We’re laying our cards on the table: Protecting small businesses from deceptive and unfair practices is the FTC’s top priority. This includes taking action when payment processing companies that provide small business owners with access to credit and debit card systems are suspected of using illegal means to market their services. According to the FTC, Texas-based First American Payment Systems made misleading statements about fees and cost savings, used hidden auto-renewal provisions and failed to deliver on promises about easy cancellations. and making unauthorized withdrawals from customers’ bank accounts. The settlement will return $4.9 million to small businesses harmed by its conduct.
Access to the credit card system is the lifeblood of most companies, and many small businesses turn to payment processors as intermediaries for card-issuing banks. First American Payment Systems markets its services to small and medium-sized businesses nationwide through subsidiary Eliot Management Group, affiliate Think Point Financial and other sales agents.
The complaint alleges that the defendants’ salespeople used deceptive tactics to market their services to small businesses, some of which were sole proprietorships such as restaurants and nail salons. You’ll have to read the indictment for the details, but the gist of the accusation is that the defendants lured businesses with misleading promises of large savings, low monthly fees, or sometimes no fees at all. Additionally, the FTC said defendants eased business owners’ concerns by telling them they could cancel at any time without penalty, that they could cancel without penalty during the introductory period, or that they simply agreed to short-term contracts.
That’s what the defendants’ sales agents allegedly told small businesses, but the FTC says the truth is much more costly. In fact, the company’s written agreement contradicted some of the defendants’ key selling points. For example, despite claiming businesses can cancel without penalty, the document locks it in to a three-year term with a $495 cancellation fee and mandates automatic renewal terms. The FTC also said the defendants took a hard line against businesses’ bank accounts and continued to target them with electronic withdrawals even after businesses told them they didn’t owe or wouldn’t pay fees. According to the complaint, when businesses contacted banks to stop unauthorized payments, the defendants would evade those orders by making withdrawals under different business names.
The FTC said the defendants’ sales practices exacerbated harm to small businesses. For example, the indictment alleges that the defendants used the memorable phrase “stay hungry, stay stupid” to prevent their sales representatives from understanding their own agreements. Additionally, Defendants’ online registration process hid key terms in dense blocks of text or behind obscure hyperlinks. Additionally, many of the small business owners whom the defendants marketed had limited English proficiency. Although defendants’ oral sales presentations were often in the business owner’s native language, the written agreements were in English and were not accompanied by translations.
The complaint alleges that the defendants made multiple misrepresentations and unfairly withdrew funds from customers’ bank accounts without express authorization, including after the customers revoked their authorization. The complaint also alleges that the defendants’ automatic renewal practices violate the Restoring Online Shopper Confidence Act (thread). To resolve the case, the defendants agreed to stop making misleading claims, stop unauthorized bank withdrawals, stop assessing early termination fees for customers who signed electronic agreements before April 6, 2020, and pay $4.9 million in refunds .
What can other companies gain from this settlement?
Follow Rocca. Roca protects consumers and Businesses are protected from deceptive online auto-renewal practices. The law prohibits online negative selection unless the seller: 1) clearly discloses all material terms of the transaction before obtaining the consumer’s billing information; 2) obtains the consumer’s express informed consent before charging; 3) provides a means to stop duplication Simple mechanism for charging. The FTC’s Enforcement Policy Statement on Negative Option Marketing provides specific guidance on how existing law applies to negative option practices and demonstrates the agency’s commitment to protecting consumers and businesses from illegal auto-renewal practices.
Monitor your sales agents. Payment processing companies have an obligation to monitor what sales agents are doing on their behalf. Train your attorneys to avoid conduct that crosses legal boundaries. Make sure what they state in the sales pitch matches what’s in the agreement. If a consumer complaint raises red flags that a sales agent isn’t following your rules, investigate immediately.
Don’t hide cancellation requests. Business owners have the right to know exactly what their obligations are under their agreement with you, including whether they want to cancel. Don’t hide cancellation terms and fees in a bunch of legalese, or hide them behind obscure hyperlinks. Transparency is the best policy.
Do not deceive consumers or small business owners who have limited English proficiency. For many hard-working families, owning a small business is the key to achieving the American Dream. When English-as-a-second-language entrepreneurs go “all in” investing in a business that provides products, services, and employment opportunities, they shouldn’t be fooled by fast-talking salespeople.
