The Federal Trade Commission today took action against payment processor First American Payment Systems and two of its trading affiliates for tricking small businesses with hidden terms, surprise exit fees and zombie fees. The FTC alleges that the defendants misrepresented fees and cost savings to lure merchants, many of whom had limited English proficiency. Once the merchants signed up, 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, the defendants will be ordered to return $4.9 million to the injured companies, end their deception and facilitate merchants’ cancellation of their services.
“First American lured small businesses with false promises of low costs and easy exit, and hit them with surprise fees and illegal charges when they tried to exit,” said Samuel Levine, Director of the FTC’s Consumer Protection Bureau. “Today’s order brings merchants millions, prohibits unauthorized billings and makes it easier for customers to cancel.”
Texas-based First American Payment Systems provides nationwide payment processing services, which it markets through its subsidiaries Eliot Management Group and Think Point Financial. They market their services to small and medium businesses that use credit cards, debit cards, and checks to accept payments from their customers. Payment processors generally act as an intermediary 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 arguments to companies to convince 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 fine print in their registration system, as well as debiting their accounts without authorization.
First American is accused of engaging in a number of harmful practices against merchants:
- Misleading companies about prices and savings with hidden terms: Defendants presented companies with promises of small monthly fees, sometimes as low as zero, but the FTC complaint alleges that these claims were often false. Defendants also claimed that businesses would save a lot of money over the course of a year by switching to Defendants’ services, but failed to take into account that First American periodically raises its prices for existing customers.
- Impose surprise fees when small businesses try to cancel: Complaint alleges defendants’ vendors routinely promise businesses that they can cancel services at any time or for a trial period at no charge, despite the company’s standard written agreement requiring businesses to sign a warrant. three years with a cancellation of $495. costs. In many cases, business owners have limited English proficiency and although sales are conducted in their native language, documents are only available in English.
- Use of an online registration system that hides the main contractual conditions: Defendants’ online registration 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, according to the complaint. These important facts were often found in dense documents that required business owners to click on separate links to find them.
- Hit small businesses with zombie charges after withdrawing consent accounts: The complaint alleges that First American continued to make withdrawals from the companies’ bank accounts even after the companies withdrew their consent. For example, the complaint alleges that at times when a business acts to stop payments to the business from its bank, First American will attempt further withdrawals under different business names to evade stop payment orders.
The defendants in this case have agreed to a proposed federal court order that will require them to:
- Stop misleading consumers: The order will prohibit defendants from misleading consumers about material contract terms such as cancellation fees, while also prohibiting them from making unsubstantiated claims about their products or services, including specific price promises.
- Stop unauthorized bank withdrawals: Defendants will be prohibited from making withdrawals from any of their clients’ bank accounts without authorization, or after the client ceases all attempts to debit money from their account or communicates to defendants that they refuse payment. .
- Make Cancellation Easier: Defendants will be required to put in place a cancellation procedure that companies can easily discover and use.
- Stop charging early termination fees to existing customers: For consumers who signed electronic agreements with First American before April 6, 2020, defendants will be prohibited from collecting early cancellation fees or telling those customers that they will owe these fees if they cancel.
- Provide money to reimburse consumers: Defendants will be required to return $4.9 million to the FTC, which will be used to reimburse the affected companies.
Today’s action builds on the Commission’s ongoing work to protect small businesses from unfair, misleading and anti-competitive practices. Over the past year, the Commission has asked the largest small business credit bureau improve its reporting practices, obtained industry bans on lenders which targeted small businesses with admissions of judgment, forced a new Prohibition of Made in USA labeling fraudhas taken steps to protect fast food franchiseesand proposals for new protections for businesses against the tricks and pitfalls of telemarketing.
The Commission’s vote allowing the staff to file the complaint and stipulating the final order was 5-0. FTC Files Complaint and Final Order/Injunction in the U.S. District Court for the Eastern District of Texas.
REMARK: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court Judge.