Not All Payment Processing Cases Are Created Equal – The FTC’s Latest Case Provides Helpful Reminders – Advertising, Marketing and Branding


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Most Federal Trade Commission (FTC) enforcement actions involving payment processors have focused exclusively on allegations that processors failed to perform sufficient due diligence before onboarding merchants doubtful. The last payment processing case, however, has a bit of a novel twist and instead focuses on alleged deceptions aimed at merchants who used the defendant processor. Indeed, the case is a bit of a surprise, much like how I felt the other morning when I remembered that Renaissance finally fell. He (the case, not Renaissance) also provides helpful reminders on three areas of interest to the FTC: small businesses, online disclosures, and marketing in various languages.

The complaint alleges that the processor, First American Payment Systems, and its agents violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA), and they settled the case for $4.9 million. dollars, which will be used to provide redress to small businesses harmed by their practices. For those keeping track of how the FTC still recovers for relief, ROSCA allows the FTC to recover both civil penalties and consumer relief through Section 19 of the FTC Act.

As for the allegations, the case focuses heavily on misrepresentations made to small businesses regarding certain key aspects of the merchant services they signed up for. Among the alleged misrepresentations were statements about fees and savings. Indeed, on the savings front, complaint noted that part of what made the savings claims misleading was the fact that the company typically raised prices once or twice a year, but the savings comparisons ignored this important fact. Other alleged wrongdoings included buried information about recurring charges and cancellation fees, unauthorized withdrawals, and, curiously, deliberately misinformed sales representatives. The complaint notes that some business leaders felt that “it is in the interests of sales reps not to understand the deal, employing phrases such as ‘stay hungry, stay stupid'”.

The small business angle to the case is a big part of it, and we’ve heard a lot from the agency lately about how important it is to protecting small businesses, as evidenced by a recent Franchise rule Case. In this case, however, the small businesses that used these merchant services included restaurants, nail salons, and sole proprietorships. Additionally, the complaint pointed out that many small business owners had limited English proficiency. Company sales representatives often provided oral presentations in the owners’ native language, but written agreements were in English without translation. The language disparity is just one of many issues that have caused problems for these defendants and one of many issues to consider in your own practices.

There is one interesting thing to note about FTC press release in this case. The headline says the agency focused on “surprise exit fees and zombie fees.” It reminded me that it had been several months since concerns were raised about the departure of former commissioner Rohit Chopra’s “zombie votes”, but this problem persists, as do the aforementioned undead. Last week, a Freedom of Information Act lawsuit was filed against the FTC and, among other things, it is seeking internal FTC documents regarding the use of zombie voting. If we learn more, we’ll let you know. And with that we come back to Renaissance.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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