Heads Up, Payment Processors


Here’s a fun fact I’ll bet you didn’t know: Contrary to popular belief, ostriches don’t bury their heads in the sand. And here’s a disturbing observation borne out by Federal Trade Commission (FTC) experience: Some companies that grease the wheels for fraudsters do. Others go a step further and help cover up affiliates’ wrongdoing. Either course of conduct could land them in legal hot water. That’s just one message businesses can take from the FTC’s recent settlement with Process America, Inc.


Many companies use payment processors or independent sales organizations (ISOs) to open the accounts necessary to accept credit cards. Payment processors give companies access to their systems and then make money from each transaction. Or at least that’s the 25-words-or-less summary of how things typically work. But what happens when the facts suggest that the company selling stuff to consumers isn’t on the up-and-up?


The complaint alleges that Process America knew or should have known it was processing charges that consumers hadn’t authorized.


Process America, a Nevada corporation with operations in California, opened and maintained 131 merchant accounts for an outfit called Infusion Media, the company behind the “Google Money Tree” scheme. The FTC says Infusion Media made bogus promises about its work-at-home program and falsely claimed an affiliation with Google. In addition, the lawsuit alleged that the company induced consumers to turn over their credit cards and/or bank account information under the pretext of covering shipping costs for a supposedly “free” offer. What was really going on? Consumers were billed monthly fees without their express consent, racking up more than $15 million in unauthorized charges.


According to the FTC, Infusion Media did this with the help of Process America. The complaint alleges that Process America knew or should have known it was processing charges that consumers hadn’t authorized. Some of the evidence that should have led Process America to wake up and smell the coffee included plainly deceptive statements on merchant websites, notices that the merchant should be placed in Visa and MasterCard chargeback monitoring programs, and consistently high chargeback rates.


But that’s not all. The FTC says that Process America went out of its way to keep Infusion Media’s merchant accounts open by taking steps to evade credit card companies’ fraud monitoring programs. For example, the lawsuit alleges that Process America submitted merchant applications with false information and engaged in “load balancing”—distributing transaction volume among different merchant accounts in an effort to hide suspiciously high chargebacks. As a result, Infusion Media’s scam operated for nearly a year, and Process America continued to take its cut.


To settle the lawsuit, Process America signed a court-enforceable order that will change the way it does business. The company is prohibited from payment processing or acting as an ISO or sales agent for any client engaged in negative-option marketing or unfair or deceptive business practices. The order includes an affirmative obligation for Process America to screen, monitor, and promptly investigate its clients for questionable practices.


What about the decision-makers at Process America? One corporate officer is banned for life from payment processing or acting as an ISO. Two others are prohibited from serving as payment processors, ISOs, or sales agents for any client engaged in a broad range of activities, including certain high-risk categories.


What points should savvy electronic retailers take from the settlement? First, Section 5 of the FTC Act covers illegal activities by fraudsters and the various affiliates and partners in cahoots with them. Second, unfair or deceptive practices in the payment processing industry remain a law enforcement priority for the FTC.



Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection.