On November 7, Massachusetts Attorney General Maura Healey announced a $600,000 settlement with Oklahoma-based payment processor Global Holdings. Attorney General Healey claimed that Global Holdings violated the Massachusetts Unfair and Deceptive Practices Act by sending debt settlement company DMB Financial LLC (DMB) its fees before the federal Telemarketing Sales Rule permits debt settlement companies like DMB to receive its fees.

Consumers hire a debt settlement company to negotiate with their creditors as a part of an effort to lower each consumer’s debt with a particular creditor. Under the federal Telemarketing Sales Rule, a debt settlement company cannot request or receive payment of its fees until and unless: (1) the debt settlement company “has renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to a settlement agreement”; and (2) the consumer has made at least one payment toward that settlement agreement. The Telemarketing Sales Rule also requires the debt settlement company’s fees to be commensurate with the amount and/or percentage of the renegotiated debt.

The Telemarketing Sales Rule allows a third party — here, Global Holdings — to hold the consumers’ funds, including the fees to be paid to the debt settlement company, in an account until payments are to be made to the debt settlement company and the creditors under the settlement agreement. Under the Telemarketing Sales Rule, payment processors like Global Holdings cannot allow the fees to be released to the debt settlement company until the conditions for payment are met. Also under the Telemarketing Sales Rule, payment processors and other third parties can be liable if they are deemed to “provide substantial assistance or support” when the company “knows or consciously avoids knowing” that a debt settlement company was acting in violation of the Telemarketing Sales Rule. 16 C.F.R. § 310.3(b).

In this case, Attorney General Healey alleged that Global Holdings aided and abetted DMB’s violation of the Telemarketing Sales Rule by sending DMB’s fees before DMB earned the fees under the Telemarketing Sales Rule, and such aiding and abetting violated the Massachusetts state law that prohibits unfair and deceptive acts.

While we have seen the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) bring enforcement actions against debt settlement companies for alleged violations of the Telemarketing Sales Rule, it is rare for a state regulator to file a separate enforcement action against a debt settlement company, which is what happened here. Usually, the state regulator joins the CFPB in a joint federal action in which the CFPB takes the lead. Last year, however, DMB executed separate settlements with both the state of Massachusetts and the CFPB.

Although we have also seen the FTC and CFPB bring enforcement actions against payment processors for allegedly aiding and abetting violations of the Telemarketing Sales Rule, this case is unique to the extent that the state regulator initiated an enforcement action against the processor without the federal regulator as a party to the lawsuit. It is somewhat surprising that this was not a joint action by the CFPB and the state regulator against Global Holdings given that in 2014, Global Holdings settled a lawsuit that the CFPB filed against it. In the 2014 lawsuit, the CFPB made similar Telemarketing Sales Rule allegations related to a different debt settlement company for which Global Holdings processed payments.

The unique enforcement procedures in this case do not end with the lack of a joint lawsuit by the state and federal regulators. In this case, Attorney General Healey’s lawsuit against Global Holdings differs from other state regulator lawsuits to the extent that she alleged that the defendant engaged in unfair and deceptive practices, as defined by state law, for violating a substantive federal law. In recent history, the federal regulator, namely the CFPB, has alleged that defendants engaged in unfair and deceptive practices (as defined by the federal Consumer Financial Protection Act) arising out of violations of substantive state laws.

It would not surprise us to see more cases like this from state regulators as the Fifth Circuit’s opinion in Community Financial Services Association of America v. CFPB will call into question the CFPB’s ability to continue to bring enforcement actions without receiving motions to dismiss under constitutional grounds. State regulators may find it less cumbersome to move forward without the enforcement targets challenging the very existence of the co-plaintiff.

*Trey Smith is not licensed to practice law in any jurisdiction; application pending for admission to the Virginia Bar.