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From Banking and Finance Law Daily, August 25, 2014

Debt settlement payment processor to process own $7 million settlement

By Richard A. Roth, J.D.

A company described by the Consumer Financial Protection Bureau as “a leading debt-settlement payment processor” has agreed to pay more than $7 million to settle the bureau’s charges that it helped other companies collect illegal upfront fees from consumers. In the consent order, the company and its two owners agreed to pay a $1 million civil penalty and a further $6.099 million to the CFPB for distribution to consumers.

According to the CFPB, Global Client Solutions processes payments for debt settlement companies, which offer to negotiate settlements with credit card companies or other creditors on behalf of consumers. One tactic used by debt settlement companies is to direct consumers to stop paying creditors and instead make payments to the companies to hold while settlement negotiations take place. Global accepts these consumer payments, which it is to hold in custodial accounts until proper payments are made.

Illegal payments. The Federal Trade Commission’s Telephone Sales Rule prohibits debt settlement companies from receiving any advance fees for their services, the CFPB says. A company may be paid only when an agreement has been negotiated with a creditor and approved by the consumer, and the consumer has made at least one payment under the agreement. However, based on spurious claims by debt settlement companies that they are exempt from the rule, Global has processed payments of “tens of millions of dollars in unlawful advance fees” from the custodial accounts, the CFPB charges.

The complaint says that Global would have known that it had not processed any payments to a creditor from a consumer’s account when it paid the settlement company, meaning the payments to the settlement companies had to be advance fees. Global also received hundreds of consumer complaints about the payments. This means that Global knew or consciously avoided knowing that it was facilitating illegal payments, the bureau charges.

Remedies. The consent order includes additional terms that are intended to prevent future violations, including an injunction against further TSR violations. Global is required to engage in substantial due diligence related to the debt settlement companies with which it does business, which must specifically include an analysis of any claims of exemption they assert.

Global also is required to create a written compliance plan and hire an independent monitor to review its operations.

However, the company is not required to withdraw from the settlement payment processing business, and neither it nor its owners have admitted any violations as part of the consent order.

Companies: Global Client Solutions; Global Holdings LLC

MainStory: TopStory CFPB DebtCollection EnforcementActions UDAAP

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