11th Circuit Holds Credit Card Payment Processor Jointly and Severally Liable with Perpetrators of Telemarketing Fraud Scheme

The Eleventh Circuit recently ruled that a credit card payment processor that was used to process transactions in a credit card fraud scheme was jointly and severally liable with the fraud’s perpetrators.

In Federal Trade Commission v. WV Universal Management, LLC, a group of individuals started a credit card fraud scheme where they called people and falsely claimed that the call recipient was eligible for a credit card interest rate reduction.  The caller would then get the call recipient’s credit card information, would charge the card, and then kept the money without providing anything in return.  The group used the payment processor to handle the credit card transactions and deposit the resulting funds in the group’s bank account.  When the payment processor was first hired by the group, and over the course of the scheme, the payment processor became aware of many red flags and other evidence of fraud, but continued to process credit card transactions for the group.

The FTC ultimately brought suit against, among others, the group which perpetrated the scheme and the credit card processor for violations of the Federal Trade Commission Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and the Telemarketing Sales Rule.  The trial court found that the payment processor was liable for providing substantial assistance or support for the scheme, and either knew, or consciously avoided knowing, about the fraudulent activity.

The trial court ordered restitution to the victims of the fraud, and found that all of the defendants were jointly and severally liable for the judgment.  Joint and several liability means that the entire amount of the judgment can be collected from any or all of the defendants.  It is most often an issue when only one defendant among a group has the resources to pay; that one defendant with resources can be required to pay the entire amount of the judgment, notwithstanding the fact that the others were also responsible.

The Eleventh Circuit upheld the determination that the credit card payment processor could be held jointly and severally liable for the fraud, since it provided substantial assistance or support for the scheme.  Among other things, the Court noted that no money could have been taken absent the payment processor’s involvement.  The Court found that the ruling was supported by the language of the relevant statutes and regulations, and was consistent with principles of aider-abettor liability in other areas of tort and securities law.

The Court asserted that its ruling was also not unfair since it requires the defendant to know or consciously avoid knowing that it is aiding a fraud, and that the requirement of a culpable mental state would avoid having the rule fall upon innocent third parties.

For a copy of the Opinion, click HERE.