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 from NACHA.
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 ACH transaction.
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.
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