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: http://files.consumerfinance.gov/f/documents/3_16_cv_00144_ars_CFPB_v_Intercept.pdf