Director of FTC’s Bureau of Consumer Protection Testifies about Enforcement Actions Against Payment Processors

The Director of the Federal Trade Commission’s Bureau of Consumer Protection, Andrew Smith, recently testified, on behalf of the FTC, before the U.S. House Committee on Oversight and Government Reform Subcommittee on National Security and Subcommittee on Government Operations. Smith discussed combatting consumer fraud, with a focus on FTC actions against payment processors.

Since 1996, the FTC has brought 25 actions against entities helping “fraudulent merchants obtain payment processing for sales that violate the FTC Act.”  All 25 actions were unanimously approved by the FTC.

Smith explained the focus on payment processors: “Processors control access to the financial system and unscrupulous processors can allow the underlying frauds to inflict harm on thousands of consumers.  Where appropriate, challenging processors is a critical component of the FTC’s efforts to fight fraud and illegal robocalls while halting hundreds of millions of dollars of consumer injury.  Payment processors engaged in illegal conduct harm not only consumers; they harm legitimate industry players and undermine confidence in the financial system.”

Smith’s testimony included an explanation of payment system processes, the FTC’s legal authority for bringing enforcement actions, and examples of cases against payment processors.  While these cases are “a small fraction of the cases filed,” Smith emphasized the “integral” role they play in the FTC’s anti-fraud program.  For example, Smith discussed an action against a payment processor allegedly orchestrating a credit card laundering scheme.  Smith explained that the company “created shell companies, recruited ‘straw men’ to be the officers of the shell companies, and fabricated merchant accounts in the names of these shell companies that [the payment processor] could use to process its transactions . . . then [the payment processor] assisted in spreading the scam’s revenues and chargebacks across at least 26 different merchant accounts, circumventing industry fraud controls and hiding the true identities of the scam’s perpetrators, which allowed the scam to continue for at least two years.”  The case settled, and the settlement included a permanent injunction and a judgment of over $12 million.

Smith concluded by emphasizing the FTC’s commitment to protecting consumers and highlighting that “[t]he overwhelming majority of payment processors abide by the law and provide substantial benefits to the marketplace.”

The FTC testimony is accessible here.