The Federal Trade Commission today took action against payment processing company First American Payment Systems and two of its sales affiliates for trapping small businesses with hidden terms, surprise exit fees, and zombie expenses. The FTC claims that the defendants made false claims about fees and cost savings to attract merchants, many of whom had limited English proficiency. Once the merchants were enrolled, the defendants withdrew funds from their accounts without their consent and made it difficult and costly for them to cancel the service. Under a proposed federal court order, defendants will have to return $ 4.9 million to damaged businesses, stop their deception, and make it easier for merchants to cancel their services.
“The first American lured small businesses with false promises of low cost and an easy exit, and hit them with surprise fees and illegal charges when they tried to go out,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Today’s order returns millions to merchants, bans unauthorized invoices, and makes cancellation easier for customers.”
First American Payment Systems, headquartered in Texas, provides payment processing services across the country, which it markets through its affiliates Eliot Management Group and Think Point Financial. They market their services to small and medium-sized businesses that rely on credit cards, debit cards, and checks as a method of accepting payments from their customers. Payment processors generally act as intermediaries between the companies that accept credit and debit cards and the banks that issue the cards or checks.
The FTC investigation found that First American relied on deceptive proposals from companies to persuade them to use the company’s services, and when companies attempted to cancel, the company often hit them with cancellation fees based on contractual terms that were hidden in small print in their registration system, as well as charge their accounts without authorization.
First American is accused of engaging in a number of harmful practices against merchants:
- Fooling companies about pricing and savings with hidden terms: Defendants have presented companies with promises of small monthly fees, sometimes as low as zero, but the FTC complaint claims these claims were often false. The defendants also said that the companies would save a lot of money over the course of a year by switching to the services of the defendants, but they did not take into account the fact that First American periodically raises prices for existing customers.
- Imposing surprise fees when small businesses try to cancel: The complaint alleges that the vendors of the defendants regularly promise companies that they will be able to cancel services at any time or within a probationary period without any compensation, when the company’s standard written agreement requires companies to sign a deadline. three years with a $ 495 cancellation fee. In many cases, business owners have limited knowledge of English, and although sales are conducted in their native language, documents are only available in English.
- Using an online registration system that obscures key contractual terms: The defendants’ online enrollment system for new customers hid a three-year obligation, cancellation requirements and fees, the fact that agreements would automatically renew, and other important information from business owners, the claim argues. These important facts were often contained in dense documents that required business owners to click separate links to find them.
- Hitting small businesses with zombie allegations after withdrawing consent accounts: The complaint alleges that First American continued to make withdrawals from companies’ bank accounts even after the companies withdrew consent. For example, the complaint alleges that sometimes when a company takes action to stop payments to the company from its bank, First American will attempt further withdrawals under different business names to evade payment blocking orders.
The defendants in this case have accepted a proposed federal court order that will require them to:
- Stop misleading consumers: The order will prohibit defendants from misleading consumers about important contractual terms such as cancellation fees, while also prohibiting them from making unfounded claims about their products or services, including specific price promises.
- Block unauthorized bank withdrawals: Defendants will be prohibited from making withdrawals from their clients’ bank accounts without authorization, or after the client has stopped any attempt to debit money from their account or communicated to respondents refusing payment.
- Simplify cancellation: Defendants will be required to put in place a cancellation procedure that companies can easily discover and use.
- Stop charging existing customers with early termination rates: For consumers who have signed electronic agreements with First American before April 6, 2020, defendants will be prohibited from levying any early termination fees or telling these customers that they will owe such fees in the event of a cancellation.
- Providing money to reimburse consumers: Defendants will have to deliver over $ 4.9 million to the FTC, which will be used to provide refunds to affected companies.
Today’s action builds on the Commission’s ongoing work to protect small businesses from unfair, deceptive and anti-competitive practices. In the last year the Commission has requested the the largest small business credit reporting agency to clean up his reporting practices, got industry bans against creditors which targeted small businesses with judgmental confessions, forced a new ban on fraud on Made in USA labelingacted a protect fast food franchiseesAnd proposed new protections for companies against telemarketing tricks and traps.
The vote of the Commission which authorized the staff to file the complaint and established the final order was 5-0. The FTC filed the complaint and final order / injunction in the United States District Court for the Eastern District of Texas.
NOTE: The Commission lodges a complaint when it has “reason to believe” that the accused defendants are violating or about to violate the law and it appears to the Commission that a proceeding is in the public interest. Final injunctions / orders entered into have the force of law when approved and signed by the district court judge.