Should ISOs and their processing partners be held responsible when scam artists use them to process payments that turn out to be fraudulent? The Federal Trade Commission believes the answer is yes, especially if there are signs of fraud, for example, accusations of unauthorized transactions.
Last week the FTC proposed a settlement resolving allegations that California-based Process America Inc. and the company's three owners opened "scores of merchant accounts" for Infusion Media Inc. Infusion was an online marketing company that ran a bogus work-at-home scheme variously known as Google Money Tree, Google Pro and Google Treasure Chest.
The FTC shut down that company in late 2009, but only after it had made more than $15 million in unauthorized transactions involving consumer credit and debit cards that were handled by Process America. The FTC alleges Process America and its principals knew or should have known the transactions from Infusion were not authorized by accountholders.
"Evidence that consumers were being charged without their permission included plainly deceptive statements on merchant websites, notices that the merchant should be placed on the Visa and MasterCard chargeback monitoring programs and chronically excessive chargeback rates," the commission said in a statement detailing the proposed settlement. In two years – 2008 and 2009 – Process America opened 131 merchant accounts that were used by Infusion to process unauthorized card payments.
The FTC also alleges that Process America went to lengths to evade Visa Inc. and MasterCard Worldwide fraud monitoring programs, including distributing transactions across multiple merchant accounts, a practice known as load balancing.
To resolve the FTC's allegations, the three company principals – Kim Ricketts, Keith Phillips and Craig Rickard – agreed to permanent injunctions from merchant acquiring ISO and processing businesses. The company also is banned from engaging in sales activities. In addition, the order imposed a monetary judgment on one of the owners and then suspended it, "based on his inability to pay," the FTC said.
Process America is not the first company to take heat from the FTC for acquiring or processing payments from fraudsters. In April 2013, the payment processing company Automated Electronic Checking Inc. and two of its principals were hit with lifetime bans from merchant services.
The company was also ordered to pay $950,000 in funds debited from consumer accounts by a scam artist. As it did with Process America, the FTC alleged AEC should have known the transactions it acquired and processed were fraudulent.
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