WBK Industry News - Federal Regulatory Developments

FTC Settles with Payment Processor and its Owner for over $1.8 Million and Orders Permanent Payment Processing Ban

On April 10, 2019, the FTC and a payment processing company, along with its owner, entered into a final order to settle charges that they repeatedly violated a prior court order issued against them in 2009 for allegedly engaging in unfair acts or practices and other impermissible acts.  The settlement, in key part: (i) permanently bans the company and its owner from engaging in and assisting others with payment processing; and (ii) orders the company and owner to pay a contempt judgment of more than $1.8 million, the amount of consumer injury allegedly suffered as a result of their actions.

The previous 2009 court order found that the company and its owner violated Section 5(a) of the FTC Act (regarding unfair acts or practices) by processing debit transactions to consumers’ bank accounts on behalf of merchant-clients engaged in fraud, while knowing or consciously avoiding knowing that those transactions were not authorized by the consumers, and thereby causing substantial injury to consumers which was not reasonably avoidable by the consumers themselves and not outweighed by countervailing benefits to consumers or competition.  The 2009 order required the company and its owner to, among other things: (i) pay over $1.7 million for equitable monetary relief, including for consumer redress; and (ii) more carefully investigate and monitor their clients to ensure that the clients are not engaged in deceptive or unfair practices (e.g., ensure that the charges to be processed are properly authorized, including obtaining documents evidencing the client’s compliance with Section 5 of the FTC Act, the Telemarketing Sales Rule (if applicable), and any applicable bankcard association or NACHA rules).

In the current settlement, the FTC alleges that the company and its owner repeatedly violated the terms of the 2009 order by providing and procuring payment processing for merchant-clients engaged in fraud, and failing to properly investigate and monitor their merchant-clients to ensure that the clients were not engaged in deceptive, unfair, or abusive acts under Section 5 of the FTC Act or the Telemarketing Sales Rule.  Among other things, the FTC alleges that the company and its owner facilitated payment processing for merchant-clients while knowing or consciously avoiding knowing that the merchant-clients’ business practices were, or were likely to be, deceptive or unfair, which caused losses to consumers.  The current order, in key part, permanently bans the company and its owner from directly or indirectly engaging in payment processing in any capacity, and adds a contempt judgment of over $1.8 million on top of the more than $1.7 million judgment in the 2009 order that remains outstanding.

Additionally, the company and its owner are ordered to make timely submissions to the FTC, including a compliance report describing the activities of the business, and whether and how they are in compliance with each section of the order.  Further, the company and owner must submit compliance notices for 20 years after the entry of the order in the event of certain trigger changes in the business (e.g., change in ownership that may affect the company’s or owner’s compliance obligations arising under the order).