Payment Processing Industry FTC Enforcement Focus

By now, it should be no secret to digital marketers and those that service the industry that the Federal Trade Commission is aggressively pursuing payments processors associated with high-risk merchants, including, but not limited to, automatic subscription renewals and “free trial” offers.

If there is any doubt that the FTC is now devoting resources to policing service providers that assist or facilitate the unlawful conduct of its merchant clientele, consider that in the past few months the FTC has entered into consent orders with numerous payment processors to settle claims of unfair or deceptive acts or practices violating Section 5 of the FTC Act and violations of the Telemarketing Sales Rule.

Settlements include stiff monetary fines, permanent bans, the imposition of screening and monitoring obligations relating to merchant clientele as well as independent sales agents, and annual third-party assessments of ISO oversight programs.

“Payment processors who help scammers steal people’s money are a scourge on the financial system,” said FTC lawyer Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “When we find fraud, we are committed to rooting out payment processors and other companies who actively facilitate and support these fraudulent schemes.” Read the FTC’s press release here.

The message from the FTC to participants in the payment processing industry is simple. Heed possible signs of fraud. Knowing of fraud or consciously avoiding such knowledge is likely to wind up in unwanted regulatory scrutiny. Averting your eyes to evidence that a third-party is engaged in unlawful practices will not be a defense.

For example, those in the payment processing industry should not ignore iffy indicators, such as high chargeback rates, negative online reviews, multilevel marketing structures, F ratings from the Better Business Bureau or business methods that uses get-rich-quick claims to pitch products. Do not turn a blind eye to business models that raise concerns for acquiring banks and raise underwriting eyebrows. Do not look the other way at obvious inconsistencies in merchant account applications.

Those in the payment processing industry should also never fail to follow its own rules and policies when reviewing recent processing statements, opening accounts and reviewing marketing materials, including telemarketing scripts. Do not continue to process payments when red flags are known, or should be known. And, when a chargeback prevention service is in the picture, prudent payment processors do not just look at the “prettier” post-refund numbers. They investigate what’s causing the chargebacks in the first place, knowing that putting on blinders will not be a defense to an FTC action.

Participants in the payment processing industry should familiarize themselves with recent FTC enforcement actions as they offer insight into what will likely land such entities and individuals in hot water. FTC attorneys expect ISO’s and payment processors to strictly comply with the merchant underwriting standards and fraud and chargeback monitoring rules of their acquiring banks and card networks. Acquiring banks and card networks, in turn, should ensure that they are conducting their own due diligence and monitoring the payment activities of their payment processors, ISOs and merchants.

This topic should be of interest to digital marketers and participants in the payment processing industry. Consult with experienced FTC defense lawyers to discuss the implementation of preventative compliance protocols.

Richard B. Newman is an advertising practices attorney Hinch Newman LLP. Follow him on Twitter @FTC defense lawyer.

Informational purposes only. Not legal advice. May be considered attorney advertising.