Update Regarding the BrightSpeed Payment Processor Case

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On January 18, after approximately fourteen months of settlement negotiations, the CFPB announced that it secured a settlement agreement with BrightSpeed Solutions, Inc., a third-party payment processor that had ceased operations nearly three years ago. As we reported in greater detail in a prior post, the CFPB asserted jurisdiction to bring its complaint against BrightSpeed by alleging that the company was a “covered person.” Under the Dodd-Frank, a covered person must offer or provide a “consumer financial product or service.” In the context of payment processing, the Dodd-Frank Act requires that such services be provided “to a consumer.” BrightSpeed, however, provided payment processing services only to merchants, not to consumers (the merchants were not alleged by the CFPB to be covered persons, meaning BrightSpeed was not a “service provider” for purposes of CFPB jurisdiction). In its answer to the CFPB’s complaint, BrightSpeed argued that the CFPB exceeded its statutory authority, its claims were barred by the statute of limitations, and it was using BrightSpeed’s financial distress as leverage against the company’s position.

If unnamed merchants defrauded consumers into purchasing unnecessary software in tech-support scams, as the CFPB alleged in its complaint, the merchants should be held to account by the FTC or state attorneys general (the CFPB, for instance, instructs consumers to report tech-support scams directly to the FTC). However, the CFPB’s claimed jurisdiction in this case would establish the precedent that it can bring enforcement actions against any payment processor for providing services to merchants, whether or not those merchants are providing financial products or services (its two prior attempts to establish such a precedent in the Intercept and Universal Debt Solutions cases failed). Moreover, such actions could be used to indirectly regulate merchant and retailer activity in a way specifically prohibited by Congress in the Dodd-Frank Act, similar to the way in which the CFPB once used enforcement actions against indirect auto lenders as a means of regulating dealer compensation practices.

The proposed stipulated judgment and order filed jointly by the CFPB and BrightSpeed with U.S. District Court for the Northern District of Illinois specifically requests that Judge John J. Tharp Jr. find that the CFPB’s “[c]omplaint alleges claims upon which relief may be granted” and “[e]ntry of this order is in the public interest.” The parties separately noticed that they will present their proposed order to Judge Tharp on the morning of Thursday, January 20, at 9:00 a.m.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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