The Federal Trade Commission (FTC) recently announced a settlement with a group of related companies and two of their officers that used a merchant of record (MoR) model to facilitate sales for merchants. According to the FTC, the MoR businesses violated the law by assisting and facilitating fraudulent telemarketing sales of tech support services and laundering credit card charges through the defendants’ own merchant processing accounts.

The MoR model is one of several novel models payments companies and platforms have launched in the marketplace. While numerous compliance questions related to money transmission and unlawful payments aggregation abound, this particular FTC case warns that consumer protection agencies are taking a closer look at risks presented by the MoR model.Continue Reading Increasing Regulatory Scrutiny for the Merchant of Record Model

It’s here! The 11th edition of Venable’s popular Advertising Law Tool Kit is now available for download. This annual resource compiles a broad spectrum of marketing-related topics, background information, and checklists into an easy-to-access guide, authored by some of the most experienced attorneys in the industry. Download this year’s Tool Kit or bookmark the link

Yesterday, the Federal Trade Commission (FTC) moved to dismiss its long-running enforcement action against Electronic Payment Solutions (EPS) pending in the District of Arizona after the Commission voted 4-0 to approve a final settlement with EPS and certain of its owners. The case against EPS, a third-party payment processor, is just the most recent example

We frequently post about negative option marketing in this blog, but our focus has been the FTC’s enforcement actions against businesses that utilize this marketing strategy. We haven’t written as much about a different risk: payment processors and financial institutions caught in the crosshairs of a court-appointed receiver for their relationships with companies engaged in allegedly unlawful “negative option” marketing. Recently, two FTC enforcement actions in the Central and Southern Districts of California highlight these risks.

In Federal Trade Commission v. Triangle Media Corporation et al. (the “Triangle Action”), the FTC sued Triangle for engaging in an alleged scheme to offer fake “free trials” of personal care products and dietary supplements to obtain consumers’ credit and debit card information.

According to the FTC, Triangle then applied recurring charges to consumers’ cards without authorization. In a later, unrelated action, the FTC brought charges against Apex Capital Group, LLC for essentially the same activity (the “Apex Action”). In both cases, the courts granted the FTC’s request and recommendation that a receiver be assigned to oversee, manage, and preserve the assets of both sets of defendants. In an interesting turn, the same receiver, Thomas McNamara of McNamara LLP (the “Receiver”), was recommended by the FTC, and accepted by the courts, as the Receiver for Triangle’s and Apex’s assets.

Subsequently, the FTC filed an amended complaint in the Apex Action that accused Apex’s credit card payment processor, Transact Pro, of credit card laundering and chargeback manipulation in violation of Section 5 of the FTC Act. Both Apex and Transact Pro entered into a settlement with the FTC requiring a stipulated judgment ordering the parties to pay monetary relief.Continue Reading How Negative Option Marketing Can Risk Entangling Third-Party Banks and Payment Processors

The explosion in Buy-Now-Pay-Later (BNPL) has caught the eyes of lawmakers and regulators, who are taking a closer look at this booming industry.

BNPL payment offers allow consumers to purchase goods or services now and pay for them over time, often through a short series of installments (for example, four payments spaced two weeks apart). Industry researchers have found that Gen Z consumers increased their use of BNPL products from 6% in 2019 to 36% in 2021. However, with this growth, lawmakers and regulators have voiced concerns about BNPL, including that consumers may easily spend more than they can afford and rack up multiple BNPL purchases with varying payment schedules and payment terms.

Read our 360 Degree Analysis of Buy-Now-Pay-Pater Products

The list of consumer protection concerns raised by lawmakers and regulators is long. Consumers may face late fees, fees for failed payments, payment rescheduling fees, early payoff fees, account reactivation fees, or other fees charged by BNPL providers that may not be readily apparent.Continue Reading The Buy-Now-Pay-Later Boom Gets Consumer Protection Attention

Mastercard recently announced new requirements for merchants using a subscription billing model or negative option model, or both.  The new standards focus on disclosures made to consumers at the point of payment; providing adequate confirmation, notices, and billing receipts; and affording customers an online or electronic cancellation method.  Requirements relating to point of payment disclosures become effective on September 22, 2022.  The other requirements will become effective much sooner, on March 22, 2022.  As always, reconciling card brand requirements with current federal and state legal requirements and law enforcement priorities will take particular care and attention, particularly as laws in California and other states continue to evolve.

The Mastercard updates, like those imposed by other card brands, are intended to reduce complaints and chargebacks from consumers who might not understand they were enrolled in an automatic renewal subscription or negative option program (or who do not understand the billing terms), forgot they enrolled, or have difficulty canceling their subscriptions.

