FTC Actions Against Payment Processors Heighten Legal Risks For Service Providers In Privacy Cases

In taking action against two payment processors earlier this month for providing processing services to merchants allegedly engaged in deceptive telemarketing practices, the U.S. Federal Trade Commission demonstrated a broad view of the scope of its authority under the Telemarketing Sales Rule to pursue service providers over the telemarketing practices of their third-party customers or clients. On June 4 and 18, the FTC filed federal lawsuits against Newtek Merchant Solutions and IRN Payment Systems in the U.S. District Court for the Middle District of Florida alleging that the companies provided substantial assistance or support to merchants who the processors allegedly knew or consciously avoided knowing were engaged in deceptive telemarketing schemes. This aggressive enforcement of consumer protection laws against payment processors based on alleged privacy violations by their arms-length customers is of interest to all service providers that do business with consumer-facing clients. In late 2012 and early 2013, the FTC filed lawsuits against two telemarketing operations, "Treasure Your Success" and "Innovative Wealth Builders," alleging that the companies engaged in deceptive and abusive telemarketing practices in violation of the Telemarketing Sales Rule (16 C.F.R. § 310) and section 5 of the FTC Act (15 U.S.C. § 45(a)). According to the FTC, the companies cold-called consumers promising to substantially reduce the interest rates on their credit cards and charged customers for such services, but failed to deliver them. In addition, the FTC alleged that Treasure Your Success violated the Do Not Call Registry, did not honor "do not call" requests, and made unwanted robocalls. In June 2013, the FTC expanded its lawsuits to include as defendants the payment processors that processed the payments made to the telemarketers by consumers, along with the former president of one of the processors. The FTC's complaints against the payment processors and former president allege that they violated a section of the Telemarketing Sales Rule (16 C.F.R. § 310.3(b)) that prohibits a person from providing "substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in" deceptive telemarketing practices. The FTC's complaints allege that the processors and former president "knew or consciously avoided knowing" of their clients' deceptive telemarketing...