Georgia Court Sheds Light On CFPB's Power To Sue Companies That ‘Recklessly Provide Substantial Assistance'

On September 1, 2015, the Consumer Financial Protection Bureau ("CFPB") won an important decision in which a federal court, for the first time, interpreted the meaning of "recklessly provid[ing] substantial assistance" under the Consumer Financial Protection Act ("CFPA").2 Perhaps since it was an order denying the defendants' motions to dismiss released just before the Labor Day weekend, it has not received much attention. But it has wide-ranging implications for those business-to-business ("B2B") companies that may have previously thought they could fly below the CFPB's radar.

The case, CFPB v. Universal Debt & Payment Solutions, LLC, et al., arose from a scheme by some allegedly fly-by-night companies that were collecting "phantom" debt - that is, debt that consumers did not owe.3 In March 2015, the CFPB filed a complaint in the Northern District of Georgia against not only the alleged phantom debt collectors and their owners, but also against the much larger payment processors that enabled them to take debit and credit card payments.4 Since the payment processors did not provide services directly to consumers, the CFPB alleged that they were "service providers" to the debt collectors, and that they had engaged in unfair practices in connection with debt collection. In denying the defendants' motions to dismiss, the court held the CFPB had alleged facts sufficient to support this count.5

In addition - for the first time in a litigated case - the CFPB included a count alleging that the payment processors also violated section 1036(a)(3) of the CFPA6 by recklessly providing substantial assistance to companies. Following a thorough discussion of what it means to "recklessly provide substantial assistance," the court found that the CFPB had alleged facts sufficient to support this count. This client alert summarizes the key points of the court's order.

CFPB Must Allege Facts Sufficient to Establish Same Level of Recklessness as Required in Similar SEC Enforcement Action

To determine the extent of the CFPB's enforcement authority under the CFPA, courts have often looked to precedent involving the Federal Trade Commission or the Securities and Exchange Commission ("SEC"). This is appropriate because the procedural aspects of the CFPB's enforcement authorities are modeled in large part on the procedures of those two agencies. In determining what the CFPA means by "recklessly provide substantial assistance," the Universal Debt court therefore looked to case law interpreting a similar provision in section 20(e) of the Securities and Exchange Act of 1934.7 The court wrote that to survive dismissal of this claim, the CFPB had to allege acts that establish what the 11th Circuit calls "severe recklessness," and what other circuits call simply "reckless":

Severe recklessness is limited to those highly unreasonable...