The failure of Independent Resources Network Corp., a payment processor, to investigate “alarmingly high” chargeback rates led to a complaint filed by the Federal Trade Commission and allegations that it “assist[ed] and facilitat[ed]” telemarketing credit card fraud in violation of the Telemarketing Sales Rule.
According to the agency, Independent Resources Network Corp. knew or consciously avoided knowing that it was providing a helping hand to a scam operated by Innovative Wealth Builders, Inc.
The average chargeback rate in the United States is well below one percent, according to the FTC, but IWB’s chargeback rate averaged above 20 percent for several years – and even exceeded 40 percent on multiple months.
“Despite knowing, or consciously avoiding knowing, the illegal nature of the IWB business, Independent processed millions of dollars of credit card transactions for IWB, thereby earning considerable fees for itself while allowing IWB to harm thousands of consumers who purchased the IWB bogus credit card interest rate reduction services,” the FTC alleged. The charges against Independent were filed as an amended complaint by the agency, which originally filed suit against IWB in January 2013.
The underlying telemarketing scheme involved cold calls made by IWB offering to reduce the interest rates on consumers’ credit cards and pay off their debts more quickly, all for a “one-time lifetime fee” ranging from $500 to $2,000. IWB did not make good on its promises, the FTC said.
In addition to the eyebrow-raising chargeback rates, the agency said Independent was aware that IWB had an “F” rating with the Better Business Bureau of West Florida when it began processing the company’s payments. According to the complaint, Independent received thousands of copies of chargeback disputes from consumers, stating that “IWB had not reduced their credit interest rates, saved them money on their credit card debts, or helped them pay off their debts faster,” and made unauthorized charges to their credit cards, according to the complaint.
Independent also received multiple fraud alerts from Discover card regarding the company, was alerted to the fact that MasterCard placed IWB in the highest fraud category, and was made aware of an investigation by the Florida Attorney General’s Office into IWB’s practices.
To read the FTC’s complaint against Independent, click here.
Why it matters: The FTC’s complaint provides a warning that the agency will take action against companies it believes assist and facilitate alleged wrongdoing. In this suit, the “alarmingly high” chargeback rate should have tipped off the defendant that its client was engaged in illegal activity, the agency argued. Payment processors or others along the chain of commerce should be careful to watch for signs of potential scams. As the agency noted in a press release, the suit is part of an “ongoing crackdown” on those “that turn a blind eye to fraud.”