Category: Featured

CFPB Takes Action Against Intercept Corporation

WASHINGTON, D.C. —Today, the Consumer Financial Protection Bureau (CFPB) brought action against Intercept Corporation, a payment processor and two of its executives, Craig Dresser and Bryan Smith for the illegal authorization of withdrawals from consumer accounts by their clients.  The lawsuit was filed in federal district court in which the CFPB asserts that Intercept ignored warning signs that its client engaged in fraudulent and unlawful activities. In addition to permanently eliminating all illegal practices carried by Intercept, Smith, and Dresser, the lawsuit is also seeking relief for consumers as well as imposing penalties against the defendants.

Director of the CFPB, Richard Cordray stated that “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. 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.”

Intercept Corporation, Fargo, N.D. based third-party payment processor is owned by Smith and Dresser- each own 50 percent of the company. Intercepts systems are used to transmit electronic funds transfers on behalf of clients through the Automated Clearing House. Financial transactions, such as payroll deposits, and loan and bill payments were all processed through this system. Business and individuals are linked by payment processes to banks through the network. Intercept’s clients include, among others, payday lenders, auto-title lenders, debt collectors and sales financing companies.

By processing payments for clients without sufficient investigating, monitoring, or responding to red flags indicated some clients were breaking the law or deceiving customers. The CFPB claims that Intercept, Smith, and Dresser acted in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Intercept, Smith, and Dresser played a key role in this unlawful conduct by giving their clients access to the banking system and the means to extract money from consumers’ bank accounts. The defendants allegedly:

  • Turned a blind eye to glaring indications of potential fraud: Forewarning of fraud included returned payments for insufficient funds or unauthorized debits  indicating that consumers did not consent to the withdrawal or were misled about the terms. An estimation of the CFPB indicates that Intercept assisted clients withdraw millions of dollars in unauthorized and other illegal charges from consumer accounts. Several Intercept clients have run up yearly return rates ranging between 20 to 40 percent for network transactions, exceeding the 1.5 percent industry average. Little effort was made by Intercept to determine the cause of these unconscionable rates and, despite the red flags, continued  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 operation.
  • Disregarded complaints from banks and consumers: Warnings and complaints from banks and consumers pertaining to high return rates and initiating unauthorized debits, including for payday lenders in states where the practice is illegal were blatantly ignored by Intercept. 

According to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is authorized to act against institutions or individuals engaged in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws. The complaint filed against Intercept Corporation, Bryan Smith, and Craig Dresser seeks injunctive relief, penalties, and monetary relief.

CFPB’s complaint is available here:


Money Transmitter Law Updated by Washington to Include Virtual Currency

A law enacted on April 17 by the state of Washington, that among other things, formally made provision for the inclusion of virtual currency to its money transmitter laws. The new law that will officially go into effect in July this year will include virtual currency within the definition of money transmission. According to the new law, virtual currency is defined as “a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government.”  The new definition does not include “the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.”

Third party security audits will be required for business models that store virtual currency on behalf of others. Virtual currency companies will also be allowed to hold “Like-kind virtual currencies” to fulfill permissible investment requirements. A schedule of fees and services have to be disclosed to consumers irrespective of whether the products or services are insured, if the transfer is irrevocable, the liability of errors as well as any further disclosures. Additional provisions of the new law include:

  • The definition of “Licensee”  to apply to any person inside or outside Washington that fails to obtain a required license.
  • Exclusion from its definition of “money transmission” the “provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.”
  •  Exemptions to those under federal law pertaining to money transmitters and new exemptions regarding both payroll service providers accountants.
  • The burden of proving the applicability of an exclusion or exception placed on the person claiming the exclusion or exception.
  • Incorporation of a new section that applies to fiat online currency exchangers.
  • Civil penalties of $100 per violation per day incurred for each day the violation is outstanding.

Please click here for the official order.

Kansas Regulatory Agency Issues Guidance on Cryptocurrencies 

The Kansas Office of the State Bank Commissioner (“OSBC”) recently issued guidance on whether the Kansas Money Transmitter Act (”KMTA”) covers transactions involving cryptocurrencies.  OSBC has concluded that decentralized cryptocurrencies such as Bitcoin are not considered “money” or “monetary value” under the KMTA, and thus are not subject to regulation under the KMTA.  The guidance, however, does indicate that if “the transmission of virtual currency include[s] the involvement of sovereign currency (i.e., the U.S. dollar) in a transaction, it may be considered money transmission depending on how such transaction is organized.”

OSBC provided the following guidance concerning specific transaction structures:

1) Exchange of cryptocurrency for sovereign currency between two parties is not money transmission under the KMTA, but constitutes a simple sale of goods between two parties.

2) Exchange of one cryptocurrency for another cryptocurrency is not money transmission under the KMTA because cryptocurrencies are not considered “money” or “monetary value” under the KMTA.

3) Exchange of cryptocurrency for sovereign currency through a third party exchange is generally considered money transmission.  Thus, a site acting as an escrow-intermediary to facilitate the exchange of Bitcoin would have to register as a money transmitter in Kansas.

4) Exchange of cryptocurrency for sovereign currency through an automated machine may not be money transmission depending on the facts and circumstances of its operation and the flow of funds between the operator of the automated machine and the customer.  The question OSBC asks is whether the machine involves a third party, or instead only facilitates a sale or purchase of cryptocurrency by the machine’s operator directly with the customer.  If the transaction involves a third party, such as a Bitcoin exchange site, the operator of the machine receives money (for example, U.S. dollars) with the intent to transfer that money to the seller of the cryptocurrency.  This type of transaction, according to OSBC, constitutes money transmission under the KMTA.


California Bill to Legalize Bitcoin Awaits Signing By Governor

California Assembly Bill 129 will make digital currencies, which include Bitcoin, Dogecoin, and others, legal in the state of California.

California Governor Edmund Brown must sign for the bill to pass.

An archaic Corporation law called Section 107 barred the usage of forms of money not considered legal US tender. Bill 129 would confirm digital currencies as legitimate and ultimately help foster digital currency businesses that have cropped up in California.