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Financial Services Law Insights and Observations

FTC, Florida AG sue “chargeback mitigation” company

Federal Issues State Issues FTC Enforcement Consumer Finance Florida Credit Cards Courts FTC Act

Federal Issues

On April 12, the FTC and the Florida attorney general filed a complaint in the U.S. District Court for the Middle District of Florida alleging a “chargeback mitigation” company and its owners (collectively, “defendants”) used numerous unfair tactics to thwart consumers trying to dispute credit card charges through the chargeback process. The chargeback process allows consumers to contest unwanted, fraudulent, or incorrect credit card charges with their credit card companies. According to the complaint, the defendants regularly sent screenshots and statements on behalf of company clients to credit card companies allegedly showing that consumers had agreed to the disputed charges. However, the FTC claimed that in many instances, the misleading screenshots did not come from the merchant’s website where the consumer made the disputed purchase. The complaint further alleged that the defendants used a system that allowed company clients to run numerous small-value transactions via prepaid debit cards in order to raise the number of transactions, thus lowering the percentage of charges that were disputed by consumers. The service, the FTC maintained, “enabled fraudulent merchants to evade or delay chargeback monitoring programs, fines, and account terminations designed to protect consumers from fraud.”

The FTC noted that three of the defendants’ major clients (for which the defendants disputed tens of thousands of chargebacks on behalf of each of the companies) were previously sued by the FTC for engaging in deceptive negative-option marketing practices. The complaint accused the defendants of ignoring clear warning signs that the screenshots were misleading, including instances where the name of the product referenced in the screenshot did not match the product in the disputed purchase. The defendants also allegedly often overlooked company clients that opened and used a large number of different merchant accounts to process charges. Asserting violations of the FTC Act and the Florida Unfair and Deceptive Trade Practices Act, the complaint seeks permanent injunctive relief, restitution, and civil penalties.