Today, the Consumer Financial Protection Bureau (CFPB) announced an enforcement action against Global Client Solutions, a leading debt-settlement payment processor, for allegedly helping other companies to collect tens of millions of dollars in illegal upfront fees from consumers. The Bureau has asked a federal district court to approve a consent order that would require the company and its two owners to halt all illegal activities and to pay over $6 million in relief to consumers as well as a $1 million civil penalty.
“Global Client Solutions made it possible for debt-settlement companies across the country to charge consumers illegal fees,” said CFPB Director Richard Cordray. “Consumers struggling to pay off a debt are among the most at risk and deserve better. We will continue to crack down on illegal debt-settlement firms and the companies that help these operations collect illegal fees from consumers.”
Global Client Solutions, which is based in the state of Oklahoma, is one of the largest payment processors for the debt-settlement industry. Debt-settlement companies generally offer to help consumers reduce or eliminate their credit card or other debt by negotiating settlements with creditors. In many cases, when consumers enroll in a debt-settlement program, the company instructs them to stop paying their debts and to instead make monthly payments to a payment processor account while the debts are negotiated. The CFPB has found that many consumers who use these services end up paying hundreds or even thousands in unlawful advance fees. Consumers may also end up without their debts settled and fall even deeper in debt.
The CFPB alleges that Global Client Solutions and its two principals, Robert Merrick and Michael Hendrix, violated the Telemarketing Sales Rule by making it possible for debt-settlement companies to charge consumers illegal upfront fees. The rule prohibits debt-settlement companies from charging consumers advance fees before settling any of their debts. The rule protects consumers from the risk of spending money on services that may not materialize and may ultimately leave them even worse off.
According to the CFPB’s complaint, since October 2010, Global Client Solutions processed tens of millions of dollars in illegal advance fees from tens of thousands of consumers. Global Client Solutions processed these unlawful fees on behalf of hundreds of debt relief companies across the country.
Today’s proposed order bans Global Client Solutions from enabling other companies to collect illegal fees from consumers. The defendants will be subject to monitoring by the CFPB and will be required to make reports to the CFPB to ensure their compliance. The defendants will also pay over $6 million in consumer relief in addition to paying a civil money penalty of $1 million.
Today’s action is part of the CFPB’s comprehensive effort to address consumer harm and to root out unlawful practices across the debt settlement industry. The Bureau has taken action against five debt-relief companies for charging illegal advanced fees, as well as five mortgage-relief operations for charging illegal advance fees from distressed homeowners. Last year, the Bureau also obtained a judgment against Meracord, another leading payment processor for debt-settlement companies, for enabling debt-settlement companies to process unlawful fees.
The Bureau’s complaint is not a finding or ruling that the defendants have actually violated the law. The proposed court order has been filed with the Court for the Central District of California and will have the full force of law only when signed by the presiding judge.
A copy of today’s complaint is available here.
A copy of the proposed court order is available here.
According to the complaint the CFPB took exception with the advance fee “exception” for attorney based debt settlement services.
“Many of the DRSPs for which Global processed payments improperly claimed to be exempt from the TSR based on unsubstantiated exemptions (e.g., an “intrastate” exemption) and unrecognized exemptions (e.g., a “legal” exemption) and routinely charged advance fees for debt-relief services, in violation of the TSR.”
The complaint alleges GCS knew the fees it was transmitting were not proper, “At the time Global transmitted these fees, it knew, based on its own account records, that it had not yet transmitted any funds from the consumer’s Custodial Account to a creditor. Global thus knew that it was transmitting fees to DRSPs that had not yet settled consumers’ debts, and that the DRSPs were not entitled to an advance fee.”