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We’ll lay our cards on the table: Protecting small businesses from deceptive and unfair practices is a key priority for the FTC. That includes taking action when payment processing companies that offer small business owners access to the credit and debit card system allegedly use illegal tactics to pitch their services. According to the FTC, Texas-based First American Payment Systems made misleading statements about fees and cost savings, used hidden auto-renewal provisions, failed to honor promises about easy cancellation, and made unauthorized withdrawals from customers’ bank accounts. A settlement will return $4.9 million to small businesses injured by their practices.

Access to the credit card system is the lifeblood of most companies and many smaller businesses turn to payment processors to serve as the intermediary with the banks that issue the cards. First American Payment Systems markets its services to small and medium-sized businesses across the country through subsidiary Eliot Management Group, affiliate Think Point Financial, and other sales agents.

The complaint alleges that the defendants’ salespeople used deceptive tactics to pitch their services to small businesses, some of which are sole proprietorships like restaurants and nail salons. You’ll want to read the complaint for details, but the gist of the allegations is that the defendants lured in businesses with misleading promises of substantial savings, low monthly fees, or sometimes no fees at all. Furthermore, the FTC says the defendants assuaged business owners’ concerns by telling them they could cancel any time without penalty, that they could cancel without penalty during an introductory period, or that they were agreeing just to a short-term contract.

That’s what the defendants’ sales agents allegedly told small businesses, but the FTC says the truth was a lot more expensive. In fact, the company’s written agreement contradicted a number of the defendants’ major selling points. For example, despite the claim that businesses could cancel without a penalty, the paperwork locked them into a three-year term with a $495 cancellation fee and imposed an automatic renewal provision. The FTC also says the defendants played hardball with businesses’ bank accounts, continuing to hit them with electronic withdrawals even after the businesses had told them they didn’t owe or wouldn’t pay the charges. According to the complaint, when businesses contacted their banks to stop unauthorized payments, the defendants evaded those orders by making withdrawals under different corporate names.

The FTC says the injury to small businesses was compounded by the defendants’ sales practices. For example, the complaint alleges that the defendants discouraged their sales representatives from understanding their own agreements, using the memorable phrase “stay hungry, stay stupid.” In addition, the defendants’ online enrollment process hid key terms in dense blocks of text or behind obscure hyperlinks. Furthermore, many of the small business owners the defendants pitched had limited English proficiency. Although the defendants’ oral sales presentations were often in the business owner’s native language, written agreements were in English with no accompanying translation.

The complaint charges the defendants with making multiple misrepresentations and with unfairly withdrawing money from customers’ bank accounts without their express authorization, including after the customer had revoked authorization. The complaint also alleges that the defendants’ auto-renewal practices violated the Restore Online Shoppers’ Confidence Act (ROSCA). To settle the case, the defendants have agreed – among other things – to stop making misleading claims, to stop making unauthorized bank withdrawals, to stop assessing early termination fees from customers who signed electronic agreements before April 6, 2020, and to pay $4.9 million in refunds.

What can other companies take from the settlement in this case?

Pay attention to ROSCA. ROSCA protects consumers and businesses from deceptive online auto-renewal practices. The law bans online negative options unless the seller: 1) clearly discloses all material terms of the deal before obtaining a consumer’s billing information; 2) gets the consumer’s express informed consent before making the charge; and 3) provides a simple mechanism for stopping recurring charges. The FTC’s Enforcement Policy Statement Regarding Negative Option Marketing offers specific guidance on how existing laws apply to negative option practices and demonstrates the agency’s commitment to protecting consumers and businesses from illegal auto-renewal practices.

Monitor your sales agents. Payment processing companies have an obligation to monitor what sales agents are doing on their behalf. Train your agents to avoid practices that cross the legal line. Make sure their representations in sales pitches comport with what’s in the agreement. And investigate immediately if consumer complaints raise red flags that sales agents aren’t following your rules.

Don’t conceal cancellation requirements. Business owners have a right to know exactly what their obligations are under their agreements with you, including if they want to cancel. Don’t bury cancellation terms and fees in blocks of legalese and don’t hide them behind vague hyperlinks. Transparency is the best policy.

Don’t prey on consumers or small business owners with limited English proficiency. For many hard-working families, small business ownership is a key to the American dream. When entrepreneurs for whom English is a second language go “all in” on an enterprise that provides products, services, and jobs, they shouldn’t be hoodwinked by fast-talking sales people.

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