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FTC Takes Action To Stop Payment Processor First American From Trapping Small Businesses With Sudden Exit Fees And Zombie Fees

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The Federal Trade Commission today took action against payment processing company First American Payment Systems and two of its distribution affiliates, accusing them of trapping small businesses with secret terms, unexpected exit fees and zombie charges. I taught. The FTC alleges that defendants lured merchants with false claims about rates and cost savings. Once the merchant was registered, the defendant withdrew funds from the account without consent, making it difficult and costly to cancel service. We need to return $4.9 million to , stop fraud, and make it easier for merchants to cancel services.

“The First Americans lured small businesses with false promises of low cost and easy exit, and then bombarded them with surprise and illegal fees when they tried to exit.”Take a look at Samuel Levine, FTC’s Director of Consumer Protection.“Today’s orders will return millions of dollars to merchants, prohibit fraudulent charges and make it easier for customers to cancel.”

Texas-based First American Payment Systems provides payment processing services nationwide through affiliates Eliot Management Group and Think Point Financial. They market their services to small businesses that rely on credit cards, debit cards, and checks as a way to accept payments from their customers. Payment processors typically act as an intermediary between businesses that accept credit and debit cards and banks that issue cards and checks.

An FTC investigation found that First American made false sales pitches to companies to persuade them to use their services. Also, if a company attempted to cancel, the company would often charge a cancellation fee based on terms and conditions hidden in the fine print of the contract. Sign-up system and account debit without approval.

First American has been charged with engaging in a number of harmful practices against merchants.

  • Mislead companies about pricing and savings with hidden terms: Defendants pitched companies with promises of small, sometimes zero, monthly fees, but the FTC complaint alleges that these claims are often false. Defendant also argued that the company could save him a great deal of money over the course of a year by switching to Defendant’s services, but given the fact that First American regularly increased prices for existing customers. I didn’t put it in.
  • Imposing additional charges if a small business attempts to cancel: According to the complaint, the defendant’s sales representatives were required to sign on to a three-year contract with a cancellation fee of $495 under the company’s standard written contract, at any time or during the probationary period. They claim they regularly promise companies that they can cancel their service without charge. cost. Business owners often have limited English proficiency and sales are made in their native language, but documents are only available in English.
  • Using an online registration system that masks key terms and conditions: Defendants’ online registration system for new customers hid three-year obligations, cancellation requirements and fees, the fact that contracts automatically renew, and other important information from business owners, the complaint alleges. I’m here. These key facts were often contained in dense documents that required the business her owner to click another link to find them.
  • Small businesses hit with zombie charges after withdrawing consent accounts: The complaint alleges that First American continued to debit the companies’ bank accounts even after the companies withdrew their consent. For example, if a company attempts to stop payments from a bank to the company, First American will attempt further withdrawals under a different business name to avoid a stop payment order, the complaint alleges.

Enforcement measures

The defendants in this case have agreed to a proposed federal court order requiring:

  • Stop misleading consumers: The order prohibits defendants from misleading consumers about material terms and conditions, such as cancellation fees, as well as from making unsubstantiated claims about products and services, including promises of specific pricing. .
  • Stop fraudulent bank withdrawals. A defendant is prohibited from making withdrawals from a customer’s bank account without authorization, or after the customer has stopped attempts to withdraw money from the account, or after telling the defendant that it will refuse payment.
  • Make canceling easy: Defendants must put in place cancellation procedures that are easy for businesses to find and use.
  • Stop charging existing customers early termination fees: For consumers who entered into electronic contracts with First American prior to April 6, 2020, Defendants are obligated to collect early termination fees or pay such fees if they cancel. customers.
  • Offer money to refund the consumer. Defendants are required to file $4.9 million with the FTC, which will be used to refund the affected companies.

Today’s action builds on the Commission’s ongoing work to protect small businesses from unfair, deceptive and anti-competitive practices. Last year, the European Commission Largest small business credit bureau Clean up your reporting practices Industry bans on lenders Targeted small businesses in ruling confessions, forced new Prohibition of Made in USA Label Fraudtook action protect fast food franchiseesWhen Proposed new protection For businesses against telemarketing tricks and traps.

The committee vote to allow staff to file complaints and prescribe a final order was 5 to 0. FTC Files Complaint and Final Order/Injunction in the United States District Court for the Eastern District of Texas.

Note: The Commission files a complaint when it has “reason to believe” that the named defendant has violated or is about to violate the law and the proceedings appear to the Commission to be in the public interest. The stipulated final injunction/order takes effect when approved and signed by a district court judge.