As we summarize below, the new Mastercard requirements apply to merchants using subscription/recurring billing models, including programs that charge a consumer for goods or services on a prearranged schedule (such as streaming video services, membership clubs, and software licenses).  Mastercard included certain additional requirements for negative option programs, where the merchant offers an initial free or discounted trial period of a subscription before automatically enrolling the consumer into the subscription, and the consumer must take some action to cancel before the end of the trial to avoid continuing with the subscription.
Continue Reading New Mastercard Requirements for Subscription and Negative Option Billing Models

Game developers and platform providers are increasingly integrating non-fungible tokens (NFTs), virtual currencies, and digital marketplaces into their games and platforms, creating seamless, novel, and interactive experiences. While the industry has moved ahead quickly, federal and state regulators are taking a much closer look at how these technologies fit within existing legal frameworks.

In a recent webinar, partner Ellen Berge and associate Chris Boone of Venable’s Advertising Law and Payments groups explored the latest regulatory developments and addressed how to spot and avoid compliance and regulatory risks associated with NFTs, virtual currencies, and other platform-based monetization mechanics. We received insightful questions from members of the audience, which our lawyers answer below.Continue Reading You Asked, We Answered: NFTs and Virtual Currency in Games: Compliance Issues and Legal Risks

On March 29, 2021, the FTC announced a settlement with Beam Financial Inc. (Beam) and its founder and CEO, Yinan Du, over allegations that the mobile banking app company deceived consumers about their access to funds and interest rates. The settlement included a far-reaching conduct ban. As the non-bank financial services continue to grow, the action and settlement underscore the role the FTC seeks to play in policing that sector.

By way of background, on November 18, 2020, the FTC filed a complaint against Beam, alleging that Beam and Mr. Du falsely promised users of their banking app that they would earn high interest rates on the funds maintained in their Beam accounts and have “24/7 access” to their funds. Beam was not a bank; rather, it promised to place funds at banks and provide consumers access to those funds through the app. The FTC alleged that Beam promised users would receive “the industry’s best possible rate”—at least 0.2% or 1%—when users actually received a much lower rate of 0.04% and stopped earning interest entirely after requesting that Beam return their funds. The FTC’s complaint also alleged that Beam misrepresented that consumers could easily move funds into and out of their accounts and that they would receive their requested funds within three to five business days. According to the FTC, users reported that their emails, texts, and phone calls to the company went unanswered; some users even allegedly waited weeks or months to receive their money, while others never received it. The FTC alleged that this was particularly difficult for consumers experiencing serious financial hardship during the COVID-19 pandemic.Continue Reading FTC Settlement Leads to a 24/7 Shutdown of a Mobile Banking App

As the payments industry continues to evolve at a lightning pace, one of the newest developments is the ability for payments companies to leverage card network services to “push” payments to cardholders. Earlier this year, the technology gained attention as a potentially safe and efficient way to transfer funds in response to the challenges presented by the COVID-19 pandemic. In particular, as businesses shift to a remote environment, push-to-card services can provide benefits for both individuals and businesses, including for person-to-person (P2P) money transfer, funds disbursement, and bill payment, among other uses. And with the increased focus on “faster payments,” push technology has been discussed as a private sector means to speed up transaction settlement.
Continue Reading Pushing to the Forefront – Get Ready for Push-to-Card Payments

With much of the economy disrupted as a result of the COVID-19 pandemic, one area that continues to grow is automated clearing house (ACH) payments, according to data recently released by Nacha, the non-profit that governs ACH payments. While the recent jump in ACH volume was driven in part by the delivery of federal stimulus payments, it is reflective of a longer term trend of growth in the industry, as ACH becomes increasingly popular for consumer bill payment (rent and utilities), health care payments, payroll processing, and business account payables

Also contributing to the growth in ACH payments is the ability of banks to partner with “third-party senders” to facilitate the origination of ACH payments. Like a payment facilitator in the credit card space, a third-party sender can help a bank expand its ACH origination capabilities by signing up customers to receive the bank’s ACH services. Working with a third-party sender, however, can increase a bank’s exposure to legal, compliance, credit, and reputation risks. These risks are reflected in news articles last year about an ACH payroll processor in New York that allegedly absconded with almost $30 million of its clients’ payroll and tax payments.

As ACH continues to grow, it is critical for banks and their partners to understand the ins and outs of facilitating these payments. Accordingly, this article provides a brief overview of the ACH system, the roles and responsibilities of the key players, and best practices for minimizing risk when banks partner with third-party senders.
Continue Reading Managing Risks in Third-Party Sender ACH Processing