FTC Sues Another Independent Sales Organization

24 Jun

Not more than a day after we reported a similar action, the FTC filed suit against another independent sales organization, attempting to hold it liable for the alleged fraud perpetrated by its telemarketing merchant.  One significant difference is that in this complaint, the former President of the ISO is personally named.

The lawsuit was filed against Newtek Merchant Solutions and Derek Depuydt, its past President, in the action against Global Financial Assist, LLC (“GFA”), a company providing a credit card interest rate reduction service that was sold through telemarketing.  The claim also names HES Merchant Services Company, Inc. (“HES”), a consulting company that set up the telemarketing operation and website for GFA, provided the Newtek merchant accounts, and assisted with chargeback recovery services.

Newtek and Depuydt allegedly violated the FTC’s Telemarketing Sales Rule (“Rule”), which provides that it is a deceptive telemarketing act and a violation of the Rule for a person to provide substantial assistance or support to any telemarketer when that person knows or consciously avoids knowing that the telemarketer is engaged in a deceptive telemarketing act, as defined in the regulation. 

The FTC maintains that Newtek’s payment processing services enabled the charges on consumers’ card accounts to clear through the credit card networks, and that without Newtek’s and Depuydt’s assistance, it would have been impossible for the merchant to charge consumers fees for the interest rate reduction services.  Further, Newtek and Depuydt allegedly knew that many of HES’ accounts were connected to operations that were likely engaged in fraud.

Cited as support for the ISO’s violation of the Rule is the fact that the merchant failed to produce telemarketing scripts when asked.  The document states:  “Newtek simply ignored this deficiency, which would have alerted them to the [telemarketing sales rule] violation.”  Also noted was the fact that the credit reports pulled by Newtek stated that the principals had substantial debts and serious delinquencies.  And similar to the previous complaint, the FTC asserts that MasterCard put the merchant on a monitoring list for excessive chargebacks and Newtek’s response was merely to increase the merchant reserve.

These two actions indicate a massive shift in the card processing landscape.  Any business connected to processing card transactions, from ISOs to consultants to the card processors, should take a hard look at their underwriting practices to ferret out merchants engaged, or even potentially engaged, in deceptive telemarketing practices.

Holli Targan

Attorney & Partner


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