Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Payment processor settles FTC charges over allegedly unauthorized transactions, (Nov 18, 2013)

By Tobias J. Gillett, J.D., LL.M.

Payment processor Process America Inc. and its owners have agreed to settle FTC charges that they opened and maintained merchant accounts for work-at-home operation Infusion Media Inc. despite evidence that Infusion’s charges were not authorized by consumers, and that they employed tactics intended to evade fraud monitoring programs operated by Visa and MasterCard (FTC v. Process America, Inc., FTC File No. 102 3184).

According to the FTC’s complaint, Process America functioned as an independent sales organization (ISO) soliciting merchants in need of payment processing services and signing them up for merchant accounts through Cynergy Data, Inc., which in turn established the merchant accounts through its relationships with merchant banks. Process America serviced merchant accounts for Infusion Media. From at least September 2008 until June 2009, Infusion allegedly operated the “Google Money Tree” work-at-home scheme, which misrepresented that it had an affiliation with Google Inc. and that consumers could earn $100,000 in six months. Infusion offered business coaching products for as little as $1.97, but failed to disclose that purchasing the program would cause a consumer to be signed up for automatic monthly membership charges.

The major credit card associations, including Visa and MasterCard, analyze the chargeback rates for merchants, and place them in compliance monitoring programs when their chargebacks exceed certain thresholds. To evade detection by these methods, Process America allegedly enabled and advised Infusion to distribute its new sales transaction activity among various new merchant accounts, rather than accounts that were already under scrutiny, eventually establishing a total of 131 accounts for Infusion. These accounts allowed Infusion to charge more than $15.8 million to consumers’ credit and debit card accounts.

Process America increased the number of Infusion’s merchant accounts despite evidence of Infusion’s excessive chargeback rates, according to the complaint. Process America also allegedly used information in Infusion’s account applications that it either knew or should have known was false, to help conceal the interrelated nature of the Infusion Media entities, to mask the deceptive features of Infusion Media’s marketing materials, and to portray Infusion Media as a lower credit and underwriting risk to the payment networks and banks. Process America also advised Infusion to use the “load balancing” tactics to avoid detection by the monitoring programs. The complaint asserted claims for violations of Section 5 of the FTC Act.

Under the terms of the proposed stipulated order with Process America, through its Chief Restructuring Officer, Process America would be barred “from Payment Processing or acting as an ISO or Sales Agent for any Client engaged in offering to sell, selling, promoting, or marketing goods or services with a Negative Option Feature,” or “any Client that it knows or should know is engaged in or is likely to be engaged in a deceptive or unfair act or practice prohibited by Section 5 of the FTC Act.” In addition, Process America must make reasonable efforts to screen, monitor, and promptly investigate clients for such practices.

The proposed stipulated order with Process America owner Craig Rickard prohibits him from engaging in payment processing, acting as an ISO, or serving as a sales agent for clients engaged in unfair or deceptive business practices, certain categories of high-risk activities, or conduct qualifying a client for a chargeback monitoring program. Rickard must also make reasonable efforts to screen prospective clients to determine whether their business practices are unfair or deceptive. The order also imposes a $184,857.46 monetary judgment on Rickard that is suspended due to his inability to pay.

The proposed stipulated order with Process America owners Kim Ricketts and Keith Phillips prohibit them from serving as a sales agent for clients engaged in unfair or deceptive business practices or certain categories of high-risk activities. In addition, they must screen prospective clients to determine whether their business practices are unfair or deceptive, and must monitor their activities for unfair or deceptive practices.

All three settlements prohibit the defendants from selling or otherwise benefiting from consumers’ personal information, and require them to dispose of the information within 30 days of entry of the order. The proposed settlement with Process America is subject to approval by the U.S. Bankruptcy Court for the Central District of California, which is overseeing bankruptcy proceedings concerning the company.

Companies: Process America Inc.

News: ConsumerProtection FederalTradeCommissionNews