Electronic Retailer - March 2012 - 12

INDUSTRY REPORTS

FTC Forum

Paying the Price
BY LESLEY FAIR

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Insert your favorite Vince Lombardi cliché here, but a successful marketing campaign really is a team effort. So what should you do if you spot signs that something’s amiss with one of your client’s promotions? There’s no one-size-fits-all answer, but as savvy electronic retailers will tell you, it’s never a good practice to look the other way. That’s the lesson of a recent FTC settlement against a payment processor and two of its corporate officers. The company focused primarily on processing Remotely Created Payment Orders. How do they work? A consumer’s account info is entered into an electronic check template, which is then sent through the clearing system. When the bank gets the payment order, it debits the consumer’s account as if it would for a regular check. But sometimes the bank rejects the payment order and returns it to the processor. A high number of returns can be a tip-off that the merchant didn’t get the buyer’s valid authorization for the charges. In the FTC’s recent case, the company continued processing payments for merchants even though an astronomical percentage of the transactions were rejected and returned by consumers’ banks. For one merchant, more than 83 percent of total attempted debits were sent back. For another, the return rate topped 70 percent. With rates like that, the processor “knew, or should have known, that its client merchants routinely fail to obtain the consumers’ authorization for such debits,” according to the FTC’s complaint. The upshot for the company: a hefty financial settlement, a lifetime ban from offering certain types of payment processing services, and a court order requiring it to monitor its remaining clients closely. So what should payment processors – and others service providers – do to remain on the right side of the law?

Ignoring information that would raise the eyebrow of a reasonable businessperson isn’t a defense under the FTC Act.

• Be accountable with accounts. When you spot the telltale signs of trouble, it’s unwise to bury your head in the sand. Ignoring information that would raise the eyebrow of a reasonable businessperson isn’t a defense under the FTC Act. • Keep an eye on return rates. High return rates for payments you process — whether it’s the total number, the percentage returned, or the percentage designated by a consumer as unauthorized or “stop payment” — should trigger warning bells, signaling a need to take a closer look at what’s going on with the merchant. • Take an interest. Familiarize yourself with your clients and monitor their practices. This may include periodically reviewing their websites, checking what’s being said about them on consumer sites, doing other routine diligence into their products and practices – and asking the questions that need to be asked. Legitimate businesses don’t mind your interest. If you’ve ever been in the middle seat next to an ebullient entrepreneur, you know that executives at most reputable companies are only too happy to talk shop. • Consider the company you keep. If a business’ dealings with consumers are on the questionable side, it stands to reason that its B2B practices may merit scrutiny, too. If something appears amiss, take immediate action to protect consumers — which, in turn, could protect your business, your reputation and your bottom line. Lesley Fair is an attorney with the FTC’s Bureau of Consumer Protection.

electronicRETAILER | March 2012

Electronic Retailer - March 2012

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