Payments Law Tool Kit

Venable / 14 13 / Venable Consumer Protection and Federal Law Enforcement Given these risks, it is critical for payments companies to have robust compliance programs in place for performing diligence on merchants, monitoring merchants for indicia of fraud, and terminating merchants that present unacceptable risk. Finally, payment processors should keep a close eye on card brand rule updates and federal and state legal developments. From the legal perspective, an industry or merchant practice that is legal today may be an enforcement target tomorrow. And the card brands are active in updating their rules on a regular basis to implement additional requirements and best practices. Given this dynamic landscape, payment facilitators must stay vigilant in monitoring developments so that they can revise their policies and procedures as needed. In recent years, the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), and other federal and state regulators have brought numerous enforcement actions against payments companies alleged to have violated the law by providing services to merchants engaged in fraudulent conduct. These enforcement actions generally allege that the payments company engaged in unfair practices by facilitating payments for merchants engaged in deceptive or fraudulent marketing or sales practices. These types of investigations, and the resulting enforcement actions, often start with complaints filed against a merchant with the FTC, state attorneys general, the Better Business Bureau, or other outlets about the merchant’s marketing practices or product claims. Based on information provided by a merchant, or the merchant’s inability to pay redress to consumers, the FTC may turn its attention to the processor as a direct target of an investigation. In these cases, the enforcement agency investigates the processor’s underwriting and risk management policies and procedures, business philosophies, profit motives, and other characteristics to build a case that the processor was negligent or willfully blind in servicing problematic merchant accounts. In most of these actions, the government has highlighted common factors as evidence that the processor was integrally involved in the merchant’s business or ignored numerous warning signs that the merchant was engaged in fraud or deceptive practices, such as high chargeback or return rates and consumer complaints. Most enforcement actions have been resolved by consent decrees, which typically include injunctive relief restricting future conduct, monetary penalties, and other financial loss through chargeback liability, loss of reserve funds, loss of gross or net fees earned, and liability for a merchant’s entire volume of sales transactions.