Halting an alleged telemarketing scheme, the Federal Trade Commission settled charges that payment processor Capital Payments LLC enabled a scammer to process consumer card payments in violation of the Federal Trade Commission Act and the Telemarketing Sales Rule.
The defendants turned a blind eye to the actions of The Tax Club, an entity that the FTC said was engaged in a telemarketing scam that tricked consumers into launching a home-based business. The Independent Sales Organization (ISO) allowed The Tax Club to use merchant accounts to process credit card payments, despite multiple red flags, including a high rate of chargebacks, alerts from financial institutions, and chargeback requests from consumers stating that the charges were unauthorized or fraudulent.
Only when the FTC (joined by state Attorneys General in Florida and New York) filed suit against The Tax Club in 2013 did Capital terminate its relationship with the company.
For assisting and facilitating the scam, Capital—now known as Bluefin Payment Systems LLC—violated the Telemarketing Sales Rule and engaged in unfair and deceptive conduct in violation of the FTC Act, according to the agency's complaint.
To settle the charges, Capital agreed to cease operating as a payment processor or as an ISO for multiple categories of clients, or from assisting or facilitating any merchant it knows, or should know, is violating the TSR or FTC Act.
Going forward, Capital must screen its prospective clients and monitor their sales activity for potential deceptive conduct and terminate contracts with those who defy the law. A $2.6 million judgment was partially suspended upon payment of $750,000.
To read the complaint and stipulated order in FTC v. Capital Payments LLC, click here.
Why it matters: The stipulated order against Capital set forth very detailed requirements for the company as to what constitutes "reasonable screening" of potential clients. It must gather information, such as the name of all persons with a majority ownership interest in the entity and a list of all business and trade names and Internet websites the prospective client has marketed its goods and services to for the past two years. It must also obtain bank references. Once a client has been accepted, the work doesn't end for Capital, which must monitor existing clients by regularly reviewing their chargeback rates and total return rates and by reviewing the reasons provided for the rates. If the review reveals that the chargebacks and non-credit card return rates exceed a certain percentage of transactions, it must terminate the relationship.