ere are updates on three Federal Trade Commission (FTC) cases. They are cautionary tales that will snap any lackadaisical bones right out of your ISO or merchant level salesperson (MLS) business. It's time to make sure that not only all of your actions, but also the deeds of your partners are on the up and up.

Dirty debits

According to a complaint the FTC filed Dec. 27, 2006, payment processor InterBill Ltd. "acted on behalf of a fraudulent enterprise known as Pharmacycards.com." The action was filed in the U.S. District Court for the District of Nevada.

The FTC alleges that Nevada-based InterBill violated federal law when it debited, or tried to debit, more than $9.9 million from consumers' bank accounts, at $139 each, without account-holder approval. InterBill has historically processed payments for many high-risk merchants such as online gaming and MO/TO companies.

"Using consumers' names and bank account information provided by Pharmacycards, InterBill allegedly debited thousands of consumers' accounts despite indications that the operation was bogus," the FTC charged.

Consumers allegedly had no contact with InterBill or Pharmacycards before money was taken from their checking accounts.

According to the FTC complaint, the defendant did not follow its own underwriting guidelines for new merchants before doing work for Pharmacycards. This included guidelines for collecting information, checking references and verifying a physical address.

Pharmacycards allegedly provided a London mail drop as a business address and conducted all of its business by prepaid, virtually untraceable cellular phones and free, anonymous e-mail and facsimile accounts.

The complaint also alleges InterBill anticipated high rates of returned or reversed transactions - a sign that unauthorized debits from consumers' accounts were likely - and did not request or obtain proof that consumers had authorized Pharmacycards to debit their accounts.

Additionally, the complaint alleges that shortly after starting its work, "InterBill received strong indications that the transactions were unauthorized: Rates of returned transactions skyrocketed, and InterBill received complaints from consumers and banks."

The FTC charged InterBill and its principal officer with violating Section 5 of the FTC Act by "unfairly processing debt transactions to consumers' bank accounts."

The FTC seeks consumer redress and a permanent bar on further violations. For more information, visit www.ftc.gov/opa/2007/01/interbill.htm

Previously, the FTC charged Pharmacycards and a different processor with debiting millions of dollars from consumers' checking accounts, allegedly without their consent, for nonexistent "discount pharmacy cards." See www.ftc.gov/opa/2005/09/universal.htm for more details.

Cross-border chicanery

At the request of the FTC, a federal court has shut down a payment processing operation that allegedly helped telemarketers take millions of dollars from consumers' bank accounts. According to the FTC's complaint, the operation aided at least nine Canada-based advance-fee credit card schemes that induced consumers to allow an electronic debit from their bank account in exchange for an unsecured credit card.

But consumers never received a credit card or, at best, received a so-called benefits package containing relatively worthless items.

The complaint alleges the processor debited funds from consumers' bank accounts, deducted their fees from the gross proceeds and forwarded the balance from the deceptive scheme to the telemarketers.

According to the complaint, the defendants also provided customer service and complaint handling, order fulfillment, list brokering and other services.

The complaint also alleges the parties processed payments on behalf of clients whose sales scripts plainly indicated they intended to violate the FTC's Telemarketing Sales Rule (TSR) and industry rules that prohibit processing electronic banking transactions for outbound telemarketers.

In addition, the complaint claims the processor drafted, edited, reviewed and approved sales scripts. It also alleges they processed transactions 1) without first obtaining adequate information about the clients and their business practices or 2) when evidence demonstrated that illegal activity was contemplated or ongoing.

The court order, issued Dec. 12, 2006, prohibits the defendants from processing payments for telemarketers and violating the TSR, either directly or indirectly, and from assisting anyone who falsely represents that consumers will receive, or are likely to receive, an unsecured credit card.

In addition, it prohibits the defendants from "assisting anyone who requests and/or receives advance payment for a loan, credit card or extension of credit when the telemarketer has guaranteed or represented a likelihood of success in obtaining such results."

The FTC obtained a temporary restraining order with an asset freeze and appointment of a receiver. Visit www.ftc.gov/opa/2006/12/globalmarketing.htm for further details.

Online obliquity

An Internet-based check-creation and delivery service has agreed to a temporary restraining order to halt its allegedly unfair business practices. In a complaint filed in U.S. District Court, the FTC charged that Qchex, a subsidiary of San Diego, Calif.-based Neovi Data Corp., created and sent checks drawn on any bank account identified by a Qchex customer without verifying that the customer initiating the transaction had authority to write checks drawn on the account being used.

As a result, con artists have allegedly used Qchex's service to draw checks on bank accounts that belong to others, according to the FTC.

The FTC's court filings assert that before September 2005, Qchex offered and sold its online check services without making any effort to verify that someone ordering a check on an account actually had authorization to write the checks.

Allegedly, Qchex would create and deliver checks for a customer even when the customer's name was different from the name on the checking account and different from the name on the credit card account the customer used to pay for the check service.

The FTC charges that Qchex's conduct constitutes unfair practices that violate the FTC Act. It will seek a permanent halt to the company's business practices and an order requiring that those responsible for this malfeasance give up their ill-gotten gains. To find out more, visit www.ftc.gov/opa/2006/10/qchex.htm.

No ISO wants one of its merchants to be shut down by the FTC. It generally creates a chargeback nightmare and sometimes even requires the ISO to retain counsel to protect reserve accounts from being attached as merchant assets.

The FTC will often develop a refund plan for the consumers, including those who may have already received "refunds" by way of chargebacks.

But these three cases are especially chilling because the FTC has charged the processors (which could be the ISO). That puts survival in jeopardy. Today it's more than just getting stuck with chargebacks and card Association fines. The government will - in effect or in actuality - take over your business.

Be sure to always properly underwrite every merchant. And do not try to get away with turning a blind eye to what the merchant is actually doing.

Note: According to the FTC, a "complaint is not a finding or ruling that the defendants actually have violated the law. The case will be decided by a court."

David H. Press is Principal and President of Integrity Bankcard Consultants Inc. Call him at 630-637-4010, e-mail dhpress@ibc411.com or visit www.ibc411.com .