Here’s a fun fact we didn’t know: Contrary to popular belief, ostriches don’t bury their heads in the sand. And here's a disturbing observation borne out by FTC experience: Some companies that grease the wheels for fraudsters do bury their heads in the sand. Others go a step further and help cover up their affiliates’ wrongdoing. Either course of conduct could land them in legal hot water. That’s just one message businesses can take from the FTC’s settlement with Process America, Inc.
Many companies use payment processors or Independent Sales Organizations (ISOs) to open the kind of accounts necessary to accept credit cards. Payment processors give companies access to the system and then make money from each payment transaction. That's the 25-words-or-less summary of how things typically work. But what happens when the facts suggest that the company selling stuff to consumers isn't on the up and up?
Process America — a Nevada corporation with operations in California — opened and maintained 131 merchant accounts for an outfit called Infusion Media, the company behind the “Google Money Tree” scheme. The FTC says Infusion Media made bogus promises about its work-at-home program and falsely claimed an affiliation with Google. In addition, it signed people up for automatic payments on their credit cards, racking up more than $15 million in unauthorized charges.
According to the FTC, Infusion Media achieved that with the help of Process America. The complaint alleges that Process America knew or should have known it was processing charges consumers hadn’t authorized. Just some of the evidence that should have led Process America to wake up and smell the coffee: plainly deceptive statements on merchant websites, notices that the merchant should be placed in Visa and MasterCard chargeback monitoring programs, and consistently high chargeback rates.
But that’s not all. The FTC says Process America went out of its way to keep Infusion Media’s merchant accounts open by taking steps to evade credit card companies’ fraud monitoring programs. For example, the lawsuit alleges that Process America submitted merchant applications with false information and engaged in “load balancing” — distributing transaction volume among different merchant accounts in an effort to hide suspiciously high chargebacks. As a result, Infusion Media’s scam operated for nearly a year and Process America continued to take its cut.
To settle the lawsuit, Process America and its owners have signed orders that will change how they do business. Defendant Craig Rickard is banned for life from payment processing or acting as an ISO. Kim Ricketts and Keith Phillips are prohibited from serving as payment processors, ISOs, or sales agents for any client engaged in a broad range of activities, including certain high-risk categories.
What about Process America? The company is prohibited from payment processing or acting as an ISO or sales agent for any client engaged in negative option marketing or unfair or deceptive business practices. The order includes an affirmative obligation that Process America screen, monitor, and promptly investigate its clients for questionable practices.
What points should savvy businesses take from the settlement? First, Section 5 of the FTC Act covers illegal activities by fraudsters and the various affiliates and partners in cahoots with them. Second, unfair or deceptive practices in the payment processing industry remain an important law enforcement priority. Bookmark the Business Center’s Payments and Billing page to stay up on the latest.