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Financial Services Law Insights and Observations

FTC announces $40 million settlement with payment processor in credit card laundering case

Federal Issues FTC Enforcement Credit Cards Anti-Money Laundering Payment Processors

Federal Issues

On May 19, the FTC filed a complaint against a large payment processing company and its former executive for allegedly participating in deceptive or unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by processing payments and laundering, or assisting in the laundering of, credit card transactions targeting hundreds of thousands of consumers. The FTC’s complaint alleges, among other things, that the payment processing company received and ignored repeated “warnings and direct evidence” dating back to 2012 showing that the former executive was using his company to open hundreds of fake merchant accounts and shell companies, and allowed him to continue to open merchant accounts until 2014. According to the FTC, the “schemes included, but were not limited to, a debt relief scam that used deceptive telemarketing, business opportunity scams that used deceptive websites, and a criminal enterprise that used stolen credit card data to bill consumers without their consent” in which the both defendants received fees for processing the scheme’s payments. The FTC also claims that the payment processing company violated its own anti-fraud policies by failing to adequately underwrite, monitor, or review its sales agents and their risk management processes, and failed to timely terminate the merchant accounts involved in the scheme.

The payment processing company’s proposed settlement imposes a $40 million monetary judgment and prohibits the company from assisting or facilitating TSR and FTC Act violations related to payment processing. Additionally, the company will be required to (i) screen and monitor prospective restricted clients; (ii) establish and implement a written oversight program to monitor its wholesale independent sales organizations (ISO); and (iii) hire an independent assessor to monitor the company’s compliance with the settlement’s ISO oversight program.

The former executive’s proposed settlement imposes a $270,373.70 monetary judgment, and bans him from payment processing or acting as an ISO for certain categories of high-risk merchants. He is also prohibited from credit card laundering activities, making or assisting others in making false or misleading statements, and assisting or facilitating violations of the FTC Act or TSR.

Neither defendant admitted or denied the allegations, except as specifically stated within the proposed settlements.

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