he FTC is busy bringing actions against a number of companies that it alleges have operated fraudulently and deceived consumers. These consumer rip-offs-such as credit card scams, supposed work-at-home or medical billing opportunities and home mortgage lending scams-depend on the existence of a merchant account, ACH and/or check processing to gain access to consumers' money.

These fraudsters typically operate under multiple corporate names for a short period of time and then either change names again or disappear altogether, leaving trails of chargebacks in their wakes, unless they are stopped by the FTC and/or states' attorneys general.

MLSs and ISOs should be wary of processing for these types of "businesses." I've said this before, and have also written about the types of businesses the FTC has been vigorously pursuing in The Green Sheet; see issues 03:09:01, Sept. 8, 2003 and 03:12:01, Dec. 8, 2003.

It is worth emphasizing that payment by credit cards plays a large part in the various scams targeted by the FTC. People selling payment processing services of all types should consider this when signing merchants that offer the types of worthless products or services that have been under the FTC magnifying glass.

Following are explanations of a few recent cases brought against fraudulent companies by the FTC.

Credit Card Scams

A federal district court entered a temporary restraining order enjoining the owners of a nationwide telemarketing operation from making misrepresentations to consumers when marketing credit-related products or services. The court's order also freezes the defendants' assets.

The FTC filed an action against the defendants alleging that they violated the FTC Act and the Telemarketing Sales Rule by misrepresenting, expressly or by implication, that consumers were likely to receive an unsecured major credit card, like a Visa or MasterCard, in exchange for an advance-fee payment.

In its complaint, the FTC alleges that beginning in January 2002, the defendants telemarketed advance-fee credit cards to U.S. consumers with poor credit histories, offering them a credit card with a $2,500 limit for a one-time "processing" fee of $197 to $300.

According to the FTC, telemarketers for the defendants claimed to have information showing that the consumer had recently been denied credit; they pitched the credit card offer as a means of restoring their credit rating. The telemarketers then requested information regarding consumers' bank accounts, such as account and routing numbers, account holders' names, as well as personal identifying information including date of birth, mother's maiden name and social security number.

Consumers who paid the fee never received their cards as promised, although a few allegedly received credit repair kits, coupons, a list of banks that issue credit cards and other materials with little or no value.

The FTC has information about this scam available on its Web site at www.ftc.gov/opa/2004/01/ccscams.htm .

Internet Mortgage Scams

A newer type of online scam involves home mortgages. The FTC filed a complaint in U.S. District Court against one Internet operation, 30 Minute Mortgage, Inc., that described itself as a "national mortgage lender" and allegedly advertised "3.95% 30-Year Mortgages" in order to obtain sensitive financial information from consumer applications.

The operation's principals have agreed to settle FTC charges that the scheme violated federal lending and privacy laws; they've been barred from conducting business as usual.

The settlement requires the principals to post $1 million bonds before sending unsolicited commercial e-mail spam in the future. The settlements also bar misrepresentations in the advertising or sales of any goods or services on the Internet and misrepresentations that relate to residential mortgages.

The settlements also bar the defendants from using or benefiting from personal information that was deceptively collected from consumers.

FTC charges include allegations that the company urged potential customers to complete detailed online loan applications that included such information as social security numbers, income and assets. The FTC also said that 30 Minute Mortgage Inc. was neither a "national mortgage lender" nor did it offer 3.95% 30-year loans.

Instead, the agency said the company sold or offered to sell thousands of completed applications to nonaffiliated third parties without consumers' consent.

30 Minute Mortgage Inc., its President and its former National Sales Director have been charged with violating the FTC Act, the Truth in Lending Act and the Gramm-Leach-Bliley Act.

The FTC asked the court to bar the illegal practices permanently and order the defendants to give up their ill-gotten gains. The FTC's press release on this action can be accessed at www.ftc.gov/opa/2003/12/30mm2.htm .

Work-at-Home and Medical Billing Opportunities

In yet another action against a different type of online scam, the FTC obtained a stipulated final order barring a Carrollton, Texas-based defendant from promoting or selling work-at-home business opportunities, including medical billing opportunities.

According to the Commission's complaint, the defendant violated the FTC Act by making numerous misrepresentations to consumers, including that she had doctors who were ready to out-source their medical billing claims work, that consumers who used her services would earn substantial income, and that there was a 100% satisfaction guarantee. The stipulated final order also bars the defendant from violating the FTC's Franchise Rule and contains a judgment of $3.26 million.

The Commission's lawsuit was filed as part of the 2002 "Operation Dialing for Deception" law enforcement sweep.

The defendant, acting as the owner and President of the company, Medical-Billing, solicited consumers throughout the United States, offering them the opportunity to start or expand an existing work-at-home medical billing business. In letters sent to consumers, the defendant allegedly guaranteed consumers that she could locate health-care professionals to use their medical billing services that would generate from $15,000 to $75,000 per year.

The defendant offered consumers three levels of investment-$4,000, $6,000 and $9,000. All three participating levels came with a "100% refund guarantee." After consumers signed contracts with the defendant to purchase her marketing services, they allegedly typically received no help from the defendant in obtaining new business.

According to the complaint, the defendant violated the FTC Act in three ways:

1. by misrepresenting to consumers that she would provide health-care professionals who would use the consumers to process their medical claims;
2. by misrepresenting that consumers who bought her medical billing marketing services would earn a specific level of income; and
3. by misrepresenting that she would provide dissatisfied consumers with full refunds.

For further information on this scam, go to www.ftc.gov/opa/2003/11/medbilling.htm .

What does all this mean for people who sell merchant services? Most importantly, it shows that MLSs and ISOs should be cautious when signing up these types of merchants. In the past, the FTC has charged processors with aiding and abetting fraudulent merchants' deceptive sales practices.

In these instances, the FTC alleged that the processor continued to process the merchant's credit-card sales even when it knew, or should have known, about the merchant's deceptive sales practices.

One such example is Citicorp Credit Services, Inc., a subsidiary of Citicorp. The FTC took action against the processor and settled charges recently; the agency said the processor had aided and abetted a deceptive national travel club and had continued to process the club's credit-card sales even when it knew, or should have known, aboutthe club's deceptive sales practices.

Under the terms of the settlement agreement, the final consent order imposes a duty on Citicorp Credit Services to investigate merchants with high chargeback rates and to terminate them if they are found to be engaging in fraudulent, deceptive or unfair practices.

Information about the agreement and the FTC's action against Citicorp Credit Services can be found at www.ftc.gov/opa/predawn/F93/citicorpc4.htm

See also: www.ftc.gov/opa/2003/07/efg.htm

David H. Press is Principal and President of Integrity Bankcard Consultants, Inc. Phone him at 630-637-4010, e-mail dhp@integritybankcard.net or visit www.integritybankcard.net.