FTC files suit against payment processing scam operation

150px-US-FederalTradeCommission-Seal.svgIn a recent lawsuit filed by the FTC, the regulator alleges that Ideal Financial Solutions and more than 12 other defendants used “an intricate web of concealment” to pass more than $25 million in unauthorized fees to consumers.

The FTC said in the complaint that the defendants established shell companies to set up merchant accounts with third-party payment processors, which then posted unauthorized credit and debit charges of approximately $30.

After consumers called the phone number listed on the bank statement for the transaction, operators alleged that the consumers had authorized the charges. The FTC maintains, however, that consumers never agreed to pay the fees.

While it is unknown how the defendants obtained the consumers’ financial information, many consumers involved in the operation had applied for online payday loans, a process that required them to provide their bank account numbers with the impression that the money would be direct-deposited, if the loan was authorized. The unapproved charges led many consumers to incur penalties and overdraft fees.

When consumers contact their financial institution to complain about an unauthorized charge, the company usually issues a chargeback — a reversal refund to the consumer. High chargeback rates are usually a sign of an illicit financial operation. The FTC complaint said that the chargeback rates for transactions initiated by the defendants were extremely high compared to industry averages.

The FTC alleges that the defendants attempted to game the system in order to make chargeback rates appear low. The defendants made numerous unauthorized debits from consumer bank accounts for tiny amounts, from one to three cents. The charges were immediately refunded before the defendants posted a $30 debit, which inflated the total number of debits and made chargeback rates look lower by comparison.

A federal judge in Nevada has frozen the defendants’ assets and appointed a receiver to handle the businesses as the case heads to trial.

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