On May 24, the FTC finalized an order against an electronic payment processor and its owners for allegedly opening credit card processing accounts for fake companies on behalf of a scam company previously sued by the FTC.

According to the complaint, the payment processor engaged in credit card laundering by creating 43 separate accounts for fake companies on behalf of the scam. Payment processor employees ignored the credit card laundering and the scam, overlooking extremely vague business descriptions. Further, payment processor employees gave advice to the scam company on how best to spread charges among different merchant accounts to avoid detection. The FTC alleges that the scammers ultimately ran more than $4.6 million in consumer credit card charges through those accounts.

Under the final consent decree, the payment processor and its two owners are required to enact procedural changes to prevent further harm to consumers. While the defendants in this case are prohibited from engaging in further harmful conduct, the FTC was unable to pursue a monetary judgment due to the Supreme Court decision in AMG Capital Management v. FTC disallowing monetary relief under Section 13(b) of the FTC Act. The payment processor and owners are:

  • Banned from further credit card laundering;
  • Prohibited from working with merchants that are—or are likely to be—engaged in deceptive or misleading conduct in addition to merchants deemed to be high-risk by credit card industry monitoring programs; and
  • Required to screen potential merchants who conduct telemarketing or are otherwise engaged in activities that could potentially harm consumers.

Putting It Into Practice:  The FTC is demonstrating, across industries, that it is eager to pursue enforcement actions against not only the primary perpetrators of scams and illegal operations that harm consumers, but other organizations and companies that help facilitate these harms. The FTC and DOJ recently sought to enjoin a VoIP for facilitating the transmission of illegal robocalls (we discussed this in a previous blog post here). In short, regulators are sending a clear and repeated signal that they will hold businesses accountable for failure to ensure that the counterparties with whom they are doing business are in compliance with consumer protection laws and guidelines.