Payment Processor that Helped Bogus Discount Clubs Bilk Consumers Will Pay $2.3 Million as a Result of FTC Case

A payment processing company that allegedly helped a bogus discount club scheme debit tens of millions of dollars from consumers without authorization will be required to pay $2.3 million and face a permanent ban from working with high-risk clients as a result of a Federal Trade Commission lawsuit.

According to the FTC’s complaint in the case, which was first filed in 2017, iStream Financial Services and its senior officers, Kris Axberg and Richard Joachim, allegedly debited money from consumers who were seeking payday or cash advance loans, but were enrolled in a bogus coupon service and charged initial fees up to almost $100 plus as much as $19.95 each month. Consumers were enrolled in the discount club scheme online and through outbound telemarketing. 

The complaint alleged that 99.5 percent of the consumers being illegally charged for the “discount clubs” never accessed any coupons, and that tens of thousands called the defendants to try and cancel the charges, while thousands more disputed the charges directly with their banks.  

“The order announced today bans iStream from processing high-risk payments and orders it to pay $2.3 million that can be used to provide refunds to defrauded consumers,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.“Unfortunately, this amount represents a small fraction of the approximately $40 million in total losses suffered by consumers—a direct result of the Supreme Court’s decision in AMG. Without a statutory fix to restore the FTC’s strongest authority to obtain refunds, these consumers, and millions more like them, cannot be made whole.”

Payment processors, like iStream, provide merchants with the ability to obtain customer payments for products and services via electronic banking. According to the complaint, iStream, working with the merchants, used a type of payment called a remotely created check (RCC) to take the money from consumers’ accounts, causing substantial injury to hundreds of thousands of consumers, often those who could least afford to have funds unexpectedly taken from their accounts without authorization.

iStream, which processed all of the payments for the discount club from November 2010 through April 2016, consistently disregarded the high return rates generated by the discount club transactions, a red flag indicating unlawful debiting. According to the FTC’s complaint, iStream also disregarded other indications of fraudulent activity, including that the primary merchant client involved in the scheme from 2010 through September 2013 was EDebitPay, LLC, a company that had already been subject to previous FTC enforcement actions for engaging in very similar misconduct.    

Under the proposed settlement order, the defendants will be permanently prohibited from using any form of remotely created payment orders, including RCCs, as well as from processing payments on behalf of any client whose business involves outbound telemarketing, discount clubs, or offers to help consumers with payday loans. The order will also prohibit the defendants from providing payment services to any client that the defendants know or should know is violating the FTC Act or the Telemarketing Sales Rule (TSR).

The order will require the defendants to conduct of a thorough screening of all of their existing clients as well as of any future clients to ensure that the clients are not violating the FTC Act or TSR.

The FTC’s case against the other defendants in the case, including the merchants operating the discount club scheme, is ongoing.

The Commission vote approving the stipulated final order was 4-0. The FTC filed the proposed order in the U.S. District Court for the Northern District of Georgia.

NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.