FTC Imposes $110 Million Fine Against Payment Facilitator and Its ExecutivesPayment processor/facilitator Allied Wallet, its CEO, and two other corporate officers, recently agreed to settle Federal Trade Commission (FTC) charges that they assisted or knowingly processed fraudulent transactions for merchant-clients. This action indicates that enforcement actions against payment processors are alive and well, despite the FTC’s previously announced end of “Operation Chokepoint,” which, among other goals, targeted payment processors and facilitators whose merchant clients engaged in activities perceived to be fraudulent.

The FTC alleged that Allied Wallet and the other defendants violated Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits “unfair or deceptive acts or practices in or affecting commerce.” According to the allegations, Allied Wallet, through its payment processing business, knowingly processed payments for merchant-clients engaged in fraudulent and criminal activities. The FTC alleged that the payment processor, in concert with its vendor, failed to adhere to rules and monitoring standards that would have prevented the criminal activity.

Allied Wallet’s business, in part, involved enabling e-commerce merchant-clients to accept card payments from consumers. A merchant account is a special type of business bank account that allows a business to accept different types of payment, typically debit and credit card payments. In order to setup payment processing, various merchants entered into agreements with Allied Wallet, which acted as an intermediary between the merchant and financial institutions known as an acquiring bank or “acquirer.” Allied Wallet’s payment processing model consisted of Allied Wallet acting as a “payment facilitator,” meaning that it was an authorized merchant registered by acquirers to process transactions on behalf of other merchants engaged in e-commerce who did not have merchant accounts of their own.

The FTC alleged that Allied Wallet failed to adequately vet merchants before acting as a payment facilitator for them. Specifically, the FTC alleged that merchants using Allied Wallet as a payment facilitator misidentified their locations, annual sales volume, and revenue transfers.  The FTC also alleged that Allied Wallet failed to have an adequate compliance monitoring system in place to detect certain patterns that would indicate a merchant was engaging in fraud or criminal activity.

The FTC also emphasized that Allied Wallet continued to accept referrals from an entity run by an individual who had previously been convicted of various payment processing violations. Importantly, the FTC did not act to restrain this bad actor from acting as a referral source for payment facilitators, and the company this individual was currently running had no investigations or convictions against it. Nonetheless, the FTC suggested that Allied Wallet should not have used such a referral source, despite no per se rule against such an arrangement.

Under the stipulated final order, Allied Wallet, its affiliates, and its CEO agreed to a $110 million equitable monetary judgment. Another executive was subject to a $320,429.82 equitable monetary judgment, and Allied Wallet’s COO was hit with a $1 million fine and a lifetime ban in the industry.

The action serves as another stark reminder to mind the company you keep and to monitor card payments being processed on behalf of others.

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Photo of Graham W. Gerhardt Graham W. Gerhardt

Graham Gerhardt represents financial institutions in civil litigation throughout the country. He regularly assists clients in both the forward mortgage and reverse mortgage industries. Graham frequently litigates in federal court where he defends lenders and loan servicers accused of violating federal statutes, most…

Graham Gerhardt represents financial institutions in civil litigation throughout the country. He regularly assists clients in both the forward mortgage and reverse mortgage industries. Graham frequently litigates in federal court where he defends lenders and loan servicers accused of violating federal statutes, most commonly TILA, RESPA, the FDCPA, the FCRA, and the TCPA. He also represents clients in state court, defending against claims such as wrongful foreclosure, fraud and deceptive trade practices. Graham oversees these suits through all stages of the legal process, including bench trials, jury trials and frequent depositions and mediations.

Photo of Josh Dhyani Josh Dhyani

In the financial services space, Josh Dhyani works with clients to provide civil litigation services, oversight of regulatory and administrative matters, and compliance guidance pertaining to complex state and federal regulatory issues. Josh guides financial services clients through complex litigation and regulatory matters…

In the financial services space, Josh Dhyani works with clients to provide civil litigation services, oversight of regulatory and administrative matters, and compliance guidance pertaining to complex state and federal regulatory issues. Josh guides financial services clients through complex litigation and regulatory matters from trial to appeal in a wide range of issues, including the Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Telephone Consumer Protection Act (TCPA), as well as claims regarding unfair and deceptive trade practices and fraud. He also assists financial services clients facing investigations and enforcement actions by the CFPB and other regulators. Josh has extensive experience in quiet title and related lienholder disputes and in assessing and processing mortgage-related industry licenses for entities working in the financial services space, including mortgage lenders, servicers, brokers, consumer financial companies, and debt collectors. In addition, he assists clients in managing regulatory hurdles involving mergers, changes in control persons, and other corporate moves.