The CFPB announced last week that it has entered into a consent order with an individual who had operated a defunct business that resold consumer leads to settle charges that the business sold leads to debt collectors who used the information to deceive and threaten consumers into paying debts they did not owe. The debt collectors had been named as defendants in a complaint filed by the CFPB in federal district court in Atlanta in March 2015.
The leads sold by the reseller were purchased from lead generators. According to the CFPB, the reseller undertook no reasonable due diligence to check whether one of the debt collectors purchasing the leads “offered a legitimate product or service to consumers” and the debt collector “could not have perpetrated its fraud on consumers without [the reseller’s] assistance.” The CFPB claimed the reseller’s conduct was reckless and charged the reseller with violating Section 1036(a)(3) of the CFPA. Section 1036(a)(3) provides that it is unlawful for “any person to knowingly or recklessly provide substantial assistance to a covered person or service provider in violation of the provisions of section 5531 [which prohibit unfair, deceptive or abusive acts or practices]…and notwithstanding any provision of this title, the provider of such substantial assistance shall be deemed to be in violation of that section to the same extent as the person to whom such assistance is provided.”
The consent order requires the operator of the reseller to disgorge $21,151 and permanently bans him from offering or providing any “consumer financial product or service” within the meaning of the CFPA, “including engaging in any business involving the purchase or sale of consumer leads, or facilitating any such conduct.”
In its complaint against the debt collectors, the CFPB also named as defendants three other companies. One of the companies processed payments for the debt collectors and the two others were independent sales organizations that marketed the processor’s services to merchants and were responsible for screening and underwriting merchants. The CFPB alleged that the three companies had violated Section 1036(a)(3) of the CFPA by providing “substantial assistance” to the debt collectors.
In September 2015, the court issued an opinion denying the companies’ motion to dismiss. In their motion, the companies argued that the substantial assistance claim should be dismissed because the CFPB had not adequately alleged that they acted knowingly or recklessly. While the court agreed with the companies that a “severe recklessness” standard should apply, it found that the CFPB had alleged facts that satisfied the higher standard. It also rejected the companies’ argument that even if they acted knowingly or recklessly, they still did not provide substantial assistance under the allegations in the complaint because the CFPB’s allegations did not establish that the companies’ conduct was the proximate cause of consumer harm or even a substantial causal connection. The court ruled that while proximate cause is relevant to establishing a substantial assistance claim, it is not required.