The Federal Trade Commission (FTC) has a long history of protecting consumers from scammers, fraudsters, and snake oil salesmen. In the analog 20th century, the FTC worked closely with the US Postal Service to rein in the get-rich-quick solicitations that were mailed by the millions, and the checks that were mailed back by so many hopeful buyers. In our digital era, the FTC pursues bad actors using the Watergate plan of “Follow the Money.” Schemers advertise in some very innovative places, but the funds roll into their coffers through electronic credit and debit card payments, and stopping their ability to accept cards effectively shuts down the fraud.
This most recent case involves Money Now Funding (MNF), who in 2015 settled allegations with the FTC that it had telemarketed worthless business opportunities to consumers and falsely promised that consumers would earn thousands of dollars in income. Ordinarily this would be the end of the FTC’s involvement, but as in other cases, the FTC alleges that there was another possible layer of fraud at work here. The card networks police bad actors in the payments ecosystem by enforcing a chargeback limit at 1% of transactions. This means that if more than 1 of every 100 sales are disputed by consumers, the business is deemed to be fraudulent and excluded from accepting branded payment cards.
In the case of MNF, their merchant processing services were provided by Independent Sales Organization (ISO) Electronic Payment Systems (EPS). The FTC alleges that EPS enabled the fraud perpetrated by MNF by opening 43 different merchant accounts that intentionally obscured the true nature of the underlying transactions and allowed MNF to avoid detection of exceeding the 1% chargeback threshold that would have alerted card network compliance teams. Many times, companies like MNF have difficulty gaining access to merchant card acceptance services, and companies willing to provide those services will charge fees significantly higher than a business like a restaurant would pay, making these types of accounts potentially very profitable for companies like EPS.
On March 15, the FTC released a consent agreement with EPS and its owners John Dorsey and Thomas McCann for allegedly opening credit card processing merchant accounts for fictitious companies on behalf of Money Now Funding (MNF).
“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.”
According to the EPS website, they are sponsored into the payment networks by Esquire Bank, of Jericho, NY, and to date no announcement has been made about whether sanctions will be applied to Esquire.