FTC Alleges Payment Processor Cliq Failed to Implement Fraud Prevention Measures

Payment processor Cliq said Monday (Jan. 19) that it will “vigorously defend” against a legal motion filed Tuesday (Jan. 13) by the Federal Trade Commission (FTC).

The motion alleges that the company, CEO Andrew Phillips and Chief Technology and Security Officer John Blaugrund violated a 2015 order requiring “reasonable steps to prevent and detect fraud,” the FTC said in a Tuesday press release.

The 2015 order resulted from allegations that Cliq, which was known as CardFlex Inc. at the time of the order, illegally processed credit card payments, according to the release.

In its latest motion, the FTC alleges that the company violated several provisions of the order by processing “hundreds of millions of dollars in payments” for clients that had been terminated by Mastercard for violating card brand rules, helping clients to avoid bank and credit card network fraud and risk monitoring programs, processing transactions for high-risk clients without adequately screening the clients’ business practices, and failing to monitor high-risk clients’ sales and transaction activity to determine whether the clients were engaged in deceptive business practices, the release said.

The motion asks the court to hold Cliq, Phillips and Blaugrund in contempt, award at least $52.9 million in compensatory relief for injured consumers, and force Cliq into compliance, in part by permanently banning Phillips and Blaugrund from the payment processing business, per the release.

“Cliq and its operators flagrantly violated an FTC order requiring reasonable steps to prevent and detect fraud,” Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, said in the release. “We will not hesitate to hold accountable companies that ignore red flags and distort the honest functioning of the U.S. payment system.”

Reached by PYMNTS, Cliq leadership said in an emailed statement: “Cliq is confident in its business and compliance practices and adheres to the law. The company will vigorously defend against this unjustified action.”

PYMNTS reported in August 2014 that the FTC’s case against CardFlex and several related or associated independent sales organizations (ISOs) alleged that the group processed more than $26 million in unauthorized charges to consumers’ credit and debit card accounts.

CardFlex, Phillips and Blaugrund reached the settlement with the FTC in March 2015.