Payment Processor Intercept Ignored Clear Signs of Fraud, CFPB Alleges

Sky-high rates of returned payments due to unauthorized withdrawals were regularly ignored

Payment Processor Intercept Ignored Clear Signs of Fraud, CFPB Alleges
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June 7, 2016

The Consumer Financial Protection Bureau (CFPB) has filed suit against a Fargo, North Dakota-based third-party payment processor.

The suit, filed in federal district court, alleges that Intercept Corporation and two of its executives knowingly allowed illegal withdrawals from consumer accounts by its clients, ignoring clear indications of fraud and lawbreaking. These negligent actions include sky-high rates of returned payments because of unauthorized withdrawals, insufficient funds, or invalid or closed accounts.

"Intercept and its executives Bryan Smith and Craig Dresser ignored clear signs of brazen fraud, including illegal withdrawals from consumer accounts, and need to clean up their act," CFPB director Richard Cordray said in a written statement. "Companies cannot turn a blind eye to wrongdoing when they process payments from consumer banking accounts on behalf of clients that are breaking the law."

Payment processors such as Intercept provide a platform to transmit electronic funds through the Automated Clearing House for its clients, handling transactions such as payroll deposits, and loan and bill payments. Payday lenders, auto-title lenders, debt collectors, and sales financing companies are included in Intercept's list of clients.

The CFPB estimates that Intercept helped clients withdraw millions of dollars in unauthorized and other illegal charges from consumer accounts. Many of Intercept's clients have run up annual return rates of 20 to 40 percent for network transactions, far above the 1.5 percent industry average. This high rate of returned payments may indicate that consumers did not consent to the withdrawal or were misled about the terms. However, Intercept failed to investigate the issue and continued to process transactions.

Additionally, the CFPB alleges that Intercept regularly ignored complaints from banks and consumers. On at least one occasion, Intercept entered into a trial period with a financial institution to process a limited number of payments, but then ran millions of dollars of network transactions through the bank, generating high volumes of returns. When a bank notified Intercept about consumer complaints pertaining to an Intercept client, the company would simply seek out a new bank to process payments for the same clients. Intercept entered into business with eight different banks between 2008 and 2014.

The complaint against Intercept Corporation, Smith, and Dresser seeks monetary relief, injunctive relief, and penalties. The action is based on provisions found in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which target abusers of federal consumer financial laws.