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