The Federal Trade Commission, in conjunction with seven state attorneys general, has filed suit against a Lake Mary, Fla.-based check and automated clearing house processor, claiming it violated federal and state laws by debiting, or attempting to debit, consumers' bank accounts with the help of fraudulent telemarketing and e-commerce merchants.
The processor, Your Money Access LLC, dba Netchex Corp., along with its affiliates in Florida and Pennsylvania, allegedly processed over $200 million in debits and attempted debits between June 23, 2004, and March 31, 2006. According to the FTC, more than $69 million of the attempted debits from consumers' bank accounts were returned or rejected by consumers or their banks, indicating that the debits were unauthorized.
The FTC claims the scheme involved inducing consumers to divulge their personal bank account information "through misrepresentations and omissions in connection with the marketing of products or services." One of the schemes reportedly tricked consumers into believing that they could easily receive government grants.
According to the FTC, the allegedly fraudulent merchants would then transmit consumers' bank account information to YMA, the collective designation given by the FTC to include both YMA and its affiliated processors.
"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 FTC believes that in many cases YMA knew the telemarketing and e-commerce merchants were fraudulent, that merchant sales pitches to consumers were false, or highly likely to be false, and that therefore the merchants would generate high return or reverse transaction rates - a sign, according to the government, that unauthorized consumer debiting was likely.
But, the FTC claims, YMA did business with these merchants anyway.
Reportedly, the merchants did, in fact, generate high return rates for YMA to process, anywhere from 20% for some merchants and more than 80% for others. And YMA allegedly knew about it.
The complaint, filed in the United States District Court, Eastern District of Pennsylvania, includes seven states as co-plaintiffs: Illinois, Iowa, Nevada, North Carolina, North Dakota, Ohio and Vermont.
The defendants in the case are YMA, Universal Payment Solutions, Check Recovery System, Nterglobal Payment Solutions, Subscription Services Ltd., and two top officers in YMA Company LLC, Derrelle Janey and Tarzenea Dixon.
2007 has been a busy year for FTC actions brought against businesses in the electronic payments industry.
In January 2007, the FTC filed a complaint in Florida against Global Marketing Group Inc., Global Business Solutions LLC, Globalpay Inc., Synergy Consulting Services LLC and First Processing Corp., alleging that the processors debited funds, deducted processing fees and forwarded the balance of the proceeds to telemarketers.
In April 2007, the FTC took action against Oregon-based Merchant Processing Inc. and two other firms, Vequity Financial Group Inc. and Direct Processing Inc., alleging the companies engaged in fraudulent and deceptive trade practices while selling debit and credit card processing services.
In August 2007, the FTC also lowered the boom on several California-based prepaid card companies allegedly involved in unlawfully debiting consumers' bank accounts.
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