Already found liable for its role in a telemarketing scheme that defrauded consumers, Universal Processing Services of Wisconsin LLC, doing business as Newtek Merchant Solutions, now will have to pay its share of a $1.7 million fine, a U.S. District Court judge ruled last week.
The Federal Trade Commission in 2013 sued Newtek, its former president Derek Depuydt, and a telemarketing firm. The agency said Universal Processing Services abetted a scheme to defraud consumers by processing transactions for a telemarketer that was selling an allegedly bogus rate-reduction service to credit card holders.
In November, the U.S. District Court for the Middle District of Florida, Orlando Division, issued a judgment holding Newtek liable for violations of the Telemarketing Sales Rule. In last week’s court decree, which set the penalty to be paid, Newtek neither admitted nor denied any of the allegations, except the court’s jurisdiction over the matter. The company also is restricted from working with certain merchant types, such as debt-relief services.
Newtek did not respond to a Digital Transactions News request for comment.
Among the court’s other stipulations is that Newtek adopt a detailed merchant-screening process, monitor clients for chargeback rates, prove that these processes are in place, and for the next 15 years submit compliance reports and create accounting, personnel, chargeback, and compliance records.
The court also ordered in November that Depuydt, who stepped down as president of Newtek Merchant Solutions in January 2013, pay a $25,000 fine and permanently enjoined him from working with certain merchant types, such as outbound telemarketing firms, buying clubs, and credit card or identity-theft-protection services.
The lesson for independent sales organizations, acquirers, and other payments companies is to know what merchants are doing, says Jill Miller, an attorney at Novi, Mich.-based law firm Varnum LLP. Following the Visa Inc. and MasterCard Inc. rules covering merchant applications and underwriting requirements helps, Miller says. In October, Visa updated its rules to require a due-diligence review and an underwriting-monitoring policy, she says.
“There’s a lot of obligation passed down to the ISO through the processing or acquiring agreement,” Miller tells Digital Transactions News. “We still always go back to the card brands and they very specifically articulate what should be done.”
Policies covering the merchant-application review and underwriting components can help protect the ISO or acquirer, she says. “Don’t go outside of your merchant-underwriting process. That process is in place to protect the company.”
It could avoid situations where one person could override red flags. “When you give any individual authority to subjectively approve a merchant, that’s cause for concern in a company,” Miller says.
“Make sure if you have your own underwriting process, ensure it’s well documented. Have written procedures and follow them,” Miller says. “If you have a third party doing it, make sure you know their procedures and how they’re vetting your merchants.”