Last Tuesday, a federal court in Orlando issued its final order in a years-long legal battle between the Federal Trade Commission (the “FTC” or “Commission”), a number of telemarketers and their payment processor. The ruling follows an order late last year that granted the Commission’s motion for summary judgment against all remaining participants in the allegedly deceptive robocall credit card interest rate reduction venture.

Which of the defendants’ alleged marketing, debt relief and payment processor activities caught the FTC’s attention?

Debt Relief and Telemarketing Practices

According to the Commission, the defendants marketed their credit card interest rate reduction services to consumers throughout the country through use of prerecorded telemarketing calls. The FTC alleged that the subject defendants often claimed that their interest rate reduction services would provide savings of $2,500 or more and enable consumers to pay off their debt three to five times faster. During or immediately following these calls, the defendants purportedly charged consumers a fee of up to $1,500 for debt relief services.

Originally filed in October 2012, the Commission’s lawsuit accused the defendants of conducting unfair and deceptive business practices in violation of the FTC Act by:

  • Misrepresenting that consumers would save money, lower their credit card interest rates and pay off their debts faster by purchasing their debt relief services;
  • Misrepresenting that consumers would not be charged fees until after services had been performed; and
  • Submitting billing information for payment without consumers’ express informed consent.

Additionally, the FTC alleged that the marketing defendants violated the Telemarketing Sales Rule (“TSR”) by:

  • Making telemarketing calls that delivered a prerecorded message without each consumer’s express informed consent;
  • Making outbound calls to telephone numbers on the National Do-Not-Call registry;
  • Failing to pay fees associated with access to the National Do-Not-Call registry;
  • Failing to honor consumers’ do-not-call requests; and
  • Failing to disclose the identity of the seller, the marketing purpose of the call and/or the nature of the services offered.

Payment Processor Services

The FTC expanded its lawsuit in June 2013 to include eight new defendants, including a payment processor that the Commission states assisted in the alleged fraud. Payment processors, such as the defendant Universal Processing Services of Wisconsin, LLC d/b/a Newtek Merchant Solutions (“Newtek”), are entities that process credit or debit card transactions between merchants and consumers.

According to the FTC, Newtek and its president Derek Depuydt committed separate violations of the TSR by assisting and facilitating the other defendants’ purportedly unlawful telemarketing activities.

Defendants Agree to $1.7 Million Judgment and Long-Term Bans

Although most of the defendants had already agreed to enter into settlement, the Florida federal court granted an FTC motion for summary judgment against Newtek and the remaining two telemarketing defendants Hal E. Smith and HES Merchant Services Company, Inc. (“HES”) in November 2014.

With last Tuesday’s final order, all three remaining defendants are jointly and severally liable for the $1.7 million judgment. Additionally, Smith and HES received 20-year bans on robocalling and marketing debt relief products or services, while Newtek is permanently prohibited from processing payments for a wide range of clients.

Telemarketers and Payment Processors Take Heed

As this matter demonstrates, significant regulatory action awaits non-compliant telemarketers – and the parties who work closely with them. These businesses should familiarize themselves with applicable regulations and maintain a strict regimen of compliance standards