When teamwork helps the scheme work

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Remember the scene in the movie “Bull Durham” where veteran Crash Davis is prepping rookie Nuke LaLoosh for a TV interview and schools him on clichés about teamwork? “I’m just happy to be here. Hope I can help.” They don’t just apply to baseball. Most enterprises rely on help from others on the team. Unfortunately for consumers, that includes questionable outfits that need another company’s help to accept credit cards. A proposed settlement with Capital Payments LLC, a payment processor now known as Bluefin Payment Systems, illustrates the risks of ignoring signs the company you’re helping may be engaged in deceptive practices.

The story starts with an operation called The Tax Club. According to the FTC, The Tax Club’s telemarketers pitched bogus business services to would-be entrepreneurs. Once they had consumers on the hook, they called again and again, selling more pricey services.

What role did Capital Payments play? To do business, companies need to be able to process credit cards. Many turn to entities like Capital Payments, an Independent Sales Organization – often called an “ISO” – for access to merchant accounts. But according to the FTC, Capital Payments ignored red flags that The Tax Club was up to no good. The complaint cites just some of the warnings that a prudent business should have heeded: a high rate of chargebacks, chargeback requests from consumers stating that the charges were fraudulent or unauthorized, and alerts from financial institutions. Capital Payments ultimately ended its relationship with The Tax Club, but only after the FTC, Florida, and New York sued The Tax Club, a law enforcement effort that returned millions of dollars to consumers.

The FTC’s lawsuit against Capital Payments alleges that it assisted and facilitated The Tax Club’s deceptive telemarketing, in violation of the Telemarketing Sales Rule. In addition to a $2.6 million judgment, which will be partially suspended based on Bluefin’s financial condition, the proposed settlement bans the company from processing payments or acting as an ISO for anyone promoting a money-making opportunity or any entity on the industry’s Member Alert to Control High-Risk Merchants (MATCH) list for excessive chargebacks, fraud, credit card laundering, ID theft, or related reasons. It also prohibits Bluefin from assisting or facilitating any merchant it knows – or should know – is violating the FTC Act or the TSR.

The settlement puts another key provision in place designed to prevent a recurrence. In the future, Bluefin will have to screen prospective clients that fit certain criteria, monitor their activities for signs of deception, and cut them off if they engage in misleading conduct. Part III of the stipulated order explains in detail what “reasonable screening” looks like in that context. It’s definitely worth a read.

This is the latest FTC case to allege that defendants facilitated law violations by ignoring alarm bells about affiliates’ conduct. It also illustrates that Crash Davis’ teamwork cliché – “I’m just happy to be here. Hope I can help” – is unwise advice under Section 5 of the FTC Act and the Telemarketing Sales Rule.

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