On March 17, the U.S. District Court for the District of North
Dakota granted Intercept Corporation ("Intercept"), Bryan
Smith, and Craig Dresser's Motion to Dismiss the Consumer
Financial Protection Bureau's ("CFPB") Complaint in
the case between the CFPB and Intercept. The decision to grant the
Motion to Dismiss marks the first time that the Bureau has had its
entire case dismissed through a motion to dismiss.
The CFPB filed a Complaint against Intercept, Bryan Smith, and
Craig Dresser in June 2016. The CFPB alleged that Intercept
continually processed transactions for clients "they knew, or
should have known, were making fraudulent or other illegal
transactions" and that Intercept ignored certain "red
flags" related to fraudulent or illegal transactions. These
actions violated the Consumer Financial Protection Act's
prohibition against unfair and deceptive practices, according to
the CFPB's Complaint. Intercept filed a Motion to Dismiss the
Complaint in August 2016.
The Third Party Payments Processors Association
("TPPPA"), represented by Troutman Sanders attorneys
Keith Barnett, Ashley Taylor, and Reade Jacob, filed an amicus
brief in support of Intercept's Motion to Dismiss. Chief among
the TPPPA's concerns was that the CFPB's Complaint against
Intercept failed to adequately allege that Intercept violated any
substantive federal law or industry rule – notably, the NACHA
Operating Rules that were in place at the time the alleged
violations occurred. The TPPPA's amicus brief explained to the
Court that the Bureau's Complaint completely misstated the
NACHA Rules and omitted portions of the NACHA Rules that rendered
the allegations in the Complaint misleading and incorrect.
Additionally, the TPPPA asserted that the CFPB failed to allege
Intercept or its banks ignored certain "red flags" in
light of the fact that Intercept never received a rules violation
Judge Ralph R. Erickson granted Intercept's Motion to
Dismiss the case without prejudice, relying on the TPPPA's
arguments stated above and explanation of the participants in an
In his Order granting the Motion to Dismiss, Judge Erickson
wrote "A close review of the complaint yields a conclusion
that the complaint does not contain sufficient factual allegations
to back up its conclusory statements regarding Intercept's
allegedly unlawful acts or omissions. While the complaint indicates
that Intercept was required to follow certain industry standards,
it fails to sufficiently allege facts tending to show that those
standards were violated."
The court also sided with the TPPPA's argument that the CFPB
failed to identify "red flags" or how Intercept's
failure to act upon those "red flag" caused harm or was
likely to cause harm to consumers. "A complaint containing
mere conclusory statements without sufficient factual allegations
to support the conclusory statements," the Court wrote,
"cannot survive a motion to dismiss."
The CFPB will now have the option to file an Amended Complaint
or appeal the decision to the Eighth Circuit. If the Bureau decides
to file an Amended Complaint, it will likely be dismissed unless
the Bureau establishes a direct link between actual violations of
the NACHA Operating Rules and Intercept's alleged conduct.
The Troutman Sanders' Consumer Financial Services
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Litigation involving claims of unfair or deceptive business practices under Chapter 93A of the Massachusetts General Laws is constantly evolving, and these claims remain a favourite for the plaintiffs' bar...
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