|January 19, 2012|
Previously published on January 12, 2012
The FTC announced on January 5 that it has settled charges that Landmark Clearing, Inc. and three of the company’s principals used a novel payment method called "remotely created payment orders" to allow merchants access to consumer bank accounts. According to the FTC, Landmark allegedly used remotely created payment orders to debit, or attempt to debit, millions of dollars from consumers' accounts without their consent over the past three years.
The FTC alleges that because of the “astronomical” return rates on the payment orders, sometimes in excess of 80 percent, Landmark should have known that its clients were not securing authorization from consumers to make the debits. By continuing to process for those clients, the FTC said in its press release, Landmark played a critical role in its clients' unlawful business practices.
Unlike credit cards and other payment mechanisms, remotely created payment orders are not, according to the FTC, subject to significant regulatory oversight and monitoring. In fact, the FTC’s complaint alleges that Landmark actively promoted remotely created payment orders as a way to avoid scrutiny, advertising on its website that merchants "with a high percentage of overall returns" would benefit from using its remotely created payment order product.
The settlement order bans Landmark and the named individuals from processing payments through remotely created payment orders and similar payment mechanisms. The order does permit the defendants to provide other forms of payment processing, subject to stringent conditions. The settlement order:
- Permanently prohibits the defendants from processing payments for any client they know, or should know, is violating the FTC Act or the Telemarketing Sales Rule ("TSR");
- Requires them to screen and monitor prospective and existing clients to determine whether their business practices violate the FTC Act or the TSR;
- Requires them to monitor clients' total return rates, reasons for returned transactions, and unusual transaction patterns, values, and volume;
- Prohibits them from failing to investigate a total return rate exceeding 2.5 percent, and requires them to stop payment processing for a client unless the investigation shows its business practices did not violate the FTC Act; and
- Bars them from referring any past remote payment clients to third parties for a fee, and from selling or otherwise benefitting from consumers' personal information.