Payment Processor Settles FTC Charges

A payment processor and its principal who attempted to process more than $1.2 million in unauthorized charges on consumer checking accounts, even though they knew or should have known the debits were not authorized by consumers, have agreed to settle Federal Trade Commission charges that their practices violated federal law. The settlement bars the defendants from processing payments without ensuring that the charges are authorized; making false claims to other payment processors in an effort to enlist processing services for clients; and processing payments when they know that their client does not have a business relationship with the consumer.

The payment processor made the unauthorized debits on behalf of a business known as Pharmacycards. In May 2004, the FTC charged “Pharmacycards.com” with electronically debiting thousands of consumers’ accounts for $139, without consumers’ knowledge or consent. According to the FTC, Pharmacycards attempted to debit more than $10 million from consumers’ checking accounts in less than three months. The FTC alleges that the Pharmacycards defendants gained access to the banking system via third-party payment processors by claiming that they were engaged in a legitimate business – selling pharmacy discount cards.

According to the 2004 complaint, the Pharmacycards defendants provided consumers’ checking account numbers to third-party payment processors, including the defendants in this case, Universal Processing Inc., and its principal, Rey Pasinli.

In the complaint naming Pasinli and Universal, the FTC alleges they arranged for consumers’ accounts to be debited without meeting with the Pharmacycards operators or requiring that they complete their standard payment processing application. According to the complaint, “They agreed to use their entree to the banking system to debit consumer checking accounts on behalf of two individuals they had never met, purportedly from England, purportedly with a corporation chartered in Cyprus, who were using a Montreal customer service center, free, untraceable e-mail accounts, an unsecure website hosted in India, a Vancouver, British Columbia, mailing address, and who directed that the proceeds be sent to a bank in Cyprus.”

Shortly after they started processing the Pharmacycards charges, return rates for the charges “started high and almost immediately sky-rocketed” – a tip-off that the charges were not authorized

by consumers. Nevertheless, the defendants continued processing approximately $1.2 million in debits to consumers’ accounts and attempted to convince their upstream payment processors to continue processing the Pharmacycards transactions. More than 70% of the debit transactions were “returned.”

The agency alleges that when the defendants processed the charges they knew or avoided knowing that the charges were unauthorized. The FTC charges that in doing so, the defendants engaged in unfair practices that violate the Federal Trade Commission Act.

The settlement bars the defendants from processing payments without taking steps to assure they were authorized by consumers. It bars them from misrepresenting that consumers authorized payments and bars them from processing charges while knowing or consciously avoiding knowing that the client does not have a business relationship with the consumer.

The settlement requires that before the defendants take on clients, they take steps to ensure that the client is a legitimate business, complying with the Telemarketing Sales Rule and the FTC Act. It also requires the defendants to monitor the return rates for payments processed for clients and investigate the cause for any return rate that exceeds 2.5% and cease processing for any client engaged in unfair or deceptive acts or practices. The defendants also will give up all of their ill-gotten gains – $9,476. The settlement contains record-keeping and bookkeeping provisions to allow the agency to monitor compliance.

The Commission vote to accept the settlement was 4-0. It was filed in United States District Court for the Central District of California, Southern Division.

NOTE: A stipulated permanent injunction and final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent orders have the force of law when signed by the judge.

Copies of the complaint and stipulated order are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. 042-3190)