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Not Every Payment Processing Case Is the Same – the Latest FTC Case Provides Some Helpful Reminders


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Most of the Federal Trade Commission’s (FTC) law enforcement actions involving payment processors have exclusively focused on allegations that processors did not do sufficient due diligence before onboarding questionable merchants. The latest payment processing case, however, has a bit of a novel twist and focuses instead on alleged deceptions aimed at the merchants that were using the defendant processor. Indeed, the case is a bit of a surprise, much like how I felt the other morning when I remembered that Renaissance had finally dropped. It (the case, not Renaissance) also provides some helpful reminders about three areas of interest to the FTC – small businesses, online disclosures and marketing in different languages.

The complaint alleges that the processor, First American Payment Systems, and its agents violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA), and they settled the case to the tune of $4.9 million, which will be used to offer redress to the small businesses that were harmed by their practices. For those keeping track of how the FTC is still recovering for redress, ROSCA allows the FTC to recover both civil penalties and consumer redress through Section 19 of the FTC Act.

As for the allegations, the case focuses heavily on misrepresentations that were made to small businesses regarding some key aspects of the merchant services they signed up for. Among the purported misrepresentations were statements about fees and savings. Indeed, on the savings front, the complaint noted that part of what made the savings claims deceptive was the fact that the company usually raised its prices once or twice per year, but the savings comparisons ignored that important fact. Other alleged misdeeds included buried information about recurring fees and cancellation fees, unauthorized withdrawals and, oddly enough, deliberately uninformed sales representatives. The complaint notes that some company managers believed that “it is to the sales representatives’ benefit not to understand the agreement, employing phrases like ‘stay hungry, stay stupid.’”

The small-business angle in the case is an important focus, and we have heard a lot from the agency lately on its emphasis on protecting small businesses, as evidenced by a recent Franchise Rule case. In this case, however, the small businesses that were using these merchant services included restaurants, nail salons and sole proprietorships. Additionally, the complaint emphasized that many of the small-business owners had limited English proficiency. Company sales reps would often provide oral presentations in the owners’ native language, but the written agreements were in English with no accompanying translations. The language disparity is just one of many issues that got these defendants into FTC trouble and one of many issues to be mindful of in your own practices.

There is one interesting thing to note about the FTC’s press release in this case. The headline states that the agency was focused on “surprise exit fees and zombie charges.” It reminded me that it has been many months since concerns were raised about former Commissioner Rohit Chopra’s departing “zombie votes,” but that issue is still lingering, much like the aforementioned undead. Just the other week, a Freedom of Information Act lawsuit was filed against the FTC and, among other things, it is seeking internal FTC documents regarding the use of zombie votes.  If we learn more, we will update you. And with that, we return to Renaissance.


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