A third independent sales organization has been sued by the Federal Trade Commission. Merchant Services Direct LLC of Spokane, Washington (“MSD”) and its principals have been charged with engaging in unfair or deceptive acts in violation of the Federal Trade Commission Act.
The FTC’s complaint in this case is different than the two most recent actions against card processing companies, which are described in our blog posts dated June 20, 2013 and June 24, 2013. The prior cases are founded on the FTC’s Telemarketing Sales Rule. In contrast, this case is not targeting an ISO’s telemarketing activities. Instead, MSD’s offending actions involve making false and unsubstantiated claims about reducing merchants’ card processing fees, and failing to disclose material facts about the processing services offered by the ISO.
MSD allegedly cold-called merchants to set up in-person appointments, claiming that MSD could save merchants money on card processing fees. At the meeting, the sales agents indicated they were there to “upgrade” the merchant’s current processing services to get them to a lower rate, quoting a fixed per-transaction fee without mentioning any other fees. Sales representatives also claimed that the merchants’ current point of sale terminals were outdated or incompatible with MSD’s services, requiring a new terminal. MSD represented that even with a higher terminal lease cost, the overall fees for card processing would be reduced. The complaint charges that none of the above statements were true. A number of other offending practices were also cited in the FTC complaint.
The FTC is seeking to enjoin MSD’s activities, and asks the court to rescind merchants’ contracts, to refund merchants’ money, and to require that MSD pay back all ill-gotten amounts.
Are we witnessing the tip of the iceberg? This case demonstrates that ISOs should dispel any notion that they can avoid an action by the FTC as long they do not engage in deceptive telemarketing activities. The FTC’s use of the broader “unfair or deceptive acts” prohibition emphasizes that the FTC has the card processing business in its sights. Companies should take a close look at the offending activities cited by the FTC in the complaint, and institute procedures to ensure that sales agents avoid such practices.
–Holli Targan, Partner, Jaffe, Raitt Heuer & Weiss, P.C.