NV Federal Court Issues Sanctions Against Payment Processor for Violating FTC Settlement

The U.S. District Court for the District of Nevada issued an order requiring a payment processor and its executives to pay $6.5 million in sanctions for violating the terms of a 2015 settlement with the FTC.

In 2014, the FTC sued the payment processor in Nevada federal court, alleging that the payment processor enabled purportedly fraudulent merchants to make unauthorized charges on consumers’ payment cards.  In 2015, the parties entered into a stipulation in which the company and its executives agreed to cease certain conduct.  They agreed, among other things, to monitor sales and transactions by high-risk merchants, not to act as a payment processor for certain high-risk merchants, and not to facilitate strategies to avoid bank and credit card risk monitoring programs.

The District of Nevada found that the payment processor violated its duty to monitor a high-risk merchant’s sales when it processed payments for a merchant submitting payment applications “for facially unrelated companies,” including “companies and purported owners of those companies who were not employees or officers of [the merchant] who, in fact, had no role in marketing, selling, fulfilling, or otherwise servicing the sales associated with these accounts.”  Based on various evidence (including affidavits from the merchant’s executives), the court found that the payment processor knew this information but did not monitor or investigate the merchant as the FTC settlement required.  In fact, the payment processor continued to process more than $36 million for the merchant over roughly a year and a half.  The court also found similar violations with respect to payments processed for three other clients.

Accordingly, the court found that the payment processor and its executives violated their settlement with the FTC and awarded $6.5 million in compensatory relief.  The court, however, declined to modify the settlement order or appoint a receiver, as the FTC had requested.