Global: FTC files complaint against paytech First American over alleged “harmful practices”

The Federal Trade Commission (FTC) has taken action against payment processing company First American Payment Systems and two of its sales affiliates for allegedly “trapping small businesses with hidden terms, surprise exit fees and zombie charges”.

The FTC alleges that the company and its affiliates made “false claims” about fees and cost savings to “lure” merchants – many of whom had limited English proficiency.

Texas-based First American provides payment processing services to small and medium-sized businesses (SMBs) across the US, marketing its services via affiliates Eliot Management Group and Think Point Financial.

On investigating, the FTC charged the company for allegedly:

• Deceiving businesses about pricing and savings with hidden terms.
• Imposing surprise fees of $495 when small businesses try to cancel.
• Using an online enrolment system that obscures key contract terms.
• Hitting small businesses with zombie charges even after they withdraw consent.

Under a proposed federal court order, which the FTC says First American and its affiliates have agreed to, First American will have to return $4.9 million to affected businesses and make it easier for merchants to cancel services.

“First American lured small businesses in with false promises of low costs and an easy exit, and hit them with surprise fees and illegal charges when they tried to get out,” says Samuel Levine, director of the FTC’s Bureau of Consumer Protection.

Levine adds the order “returns millions to merchants, bans unauthorised billings and makes it easier for customers to cancel”.

In response, First American has provided a statement, in which it “flatly denies the allegations in the FTC complaint”, describing it as “one-sided and based on a flawed understanding of our business and our industry”. First American also describes FTC’s inquiry as “an unfocused fishing expedition”.

“We did not use tricks or traps to lure business owners, nor did we create barriers to exiting our services or charge surprise or illegal fees. We did not withdraw money for the services we provided to merchants without their authorisation,” the company states.

“The many other characterisations of our business by the FTC are inflated and inaccurate. We fully cooperated throughout the entire investigation and highlighted our commitment to compliance and transparency. We agreed to settle this case to avoid a long, protracted legal battle and the associated expense.”

It explains further: “Our agreements disclose all aspects of receiving payment processing services from us. No payment processor has been previously required to comply with ROSCA [The Restore Online Shoppers’ Confidence Act], and it was inappropriately applied to us in this case.

Congress enacted ROSCA to protect consumers from online sales involving recurring monthly fees for membership clubs, recurring billing and shipping programmes and subscription plans; not to encompass merchant processing agreements or other commercial transactions with automatic renewal clauses simply executed online nowadays.”

First American concludes: “We always operate with the highest integrity, working side-by-side with our customers to meet their needs and we will continue to do so in the future.”