Authentication & Security

Google Money Tree, How it Will Impact Every Payment Startup

FTC To Payment Processor: You Are Liable For The “Google Money Tree”, A $15 Million Dollar Scam.

As more and more startups race to be payment processors, the FTC (US Federal Trade Commission) is racing to hold payment processors 100% liable for the activities of the merchants they process for.   This is a huge responsibility shift that is already having a financial impact on some startups.

This FTC ruling fully aligns far more monitoring of products/services sold, no matter how much money is involved.   The FTC will not hold harmless any party to the transaction and this can impact many business plans of dozens of payment startups and legacy companies.   This part of the official press release of the FTC ruling casts a clear shadow on anyone processing payments:

The complaint against Process America alleges that the defendants knew or should have known that they were processing charges that consumers had not authorized. Evidence that consumers were being charged without their permission included plainly deceptive statements on merchant websites, notices that the merchant should be placed in Visa and MasterCard chargeback monitoring programs, and chronically excessive chargeback rates – the percentage of charges that are challenged by consumers and result in the charges being reversed. From 2008 through 2009, the defendants opened and maintained 131 merchant accounts through which the perpetrators processed more than $15 million in unauthorized charges on consumer debit and credit card accounts.

It is clear that Process America had to have known at least some of the details of the “Google Money Tree.”  But in the past payment processors could assume the position of not knowing that a merchant went rogue or was rogue to begin with.  In 20/20 hindsight it seems clear that at least some executives at Process America were or became rogue.

It Is Important To Fully Understand The Liability Shift

Although some in the payments industry see the FTC ruling little more than a slap on the wrist it is really a major shift in liability that should have a profound impact on the business plans of every company in this industry. There are about 25 things I would advise to be changed at any payments company starting today, tomorrow is too late.

UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA FEDERAL TRADE COMMISSION, Plaintiff, v. PROCESS AMERICA, INC., a Nevada Corporation; CRAIG S. RICKARD, individually and as an officer of Defendant Process America, Inc.; KIM RICKETTS, individually and as an officer of Defendant Process America, Inc.; and KEITH PHILLIPS, individually and as an officer of Defendant Process America, Inc. Defendants.

For Release: 11/18/2013

FTC Settlements Crack Down on Payment Processing Operation that Enabled ‘Google Money Tree’ Scammers to Charge Consumers $15 Million in Hidden Fees

The Federal Trade Commission is continuing its crackdown on payment processing operations that enable scam artists to charge consumer accounts despite signs of ongoing fraud and unauthorized transactions. Today, the Commission announced a proposed settlement resolving allegations that a payment processor, Process America Inc., and its owners, Kim Ricketts, Keith Phillips and Craig Rickard, used unfair tactics to open and maintain scores of merchant accounts for Infusion Media Inc., which perpetrated the “Google Money Tree” work-at-home scheme. Using these merchant accounts, Infusion Media charged more than $15 million in unauthorized charges on consumers’ debit and credit card accounts.

Payment processors and Independent Sales Organizations (ISOs) enable merchants to charge consumers’ credit cards for products and services. In exchange, payment processors and ISOs get paid for each payment transaction the merchant processes.

In June 2009, the FTC charged the Infusion Media defendants with falsely claiming that consumers could earn $100,000 in six months, misrepresenting an affiliation with Google, and tricking consumers into signing up for automatic monthly charges that would continue until the consumer took affirmative steps to cancel.

The complaint against Process America alleges that the defendants knew or should have known that they were processing charges that consumers had not authorized. Evidence that consumers were being charged without their permission included plainly deceptive statements on merchant websites, notices that the merchant should be placed in Visa and MasterCard chargeback monitoring programs, and chronically excessive chargeback rates – the percentage of charges that are challenged by consumers and result in the charges being reversed. From 2008 through 2009, the defendants opened and maintained 131 merchant accounts through which the perpetrators processed more than $15 million in unauthorized charges on consumer debit and credit card accounts.

To keep Infusion Media’s merchant accounts open, the defendants allegedly engaged in tactics that were designed to evade fraud monitoring programs implemented by Visa and MasterCard. These tactics included submitting merchant applications containing false information and “load balancing” – distributing transaction volume among numerous merchant accounts. As a result, Infusion Media’s scam operated for nearly a year, and Process America continued to earn fees from its payment processing activity.

To resolve the allegations in the complaint, the individual defendants have agreed to separate permanent injunctions containing prohibitions and restrictions on their future payment processing activities:

Rickard is banned from payment processing and acting as an ISO. He is prohibited from acting as a sales agent for any client engaged in (a) unfair or deceptive business practices; (b) certain categories of high-risk activities, including negative-option marketing (where the seller interprets consumers’ silence or inaction as permission to charge them), money-making opportunities, credit card or identity theft protection, timeshare resale services, buying clubs, medical discount plans; or (c) conduct that has qualified a client for a chargeback monitoring program.

Rickard is also prohibited from acting as a sales agent for any client without first screening them for unfair or deceptive business practices. The order imposes a judgment of more than $184,000 that will be suspended based on his inability to pay. The full judgment will become due immediately if Rickard is found to have misrepresented his financial condition.

Ricketts and Phillips are prohibited from acting as payment processors, ISOs, or sales agents for any client engaged in (a) unfair or deceptive business practices; or (b) certain categories of high-risk activities certain categories of high-risk clients. They also are barred from acting as a sales agent for any client without screening and monitoring them for unfair or deceptive business practices.

In addition, Process America’s Chief Restructuring Officer has agreed to recommend and seek authority from the United States Bankruptcy Court for the Central District of California to enter into the proposed settlement with the FTC. Under the proposed settlement:

Process America is prohibited from payment processing or acting as an ISO or sales agent for any client engaged in negative-option marketing or unfair or deceptive business practices, and from failing to screen, monitor, and promptly investigate clients for such practices. The orders prohibit all of the defendants from selling or otherwise benefiting from consumers’ personal information, and failing to properly dispose of customer information.

The Commission vote authorizing the staff to file the complaint and approving the proposed consent judgment was 4-0. The proposed settlement with Process America is subject to the United States Bankruptcy Court for the Central District of California’s approval of a Federal Rule of Bankruptcy Procedure 9019 Motion for Compromise. The proposed consent judgments with Process America and the individual defendants are also subject to court approval.

Brian Roemmele

Brian Roemmele, is a mobile payments expert and an avid blogger at Quora. His profile can be found at http://www.quora.com/Brian-Roemmele. Brian is an Apple enthusiast and has deep interests in writing about new technology in payments.

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