card, the Payment Processors provided substantial assistance to Universal Debt's and the other debt collectors' alleged scheme to defraud consumers, and directly committed unfair acts or practices. The complaint alleged that this conduct was "knowing or reckless" because the Payment Processors approved the debt collectors' applications to accept payments, which were "replete with indicia of fraud," ignored their own stated policies concerning whether to approve the debt collectors' applications, and ignored warnings from payment networks and others that the debt collectors were allegedly scheming to defraud consumers.

The Scienter Requirement: Knowledge or "Severe Recklessness"

As Judge Story noted, to date there had been no case law interpreting the CFPA's substantial assistance provision, which states that it is unlawful for "any person to knowingly or recklessly provide substantial assistance to a covered person or service provider in violation of the provisions of section 5531 of this title [prohibiting unfair, deceptive, or abusive acts or practices]." 12 U.S.C. § 5536(a)(3). In opposing the Payment Processors' motions, the CFPB argued that "recklessness"...