On November 2, the FTC filed a complaint in the U.S. District Court for the Western District of Washington against a payment processor, an equipment-leasing affiliate, and their owners. The complaint alleges violations of the FTC Act, the Gramm Leach Bliley Act, and Washington’s Consumer Protection Act based on the marketing and sale of payment-processing services and equipment leases.
The complaint alleges that the businesses:
- Made misleading claims about processing costs and savings. Advertising materials allegedly promised savings for their customers, including average savings of $2,000 per year, and quoted rates such as 0% for debit transactions.The agencies allege that the quotes omitted potential fees and that customers often paid more than they had with their previous processors.
- Misrepresented equipment costs and terms. The complaint alleges that sales agents advertised payment terminals as free or at no cost, without clearly explaining that the equipment was subject to a separate, four year non-cancelable lease. The lease allegedly could continue month to month unless customers returned the equipment or exercised a purchase option.
- Obtained bank-account information before clearly disclosing key terms. The agencies allege that customers provided bank account information before receiving the lengthy electronic agreement.The agreement allegedly did not clearly disclose the processing agreement’s three-year term, its $695 early termination fee, or automatic renewal terms.
- Misrepresented cancellation rights and sales-agent earnings. Despite claims that customers could cancel without penalty, the complaint alleges that customers encountered repeated delays and deflection while continuing to be billed.It also alleges that the businesses made false or unsubstantiated claims about sales agents’ likely earnings.
The proposed stipulated order would require a $32.1 million judgment, with $600,000 directed to a merchant redress fund and the balance suspended subject to conditions. It would also require notice giving merchants 60 days to rescind processing agreements without an early termination fee or other penalty, and would impose restrictions on misrepresentations, negative-option disclosures and consent, and cancellation methods. The defendants neither admit nor deny the complaint’s allegations. The order remains subject to court approval.
Putting It Into Practice: As the CFPB has reduced the scope of its activities under the current administration, the FTC remains active in its supervisory and enforcement activities (previously discussed here, here, and here). Payment processors should review their sales claims, fee and equipment disclosures, and cancellation procedures, and monitor the FTC’s enforcement activity for developments relevant to their practices.
*Amanda Yap is a law clerk in the firm's Orange County office.