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Payment Processor Allegedly Took Millions from Consumers Sued by FTC and States

FTC And Seven States Sue Payment Processor that Allegedly Took Millions from Consumers' Bank Accounts on Behalf of Fraudulent Telemarketers and Internet-based Merchants: "The Federal Trade Commission and seven state attorneys general have charged a payment processor with violating federal and state laws by debiting, or attempting to debit from consumers' bank accounts on behalf of numerous fraudulent telemarketers and Internet-based merchants."

The Federal Trade Commission and seven state attorneys general have charged a payment processor with violating federal and state laws by debiting, or attempting to debit from consumers’ bank accounts on behalf of numerous fraudulent telemarketers and Internet-based merchants.

The FTC and the attorneys general of Illinois, Iowa, Nevada, North Carolina, North Dakota, Ohio, and Vermont have charged the defendants with offering payment processing services to a variety of merchants, many of which were engaged in deceptive telemarketing or Internet-based schemes. These schemes were designed to extract money from consumer bank accounts by inducing consumers, through misrepresentations and omissions in connection with the marketing of products or services, to provide the merchant with the consumer’s personal bank account information. The merchants then transmitted the bank account information to the defendants, who processed debits to the consumers’ bank accounts.

Between June 23, 2004 and March 31, 2006, the defendants processed more than $200 million in debits and attempted debits to consumers’ bank accounts, the complaint alleges, and more than $69 million of the attempted debits were returned or rejected by consumers or their banks for various reasons, indicating the lack of consumer authorization. In many instances, after the defendants debited accounts, the merchants failed to deliver the promised products or services, or sent consumers relatively worthless items. The complaint alleges that by providing access to the banking system and the means to extract money from consumers’ bank accounts, the defendants played a critical role in their clients’ fraudulent and deceptive schemes.

“Payment processors play a key role in many commercial transactions, and they are positioned to monitor return rates on these transactions,” said Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection. “The defendants purportedly saw extremely high return rates and looked the other way. We allege that consumers lost millions of dollars as a result, and that the company's conduct violated federal and state laws.”

The complaint states that in many cases the defendants, collectively known as YMA, accepted clients whose applications contained signs of deceptive activity, including sales scripts with statements that were facially false or highly likely to be false. The complaint also alleges that YMA anticipated that many of its clients would generate high rates of returned or reversed transactions, a sign that unauthorized debits from consumers’ accounts were likely. After these merchants became YMA clients, they did generate high return rates – from 20 percent to more than 80 percent. According to the complaint, YMA closely monitored its clients’ return rates, and therefore was aware of its clients’ high return rates."

Interesting duty to monitor being imposed here. Be interested in how this turns out.

Full post as published by Misleading Advertising Law on January 13, 2008 (boomark / email).