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Thursday, February 22, 2024
Courthouse News Service
Thursday, February 22, 2024 | Back issues
Courthouse News Service Courthouse News Service

Class Calls ‘Payment Processor’ a RICO Scheme

SAN FRANCISCO (CN) - So-called payment processor Meracord "loots" customers' accounts by taking exorbitant, fraudulent fees through a network of "front end" debt relief companies, customers claim in a RICO class action.

Lead plaintiff Donte Cheeks sued Meracord LLC and its sureties, Fidelity and Deposit Company of Maryland and Platte River Insurance Company, in Federal Court.

The four named plaintiffs claim that Meracord, based in Tacoma, Wash., changed its name from NoteWorld "after a number of class action lawsuits were filed against Note World. ... (M)any of the events described herein took place when the company was called 'NoteWorld,'" the complaint states.

The Courthouse News database shows similar complaints against Meracord, including two class actions, in upstate New York, in two other California venues, and in Cleveland and Cincinnati.

"Meracord engages and relies upon a network of 'front-end' debt relief companies ('Front DRCs') that it utilizes to recruit customers," the complaint states. "The Front DRCs offer to act as intermediaries between distressed and distraught debtors and their creditors, using inflated claims and misrepresentation about their services to sign up customers, and charging exorbitant, abusive, and often illegal fees once the mark is on the hook. The front DRCs require customers to set up an escrow account into which the customer makes a monthly deposit, generally via an automatic electronic funds transfer. These accounts are administered by Meracord, which is a 'back end' debt relief company. In theory, the Front DRC will 'negotiate' with creditors in order to modify or lower a customer's debt obligations and use the funds in the escrow account to pay the creditors on behalf of the customer. In the case of credit card and student loan debts, the Front DRCs will approach creditors and utilize the accumulated balance to settle outstanding debts for a lump sum. In the case of mortgage debt, the Front DRCs claim they can negotiate a mortgage modification that will lower the customer's monthly payments, and that the funds in the escrow account will go towards those new lower payments. The reality, however, is very different from these promises.

"The Front DRCs and Meracord represent to consumers that Meracord is independent and unaffiliated with the Fronts DRCs, and that consumers will at all times have control over their money. Linda Remsberg-Meracord's owner, president and CEO-calls Meracord 'an objective third party processor' on her blog. These statements are false. In fact, Meracord is deeply intertwined with, and actively conspires with, the Front DRCs. For most of the Front DRCs, Meracord provides software through which consumers view their account balances and have the ability to 'approve or decline' settlement agreements with their creditors-if any are actually ever reached. This software in many cases represents the bulk of the 'services' that the Front DRC actually provides.

"Despite its statements to the contrary, Meracord does not act as an independent fiduciary. Together with its network of Front DRCs, it loots customers' escrow accounts by withdrawing exorbitant and abusive fees pursuant to contracts that are wholly fraudulent because they are obtained by means of: (1) false representations, including guarantees about consumers' debts being settled for 'pennies on the dollar'; (2) promises that the DRCs will be able to modify the terms of consumers' mortgages even when the lender has previously rejected modification requests; (3) misleading statements about the success rates of the debt relief services; and (4) In many cases, the customers are told to stop making payments to their creditors-and even encouraged to stop making payments in order to show their 'financial hardship'-in order to pay the exorbitant fees charged by the DRCs, resulting in creditors initiating lawsuits and foreclosure proceedings-leaving the customer in a worse position than before the DRCs offered to 'help.'

"If consumers discover the fraud and attempt to retrieve the illegally extracted fees, they often find that the Front DRC is completely unresponsive, or, worse, is nothing more than a shell entity with no real address and no discernible ownership structure. Meracord, for its part, stonewalls customers and refuses to refund illegal fees, hiding behind false claims that it only provides 'payment processing' services; that it is 'not a debt settlement company;' and that it is wholly 'independent' from the suddenly unavailable (or vanishing) Front DRCs. By the time Meracord actually closes a customer's escrow account, the customer will have lost hundreds or thousands - and in some cases tens of thousands - of dollars in unlawful charges."

The class claims that Meracord changed its name from NoteWorld to try to hide from lawsuits just like this one: "By changing names, companies in the industry are able to wipe clean their online reputation virtually overnight, making it more difficult for consumers to associate the companies with lawsuits and other negative consumer feedback," the complaint states.

The class claims that Meracord is a defendant in "numerous cases" around the country, and has settled at least two cases "that have severely depleted its available assets, including insurance policies."

The complaint lists dozens of Front DRCs Meracord allegedly uses.

The plaintiffs seek class certification and damages to be paid from "over $17 million" in surety bonds that Meracord allegedly carried.

They are represented by Steve Berman with Hagens Berman Sobol Shapiro of Seattle.

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