The Federal Trade Commission today took action against payment processing company First American Payment Systems and two of its sales subsidiaries for nabbing small businesses with hidden terms, surprise exit fees and zombie charges. The FTC alleges that the defendants made false claims about fees and cost savings to lure merchants, many of whom had limited English proficiency. After merchants were enrolled, the defendants withdrew funds from their accounts without their consent, and made it difficult and expensive for them to cancel the service. According to a proposed federal court order, the defendants will have to return $4.9 million to damaged businesses, stop their deception and make it easier for merchants to cancel their services.
“American First lured small businesses with false promises of low costs and an easy exit, and hit them with surprise fees and illegal charges when they tried to exit,” said Samuel Levine, Director of the FTC’s Office of Consumer Protection. “Today’s order gives millions back to merchants, bans unauthorized billing and makes it easier for customers to cancel.”
Texas-based First American Payment Systems provides payment processing services across the country, which it markets through its subsidiaries Eliot Management Group and Think Point Financial. They market their services to small and medium-sized businesses that rely on credit cards, debit cards and checks as a way to accept payment from their customers. Payment processors generally act as an intermediary between companies that accept credit and debit cards and the banks that issue the cards or checks.
The FTC’s investigation found that First American relied on deceptive pitches to businesses to convince them to use the company’s services, and when businesses tried to cancel, the company would often hit them with cancellation fees based on contract terms that were hidden in small print in theirs. registration system, and also debit their accounts without authorization.
First American is accused of engaging in a number of harmful practices against businessmen:
The defendants in this case have agreed to a proposed federal settlement that will require them to:
Today’s action builds on the Commission’s ongoing work to protect small businesses from unfair, deceptive and anti-competitive practices. Over the past year the Commission has required the largest commercial credit reporting agency to clean up its reporting practices, obtained industry injunctions against lenders who targeted small businesses with foreclosures, enforced a new ban on Made in USA label fraud, acted to protect fast-food franchises, and proposed new protections for businesses against telemarketing tricks and traps.
The Commission vote authorizing the staff to file the complaint and stipulated final order was 5-0. The FTC filed the complaint and final injunction/injunction in the United States District Court for the Eastern District of Texas.
NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that proceeding is in the public interest. Prescribed final injunctions/orders have the force of law when approved and signed by the District Court judge.
