On March 10, the FTC hit a settlement with a payment processing company and two senior executives (collectively, the “Defendants”) whereby the company would pay $2.3 million in restitution in connection with their role in allegedly assisting operators of a group of entities to enroll consumers in online discount clubs and debit more than $40 million from consumers’ bank accounts for membership without their authorization. As previously covered by InfoBytes, the 2017 FTC complaint claimed that online discount clubs purport to provide services to consumers in need of payday loans, cash advances, or installment loans, but instead enroll consumers in a coupon service. which charged upfront fees ranging from $49.89 to $99.49, as well as recurring monthly fees of up to $19.95. However, the FTC’s complaint stated that “99.5% of consumers illegally billed for ‘discount clubs’ have never had access to coupons, and tens of thousands have called the defendants in an attempt to waive the charges, while thousands more have disputed the charges directly with their banks.The FTC accused the defendants of providing “substantial assistance or support” in payment processing services while “knowing or consciously avoiding knowledge” that the supported actions were in violation of the Telemarketing Sales Rule (TSR). The FTC further detailed how the defendants ignored several clues of fraudulent activity, including the consistently high return rates generated by discount club transactions and the fact that a primary customer of their services had previously been the subject of FTC enforcement actions for engaging in similar behavior.
Under the terms of the regulation, which is pending court approval, defendants are prohibited from, among other things, (i) processing remotely created payment orders; (ii) process payments on behalf of customers whose business involves outbound telemarketing, discount clubs, or offerings to assist consumers with payday loans; (iii) process payments on behalf of any customer that Defendants know or ought to know engages in deceptive or unfair acts or practices or violates the TSR; and (iv) process payments for any existing or potential customers without first performing reasonable verification to ensure that customers are not violating federal law.