On September 8, the FTC filed a complaint and proposed stipulated order in the U.S. District Court for the Eastern District of Michigan against a payment processor for allegedly violating Section 5(a) of the FTC Act by knowingly facilitating payment processing for more than 1,000 shell entities posing as merchants but used as fronts for unauthorized billing scams. The complaint noted that in December 2023, at DOJ’s request, a federal court shut down an organization that had set up many of the shell entities on behalf of fraudulent companies.

According to the complaint, the processor opened and maintained accounts for merchants it knew, or consciously avoided knowing, were sham companies operated by undisclosed third parties engaged in fraud, processing over $100 million through those accounts from 2021 through 2023. The complaint alleged that the processor marketed itself as specializing in “tough to place” or “high risk” merchants typically rejected by other processors as too risky. A major card network and senior underwriter allegedly warned the processor that thousands of its accounts appeared involved in load balancing and card sharing schemes, but the processor purportedly disregarded those warnings and continued opening accounts from the same referral sources. The sham accounts allegedly incurred collective chargeback rates above 7 percent, almost 100 times higher than its bank partner’s overall chargeback rate.

Under the proposed order, the payment processor agreed to pay $12 million in consumer redress and is permanently banned from processing payments for merchants with a heightened risk of potential fraud. The order also requires the processor to consent to compliance monitoring, implement screening and monitoring procedures for prospective and current clients, and establish a sales agent oversight program.