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FTC Charges Money Processors Supported Online, Telemarketing Fraud

The federal agency and seven states have filed a complaint that consumers' bank accounts were unfairly debited for fraudulent sellers.
The Federal Trade Commission has joined seven states to charge debit card payment processors with violating federal and state laws for allegedly debiting consumers' accounts for fraudulent telemarketer and Internet sales.

The FTC filed the complaint in the U.S. District Court for the Eastern District of Pennsylvania. It charges processors with violating Section 5 of the FTC Act by unfairly processing debit transactions to consumers' bank accounts. It also says they violated the Telemarketing Sales Rule by "providing substantial assistance or support to sellers or telemarketers who they knew, or consciously avoided knowing" their clients violated the rule.

State attorneys general from Illinois, Iowa, Nevada, North Carolina, North Dakota, Ohio, and Vermont have also accused the money processors of attempting to take more than $200 million from consumers' bank accounts for schemes that tricked consumers into giving their account information. Those states claim the processors violated their consumer fraud, deceptive trade, unfair and deceptive trade practices, and consumer sales practices laws.

Investigators said the scheme ran from June 23, 2004 through March 31, 2006. They claim that consumers and their banks refused more than $69 million worth of debits for reasons that included lack of account holders' authorization.

"In many instances, after the defendants debited accounts, the merchants failed to deliver the promised products or services, or sent consumers relatively worthless items," the FTC explained in a prepared statement. "The complaint alleges that by providing access to the banking system and the means to extract money from consumers' bank accounts, the defendants played a critical role in their clients' fraudulent and deceptive schemes."

The FTC states that the processors "accepted clients whose applications contained signs of deceptive activity, including sales scripts with statements that were facially false or highly likely to be false." It also said that the merchants had return rates beginning at 20% and exceeding 80%, which should have been a red flag. The complaint states that the processors closely monitored clients' return rates.

"Payment processors play a key role in many commercial transactions, and they are positioned to monitor return rates on these transactions," Lydia Parnes, director of the FTC's Bureau of Consumer Protection, said in a statement. "The defendants purportedly saw extremely high return rates and looked the other way. We allege that consumers lost millions of dollars as a result, and that the company's conduct violated federal and state laws."

The complaint seeks to prevent more violations, provide consumer redress, return money obtained through deception, and impose civil penalties allowed by the states.

The defendants are: Your Money Access (doing business as Netchex), Universal Payment Solutions, Check Recovery Systems, NterGlobal Payment Solutions, Subscription Services, YMA Company, Derrelle Janey, and Tarzenea Dixon.

Your Money Access' Web site posted a message Wednesday saying it was down for construction. A number listed for Your Money Access, Check Recovery Systems, Universal Payment Solutions, and Clear Checks had been disconnected. A separate number for NterGlobal Payment Solutions had also been disconnected.

Calls to Universal Payment Solutions were answered with a recording for "merchant services." A sales representative who answered the phone said he was not affiliated with any of the companies.

An operator who answered at Check Recovery Systems' Texas office referred a call to Chad Snowbarger's voice mail. The call was not returned.

Netchex, Subscription Services, YMA Company, Derrelle Janey, and Tarzenea Dixon, could not be reached.