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The 51��ɫ today took action against payment processing company First American Payment Systems and two of its sales affiliates for trapping small businesses with hidden terms, surprise exit fees, and zombie charges. The 51��ɫalleges that the defendants made false claims about fees and cost savings to lure merchants, many of whom had limited English proficiency. Once merchants were enrolled, the defendants withdrew funds from their accounts without their consent, and made it difficult and expensive for them to cancel the service. Under a proposed federal court order, the defendants will be required to return $4.9 million to harmed businesses, stop their deception, and make it easier for merchants to cancel their services.  

“First American lured small businesses in with false promises of low costs and an easy exit, and hit them with surprise fees and illegal charges when they tried to get out,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Today’s order returns millions to merchants, bans unauthorized billings, and makes it easier for customers to cancel.”

Texas-based First American Payment Systems provides payment processing services across the country, which it markets through its affiliates Eliot Management Group and Think Point Financial. They market their services to small- and medium-sized businesses who rely on credit cards, debit cards, and checks as a way to accept payment from their customers. Payment processors generally serve as an intermediary between companies that accept credit and debit cards and the banks that issue the cards or checks.

The FTC’s investigation found that First American relied on deceptive pitches to businesses to convince them to use the company’s services, and when businesses attempted to cancel, the company would often hit them with cancellation fees based on contract terms that were hidden in fine print in their signup system, as well as debit their accounts without authorization.

First American is charged with engaging in a number of harmful practices against merchants:

• Deceiving businesses about pricing and savings with hidden terms: The defendants pitched businesses with promises of small monthly fees, sometimes as low as zero, but the FTC’s complaint alleges that these claims were often false. The defendants also claimed that the businesses would save a lot of money over the course of a year by switching to defendants’ services but did not take into account the fact that First American periodically raises its prices for existing customers.

• Imposing surprise fees when small businesses try to cancel: The complaint alleges that defendants’ sales people regularly promise businesses they will be able to cancel services any time or within a trial period without a fee, when the company’s standard written agreement requires businesses to sign on to a three-year term with a $495 cancellation fee. In many instances, the business owners have limited English proficiency, and while the sales are conducted in their native language, the paperwork is only available in English.

• Using an online enrollment system that obscures key contract terms: The defendants’ online enrollment system for new customers hid a three-year obligation, cancellation requirements and fees, the fact that agreements would automatically renew, and other important information from business owners, the complaint alleges. These important facts often were in densely-packed documents that required business owners to click separate links to find.

• Hitting small businesses with zombie charges after they withdraw consent accounts: The complaint alleges that First American continued to make withdrawals from businesses’ bank accounts even after the businesses have withdrawn consent. For example, the complaint alleges that at times when a business acts to stop payments to the company from their bank, First American will attempt further withdrawals under different business names to evade stop payment orders.

Enforcement Action

The defendants in this case have agreed to a proposed federal court order that will require them to:

• Stop misleading consumers: The order will prohibit the defendants from misleading consumers about important contract terms like cancellation fees, while also prohibiting them making any unsubstantiated claims about their products or services, including specific pricing promises.

• Stop unauthorized bank withdrawals: The defendants will be prohibited from making withdrawals from any of their customers’ bank accounts without authorization, or after the customer has stopped any attempt to debit money from their account or communicated to the defendants that they refuse payment.

• Make cancellation easier: The defendants will be required to put a cancellation procedure in place that businesses can easily discover and use.

• Stop charging existing customers early termination fees: For consumers who signed electronic agreements with First American before April 6, 2020, the defendants will be prohibited from collecting any early termination fees or telling these customers that they will owe such fees if they cancel.

• Provide money to refund consumers: The defendants will be required to turn over $4.9 million to the FTC, which will be used to provide refunds to affected businesses.

Today’s action builds on the Commission’s ongoing work to protect small businesses from unfair, deceptive, and anticompetitive practices. Over the last year the Commission has required the largest small business credit reporting agency to clean up its reporting practices, obtained industry bans against lenders that targeted small businesses with confessions of judgment, enforced a new prohibition on Made in USA labeling fraud, took action to protect fast food franchisees, and proposed new protections for businesses against telemarketing tricks and traps.

The Commission vote authorizing the staff to file the complaint and stipulated final order was 5-0. The 51��ɫfiled the complaint and final order/injunction in the U.S. District Court for the Eastern District of Texas.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by the District Court judge.