- within Insolvency/Bankruptcy/Re-Structuring topic(s)
On January 13, the FTC announced that it had filed a combined motion in the U.S. District Court for the District of Nevada seeking to hold a payment processor and its executives in civil contempt for alleged violations of a previously entered stipulated permanent injunction and final order dating back to 2015.
The 2015 stipulated permanent injunction prohibited the payment processor from processing transactions for certain high-risk merchants, required enhanced underwriting and monitoring controls, and imposed specific obligations tied to chargeback thresholds and fraud-monitoring programs. The FTC alleges that, despite those requirements, the respondents repeatedly failed to comply after the order was entered.
According to the FTC, the payment processor allegedly:
- Processed transactions for prohibited high risk merchants. The FTC alleges the payment processor continued processing for merchants listed on a card network's high risk termination list, in violation of restrictions imposed by the stipulated order.
- Failed to conduct adequate underwriting of high risk merchants. The FTC alleges the payment processor did not reasonably screen or diligence high risk merchants during onboarding, as required by the order.
- Failed to monitor and suspend processing after trigger thresholds. The FTC alleges the payment processor continued processing after chargeback or return rate thresholds were exceeded, without conducting required investigations or preparing required internal reports, in violation of the order.
- Assisted or permitted evasion of fraud monitoring programs. The FTC alleges the payment processor assisted merchants in evading fraud monitoring programs or continued processing for merchants engaged in such evasion, contrary to order requirements.
FTC is seeking at least $52.9 million in compensatory relief for consumers, coercive sanctions to compel compliance, and modification of the existing order, including permanent industry bans for the individual defendants and the appointment of a receiver.
Putting It Into Practice: The FTC's motion highlights the risks payment processors and payment facilitators face when court ordered obligations are not fully embedded into operational systems. Market participants subject to injunctions should ensure that order requirements governing high risk list screening, underwriting standards, monitoring thresholds, and termination triggers are implemented as mandatory controls with clear escalation paths and documentation requirements.
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