The Federal Trade Commission and the Ohio attorney general recently initiated legal action against a payment processor arising from alleged activities that enabled its customers to defraud consumers.

According to the FTC, the defendants generated and processed remotely created payment orders (“RCPOs”) or checks that allowed unscrupulous merchants, including deceptive telemarketing schemes, to withdraw money from their victims’ bank accounts. 

The FTC’s Telemarketing Sales Rules specifically prohibits the use of RCPOs in connection with telemarketing sales.  RCPOs are created by the processor and result in debits to consumers’ bank accounts without a signature.

“To execute their payment processing scheme, Defendants open business checking accounts under various assumed names with banks and credit unions, the majority of which are local institutions,” according to the complaint.  Within the last five years, the defendants opened at least 60 business checking accounts at 25 different financial institutions, mainly in Texas and Wisconsin, to enable their activity, the regulators said. “Defendants often misrepresent to the financial institution the type of business for which they open the account, and routinely fail to disclose the real reason for which they open the account—processing consumer payments for third-party merchants via RCPOs.  Red flags about Defendants' practices have led at least 15 financial institutions to close accounts opened by Defendants.  When that happens, Defendants typically open new accounts with different financial institutions.  ”

According to the Ohio AG and FTC lawyers, the defendants specifically market their RCPO payment processing service to high risk merchants.  The complaint also alleges that the defendants are aware that some of their largest merchant- clients sell their products or services through telemarketing.

The FTC and Ohio AG also allege that the defendants violated the TSR by charging consumers advance fees before providing any debt relief service, failing to identify timely and clearly the seller of the purported service in telemarketing calls, and failing to pay to access the FTC’s National Do Not Call Registry.

The Ohio AG previously had previously filed suit against the defendants for similar violations.

According to the FTC CID attorneys, the telemarketing operations that defendants supported included, among others, student debt relief schemes, and a credit interest reduction scheme.  The FTC and Ohio allege that using RCPOs, the defendants have withdrawn more than $13 million from accounts of victims of these telemarketing operations since January 2016.

“The FTC will continue to pursue such schemes aggressively, and hold accountable payment processors that are complicit in the illegal conduct,” FTC lawyer Andrew Smith said in a statement about the case.

The complaint alleges violations of the FTC Act and Ohio state law, and seeks injunctive relief plus disgorgement of alleged ill-gotten gains.

At the same time, the FTC and state of Ohio filed another enforcement action against one of the processor’s biggest clients based in Canada and the Dominican Republic.

Federal and state regulators have evidenced a willingness to both go after merchants that engage in unfair and deceptive practices that are injurious to consumers, as well as the payment processors that enable merchants to engage in such conduct.