FTC’s Complaint Against Payment Firm May Be Blueprint for CFPB

The Federal Trade Commission (FTC) announced on March 15 that it filed an administrative complaint against Electronic Payment Systems for allegedly opening credit card processing merchant accounts for fictitious companies on behalf of a scammer, Money Now Funding. While the money at stake in this case isn´t significant, these proceedings may be relevant for another federal agency, the Consumer Financial Protection Bureau (CFPB).

According to the FTC’s administrative complaint, the Money Now Funding scammers falsely promised consumers that they would earn thousands of dollars in income. They allegedly took numerous steps to hide their identities behind fake businesses to evade detection by credit card companies and banks. The complaint alleges that Electronic Payment Systems facilitated that evasion by creating 43 different merchant accounts for fictitious companies on behalf of Money Now Funding, allowing the scammers to run more than $4.6 million in consumer credit card charges through those accounts.

Read more: FTC Charges 12 With Laundering Millions In Credit Card Charges

Electronic Payment System submitted a consent agreement in January to settle the matter, which the FTC has accepted, though it is still open to public comments. After the 30-day deadline for comments, the FTC will decide whether to make the proposed consent order final. The company and its owners have agreed to restrictions on the merchants for whom they can provide credit card payment processing services, as well as additional merchant screening and monitoring requirements.

“Companies involved in payment processing can’t ignore red flags that fraudsters are using the system to steal people’s money,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “It’s urgent that our authority to get money to consumers be restored, but in the meantime, we’ll do everything we can to stop scammers and those who help them.”

This case shows the advantages that an administrative complaint offers to a federal agency, as opposed to the judicial route. The FTC can issue this type of complaint when it has “reasons to believe” that the law has been or is being violated. This is an expedited process that can put an end to an infringement while the agency retains its power to impose additional remedies on companies.

In this case, the FTC not only voted to issue an administrative complaint, but also to dismiss a prior federal court case against the respondents. In the court case, the court granted summary judgment for the FTC against the company as to liability under the FTC Act but denied summary judgment as to the availability of injunction relief. This administrative route allows the agency to put an end to an enforcement action without spending additional resources litigating in a federal court. However, this proceeding also has some limitations — the FTC cannot obtain monetary relief from the company under the FTC Act following a Supreme Court’s ruling in AMG Capital Management, LLC v. FTC.

Read More: CFPB’s New Procedural Rules May Be a Game-Changer

This announcement comes a few weeks after the CFPB issued procedural rules that may represent a change in the agency’s strategy to pursue enforcement actions. The proposed changes empower the director of the CFPB to rule on key issues more quickly than under the previous provision and make it easier for the CFPB to litigate in the administrative process.

The new rules establish a clear pathway for the Bureau to use enforcement through administrative action in a similar fashion as FTC does. It also allows the CFPB to be more strategic in the forum to litigate cases, preferring administrative law judges over federal courts, and it grants additional powers to the Director of the Bureau to rule on the merits of a case.

The CFPB may be the next agency to pursue enforcement via administrative actions, and the FTC’s complaint against Electronic Payment Systems seems like the perfect blueprint to use when the Bureau decides to explore its new powers.