A payment processing company that allegedly helped a bogus discount club scheme debit tens of millions of dollars from consumers without authorization will be ordered to pay $2.3 million and face a permanent ban from working with high-risk customers as a result of a lawsuit. of the Federal Trade Commission. .
According to the FTC’s lawsuit in the case, which was first filed in 2017, iStream Financial Services and its top officials, Kris Axberg and Richard Joachim, allegedly debited money from consumers seeking payday loans or cash advances. , but they were enrolled in a fake loan. coupon service and charged initial fees of up to almost $100 plus up to $19.95 each month. Consumers signed up for the discount club scheme online and through outbound telemarketing.
The complaint alleged that 99.5 percent of consumers illegally charged for “discount clubs” never accessed any coupons, and that tens of thousands called the defendants to try to cancel the charges, while thousands more disputed the charges directly with their banks.
“The order announced today prohibits iStream from processing high-risk payments and directs 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 legal solution to restore the FTC’s stronger authority to obtain refunds, these consumers, and millions more like them, cannot recover.”
Payment processors, such as iStream, provide merchants with the ability to obtain customer payments for products and services through electronic banking. According to the complaint, iStream, in collaboration with merchants, used a type of payment called a remotely created check (RCC) to withdraw money from consumer accounts, causing significant damage to hundreds of thousands of consumers. of consumers, often those least able to pay. have funds unexpectedly taken from your accounts without authorization.
iStream, which processed all discount club payments from November 2010 through April 2016, consistently ignored the high chargeback rates generated by discount club transactions, a red flag indicating an illegal debit. According to the FTC complaint, iStream also dismissed other indications of fraudulent activity, including that the primary business customer involved in the scheme from 2010 to September 2013 was EDebitPay, LLC, a company that had been the subject of prior enforcement actions from the FTC 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 processing payments on behalf of any customer whose business involves outbound telemarketing, discount clubs, or offers for help consumers. with payday loans. The order will also prohibit the defendants from providing payment services to any customer 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 a thorough investigation of all of their existing customers, as well as any future customers, to ensure that the customers are not in violation of the FTC or TSR Act.
The FTC’s case against the other defendants in the case, including the merchants operating the discount club scheme, is ongoing.
The Commission’s vote approving the final stipulated order was 4-0. The FTC filed the proposed order in the United States District Court for the Northern District of Georgia.
NOTE: Final stipulated orders have the force of law when approved and signed by the District Court judge.