Home > Managing Debt > CFPB Takes Action Against Company for Processing Upfront Debt Settlement Fees

Comments 0 Comments

Debt settlement firms that require upfront payments continue to find themselves in the cross-hairs of the Consumer Financial Protection Bureau. On Thursday, the agency announced it filed a complaint against a Washington state payment processor, Meracord LLC, alleging it provides the financial structure that enables collection of illegal upfront fees from consumers drowning in debt.

Consumers who use debt settlement companies are often instructed to stop paying debtors as part of a negotiation strategy. In the meantime, they are told to make payments to a third-party firm, allegedly to build a pile of cash that can be used to make settlement offers. With fraudulent firms, consumers have complained that debts ultimately aren’t settled, and the funds they’ve paid to the third-party firms are lost to fees.

Meracord, the CFPB said, collected “millions of dollars” in such funds on behalf of debt settlement companies from 11,000 consumers since October 2010.  Nearly 5,000 of those customers got nothing for their money — none of their debts were actually settled, the agency alleges.

“Debt-settlement companies have been a particular concern in the wake of the recent financial crisis. Millions of people have experienced deep financial problems after losing their jobs and much of their savings,” said Steve Antonakes, Deputy Director of the Consumer Financial Protection Bureau. “Many of these consumers were targeted – and taken advantage of – by debt-settlement companies promising to help them get out of debt.”

The CFPB has asked a federal court to force the firm to pay a $1.4 million civil penalty, and to stop collecting upfront fees for settlement firms.

“Pursuing this action against Meracord as a centralized chokepoint represents an effective and efficient strategy for the Bureau that allows us to protect consumers who are being charged illegal fees by a broad array of debt-settlement companies that rely on Meracord’s services,” Antonakes said.

In a statement, Meracord noted that it announced plans to cease offering third-party payment processing for any debt relief companies in January and finished its wind-down in July of this year.

“The settlement does not include any findings of wrongdoing or determinations that Meracord violated any law. Meracord regrets consumer harm resulting from certain activities of the debt relief industry. Our focus has always been on protecting consumers to the best of our ability, leading to our voluntarily exit of these business lines in January of this year. We are pleased to have this matter behind us so we can focus our resources on providing compliant payment services in other markets.,” a spokesperson said via email.

The bureau’s announcement does note that “the complaint is not a finding or ruling that the defendants have actually violated the law. The proposed court order has been filed with the United States District Court for the Western District of Washington and will have the full force of law only when signed by the presiding judge.”

The CFPB has filed a steady stream of cases against debt settlement firms in the past year: actions against Payday Loan Debt Solution and American Debt Settlement Solutions, both resolved with consent orders; and complaints filed against Mission Settlement Agency, the Law Office of Michael Levitis, Premier Consulting Group, LLC, and the Law Office of Michael Lupolover.

“For consumers, dealing with debt-settlement companies can be risky. Some promise more than they can deliver. They can charge expensive fees,” Antonakes warned. “They sometimes claim that a consumer can erase their debt for pennies on the dollar, when, in many cases, they cannot. Although Meracord itself is not a debt-settlement company, we believe that it directly facilitated illegal conduct on the part of debt-settlement companies by processing illegal upfront fees.”

Image: Ingram Publishing

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team