FTC Alleges Zombie Fee Exit Charges on Payment Processing Company

On July 29, a payment processor and its two sales affiliates (defendants) agreed to a stipulated order with the FTC to settle the fees they imposed on small businesses, hidden terms, surprise exit fees and “zombie fees”.

The Texas-based payment processor marketed services to small and medium-sized businesses that relied on card payments and customer checks – the payment processor would act as an intermediary between the business and the card- or card-issuing banks. checks.

The FTC filed a complaint in federal court alleging the companies made false claims to entice small businesses to use its products, promising low costs and easy exits. Many companies targeted by misleading pitches had limited English proficiency. The FTC alleged numerous practices harmful to traders, including the practice of deceptive arguments – according to the FTC, the company falsely promised low monthly fees and long-term savings, but failed to mention its periodic price increase . The company also imposed surprise fees when its customers attempted to cancel, despite promises of easy cancellation at any time or during a free trial period. Defendants’ online registration system also concealed a three-year obligation, numerous cancellation requirements and fees, automatic renewal, and other information essential for business owners when evaluating options for payment processors. Finally, the FTC alleged that the defendants imposed “zombie fees,” meaning they made withdrawals from customers’ bank accounts even after the companies withdrew their consent to direct debits.

On July 29, the parties agreed to a stipulated order under which the defendants are, among other things, prohibited from misleading customers and making unsubstantiated claims about their products and services and reimbursing $4.9 million. dollars to clients affected by their harmful practices.

Put into practice :

This FTC enforcement action merits review in light of claims related to unfair/misleading charges and violations of Restore Online Shoppers’ Confidence Act (ROSCA) claims based on (i) obscured contractual terms buried on websites and (ii) automatic and recurring charges. after merchants withdraw their ACH consent/attempt to cancel services. The use of ROSCA in the B2B context is somewhat new to the FTC, since the law is designed to protect consumers in the context of online purchases. Therefore, payment processors and other B2B businesses would be well advised to pay attention to the outcome here and review operations around direct debits and reversals. Additionally, ROSCA packs a punch because – unlike typical UDAP claims – ROSCA empowers the FTC to impose heavy penalties and redress/restitution (we’ve discussed ROSCA in previous blog posts here, hereand here).

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 223


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Elaine R. Knight