Intercept Corp., a payment processor, and two of its executives, allegedly enabling unauthorized and other illegal withdrawals from consumer accounts by their clients, according to a lawsuit filed by a federal agency.
Intercept turned a blind eye to blatant warning signs of potential fraud or lawbreaking by its clients, the Consumer Financial Protection Bureau said in its lawsuit. These include actions by federal and state authorities and 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,” said Richard Cordray, director of the bureau.
Smith is Intercept’s president and Dresser is its chief executive officer. Each owns 50 percent of the company.
Intercept, based in Fargo, North Dakota, transmits electronic funds transfers through the Automated Clearing House on behalf of its clients. The electronic network is used to process financial transactions, such as payroll deposits and loan and bill payments. Payment processors link businesses and individuals to banks to provide access to this network. Intercept’s clients include payday lenders, auto-title lenders, debt collectors, sales financing companies, and others.
The bureau alleges that Intercept, Smith, and Dresser violated federal consumer laws by processing payments for clients without adequately investigating, monitoring, or responding to red flags that indicated some clients were breaking the law or deceiving customers.
Intercept, Smith, and Dresser played a key role in this unlawful conduct by giving these clients access to the banking system and the means to extract money from consumers’ bank accounts, the agency charges.
The defendants allegedly:
Ignored blatant warning signs of potential fraud.
- High rates of returned payments for insufficient funds or unauthorized debits may indicate that consumers didn’t consent to the withdrawal or were misled about the terms. The bureau 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. Intercept made little effort to find the cause of these sky-high rates, and, despite the red flags, kept processing transactions for these clients. Intercept ignored other warning signs such as state and federal enforcement actions against clients, including a Federal Trade Commission action against Scott Tucker and his payday lending company.
Ignored complaints from banks and consumers.
- Intercept ignored complaints and warnings from banks and consumers about high return rates and initiating unauthorized withdrawals, including for payday lenders in states where the practice is illegal. 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.
- If banks raised concerns about consumer complaints against an Intercept client, Intercept would seek out a new bank to help it process payments for the same clients. Intercept skipped among eight different banks between 2008 and 2014.
