Court Issues Injunction and $40.3 Million Judgment Against Payment Processor for Actions Taken by Its Clients

The U.S. District Court for the Southern District of New York recently entered two stipulated orders for permanent injunctions and monetary judgments against an Atlanta-based payment processor and against the payment processor’s former executive.  The Orders stem from FTC allegations that the defendants processed or arranged to process charges to consumers’ credit and debit cards for the payment processor’s clients, whom the FTC alleged the payment processor knew or should have known were engaging in deceptive and unfair acts or practices in violation of Section 5 of the FTC Act (15 U.S.C. §45), the Telemarketing Act (15 U.S.C. §§6101-6108), and the Telemarketing Sales Rule (16 C.F.R. Part 310).  The defendants neither admit or deny the allegations, but agreed to a $40,000,000 judgment against the company, and $270,373.70 judgment against the former executive.

The Order against the payment processor requires, among other provisions, the payment processor to:

• establish and implement a written oversight program for Wholesale ISOs (Independent Sales Organizations);
• obtain initial and annual independent assessments of the Wholesale ISO program;
• provide annual certifications to the Commission;
• submit compliance reports to the Commission;
• create and maintain certain records; and
• submit additional information, at the Commission’s request, to ensure compliance with the Order.

The Order against the former executive requires, among other provisions, the former executive to:

• agree to a ban on payment processing or acting as an ISO or sales agent for certain merchant categories;
• create and maintain certain records for any business the former executive is a majority owner or controls; and
• submit additional information, at the Commission’s request, to ensure compliance with the Order.

Additionally, the defendants and any party in active participation with the defendants who receive actual notice of the Order, are subject to:

• prohibitions related to merchant accounts, including restrictions from working with Home-Based Internet Business Programs, debt consolidation or reduction services, or nutraceuticals with a Negative Option Feature;
• restrictions from providing assistance in connection with payment processing;
• requirements to screen prospective restricted or high risk clients; and
• requirements to monitor restricted or high risk clients.

See the FTC’s Complaint for Permanent Injunction and Other Equitable Relief for more information on the underlying allegations.