CFPB Settles with ISO for Violating the Telemarketing Sales Rule

25 Oct

Once again, an independent sales organization (“ISO”) has been sued by a Federal agency for violating the Telemarketing Sales Rule (the “TSR”). Once again, the government claimed that the ISO provided substantial assistance to merchants while it knew or consciously avoided knowing that the merchants were engaged in abusive telemarketing practices. However, unlike the lawsuits filed this past summer (which are described in our blog posts dated June 20, 2013 and June 24, 2013), the agency involved is the Consumer Financial Protection Bureau (“CFPB”).

On October 3, 2013 the CFPB filed a complaint and settlement order against Meracord LLC (“Meracord”). The TSR prohibits debt-relief service providers (“DRSPs”) from charging consumers fees before settling any of their debts. The CFPB zeroed in on Meracord through investigations into several DRSPs that allegedly charged illegal fees. In building its case against those DRSPs, the CFPB discovered that Meracord had processed at least $11 million in unlawful fees from October 2010 to July 2013. The complaint alleges that more than 11,000 customers were charged upfront fees by the merchants in violation of the TSR, and nearly 5,000 of them had none of their debts settled. The CFPB alleged that Meracord knew that it was transmitting advance fees to DRSPs that had not yet settled consumers’ debts and that were not entitled to advance fees.

At the time the complaint was filed, the CFPB, Meracord and Meracord’s chief executive, Linda Remsberg, agreed to an order that will: (1) permanently bar Meracord and Mrs. Remsberg from processing payments for debt-settlement companies and for members of the related mortgage-settlement industry; (2) impose a civil money penalty of $1.376 million upon Meracord and Mrs. Remsberg, jointly and severally; and (3) subject Meracord and Mrs. Remsberg to submitting additional compliance reports with the CFPB.

This is the first action taken by the CFPB against an ISO, which indicates that there is a new federal agency that ISOs must be cognizant of. The CFPB’s initial foray in the enforcement of the TSR should be seen as another warning sign that the federal government is serious about its enforcement of the TSR and it will hold payment processors accountable for their merchants’ failure to comply with the TSR by using the “knew or consciously avoided knowing that the merchants were engaged in abusive telemarketing practices” TSR language.

With the federal government’s recent actions regarding enforcement of the TSR, it would be in payment processors’ best interests to familiarize themselves with the TSR. Due diligence on merchant activities should be investigated to make sure that merchants are not violating the TSR. Although this routine may be burdensome, it pales in comparison to the alternative of possibly being shut out of the industry and having to pay millions of dollars in fines.

— Andrew Hayner, Jaffe, Raitt, Heuer & Weiss, P.C.

Holli Targan

Attorney & Partner

htargan@jaffelaw.com

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