Banking and Finance Law Daily Payment processor uses PHH decision to ask for dismissal of CFPB action
Monday, October 17, 2016

Payment processor uses PHH decision to ask for dismissal of CFPB action

By Colleen M. Svelnis, J.D.

The U.S. Court of Appeals for the District of Columbia Circuit’s decision that the Consumer Financial Protection Bureau’s single-director structure is unconstitutional for an independent agency has been brought up as the basis for a motion to dismiss another case involving the bureau. The CFPB has alleged that Intercept Corporation, a payment processing servicer located in Fargo, N.D., engaged in unfair acts or practices in violation of the Consumer Financial Protection Act (CFPA) in an action in the U.S. District Court for North Dakota.

In PHH Corporation v. CFPB, the D.C. Circuit appellate court ruled that the single-director structure is unconstitutional and that the President has the authority to discharge the CFPB’s director at will and without cause. The court rejected the bureau’s claims that there is no statute of limitations that restricts its ability to enforce the Real Estate Settlement Procedures Act against a mortgage lender that was accused of taking illegal kickbacks (see Banking and Finance Law DailyOct. 11, 2016).

Intercept filed a Notice of Supplemental Authority in support of its Motion to Dismiss the case in order to bring to the Court’s attention the PHH ruling, stating that the Court of Appeals’ concerns are "of a piece with those" in this case. Intercept stated that the appellate court rejected an analogous attempt by the agency to extend its statutory authority under RESPA and rejected the bureau’s interpretation as inconsistent with RESPA and industry expectations, and the bureau’s position that it was unconstrained by any statute of limitations provision.

The CFPB response asked that the court deny the motion in its entirety. The bureau responded first that that the D.C. Court’s decision does not control the outcome of defendants’ motion to dismiss in this case, since a district court in North Dakota is not bound by a decision outside the 8th Circuit. The CFPB further stated that the decision is not yet final until the Bureau has had an opportunity to petition for rehearing en banc or a writ of certiorari. The response also states that the ruling on the Real Estate Settlement Procedures Act and the applicable statute of limitations under that Act are irrelevant to this case, where the Bureau has brought claims under a different statute and the parties agree on the applicable statute of limitations provision.

Intercept asked for a dismissal of the CFPB’s complaint, arguing the following.

  1. The complaint does not allege the necessary elements of an unfairness claim under the CFPA.
  2. The claims are time-barred under the CFPA’s three-year statute of limitations, which begins to run on the date of the discovery of the violation.
  3. The bureau fails to allege that Intercept is covered under the CFPA as a "Covered Persons," "Service Providers," or "Related Persons."

The CFPB’s argument in opposition to the motion to dismiss refutes these claims and states that it has fully met the standard for alleging claims of unfairness and substantial assistance. The bureau also refutes that the action is time-barred, stating that Intercept is relying on information known by a separate agency, the Federal Trade Commission before the bureau’s investigation even began. The Bureau argues that its complaint establishes that Intercept is a "service provider" to the lenders, debt collectors, and other covered persons among its clients, and is a "covered person" under the Act.

The CFPB also argues that there is no support for the allegation that the bureau itself is unconstitutional.

Companies: Intercept Corporation; Intercept EFT; PHH Corporation

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