FTC Obtains $1.7 Million Judgment Against Payment Processor That Took Millions From Consumers Bank Accounts Without Their Authorization

A federal court has ordered a payment processor that debited consumers’ bank accounts without their authorization to pay $1,779,000 in consumer redress and to end the illegal practice. Payment processors serve as middlemen between merchants and banks or credit card companies. In 2006, the Federal Trade Commission charged the defendants with unfairly debiting thousands of consumer accounts for a merchant’s nonexistent “discount pharmacy cards,” despite indications that the pharmacy card operation was bogus.

According to the FTC’s complaint, the payment processor did not follow its own guidelines for new merchants and did not check addresses, phone numbers, or references the bogus merchant provided. The FTC alleged that the defendants anticipated that the scam would generate high return rates, that they did not request or obtain proof that consumers had authorized debits to their accounts, and that they continued to process charges even after receiving complaints from consumers and banks and unacceptable explanations about unauthorized debits from the merchant. The complaint alleged that more than 70 percent of the merchant’s transactions were returned or refused by the consumers’ banks, and more than $2.38 million was debited from consumers’ accounts, some of which was later refunded or reversed. (see January 8, 2007 press release)

The U.S. District Court order prohibits InterBill Ltd. and its owner, Thomas Wells, from engaging in the unfair practices alleged in the complaint and requires them to undertake a reasonable investigation of prospective clients before processing payments for them. The court order requires the defendants to pay $1,779,000 for consumer redress. The order also contains record-keeping provisions to allow the FTC to monitor compliance.

InterBill processed payments for a fraudulent enterprise known as “Pharmacycards.com.” The FTC sued the Pharmacycards perpetrators in 2004 and obtained a default judgment against them. In 2005, the Commission sued another company that processed unauthorized charges for Pharmacycards, Universal Processing, and obtained a settlement.

The final order and summary judgment for permanent injunction against InterBill and Wells was filed in the U.S. District Court for the District of Nevada on April 30, 2009.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. 0423192)