WASHINGTON (Reuters) - The U.S. consumer watchdog said on Thursday it fined payment processor Meracord for helping to collect illegal debt-settlement fees, part of a broader crackdown on companies that offer to help borrowers get rid of debt.
The Consumer Financial Protection Bureau said debt-settlement companies, which negotiate with creditors to help borrowers eliminate credit card or other debt, often use outside processing companies to collect payments from consumers.
Washington state-based Meracord helped collect upfront fees from borrowers, according to the bureau’s complaint, even though settlement firms are not allowed to charge such fees before actually eliminating or reducing consumers’ debts.
Meracord and its chief executive, Linda Remsberg, agreed to pay a $1.376 million penalty and are barred from processing payments for debt-settlement companies, the bureau said.
“By pursuing this action against Meracord as a centralized chokepoint, the CFPB can efficiently and effectively help consumers who were charged millions of dollars in illegal fees by many of the debt-settlement companies using Meracord’s services,” the bureau said in a statement.
Meracord, one of the largest payment processors for debt-settlement firms, neither admitted nor denied the allegations.
“The settlement does not include any findings of wrongdoing or determinations that Meracord violated any law,” Remsberg said in an emailed statement. “Meracord regrets consumer harm resulting from certain activities of the debt relief industry.”
The consumer bureau, which was created by the 2010 Dodd-Frank law, has been scrutinizing the debt-settlement industry. Officials have said firms may deceive consumers, often do not ever eliminate their clients’ debts, and can charge hefty fees.
Consumer regulators obtained court judgments in the past year against two companies that Meracord worked with and filed a complaint against four others, the bureau said.
“We believe it is important to hold primary violators of the law...accountable. But through these cases we have also been building our action against Meracord, whose assistance made these violations possible,” said Steve Antonakes, the bureau’s deputy director.
The CFPB said Meracord had processed thousands of illegal upfront fees since 2010, resulting in millions of dollars in charges to about 11,000 consumers.
The bureau said nearly 5,000 of those people had none of their debts settled.
Antonakes said bureau officials believe Meracord should have known it was improperly collecting upfront fees for debt settlement firms that had provided no benefit to the consumers. He said the bureau expects to provide restitution to harmed borrowers.
The bureau filed its proposed court order, which is subject to a judge’s approval, with the U.S. district court for the Western District of Washington.
Reporting by Emily Stephenson and Aruna Viswanatha; Editing by Lisa Von Ahn, Steve Orlofsky and Diane Craft