Digital Transactions Authoritative, insightful and timely information for payments professionals
By Jim Daly
A California independent sales organization called CardFlex Inc. and its two principals have settled federal charges that they allegedly processed more than $26 million in unauthorized charges for a company known as I Works.
CardFlex strongly denied the FTC's charges and said it settled in order to get the matter behind it and avoid the time and expense of fighting the Federal Trade Commission.
Two other payments companies and two individuals earlier settled FTC charges related to I Works, according to the Commission. In all, the FTC says I Works scammed consumers out of more than $275 million through deceptive trial memberships for bogus government grants and money-making schemes, according to the FTC.
The FTC on Friday announced the settlement with CardFlex and principals Andrew Phillips and John Blaugrund after filing charges against them last July in U.S. District Court in Nevada. Costa Mesa, Calif.-based CardFlex allegedly processed more than $26 million in unauthorized charges involving I Works, the FTC said in a news release.
The settlement bans the defendants from processing payments for merchants engaged in deceptive conduct. They may not do business with several categories of merchants or assist client merchants’ attempts to evade risk-monitoring programs, and they must take steps to screen merchants and monitor them for deceptive activity, according to the FTC.
The agreement also imposes a $3.3 million judgment against CardFlex and Phillips that will be partially suspended based on their current financial condition. Phillips, however, is to pay $150,000 and turn over personal assets, including nearly $1.2 million worth of jewelry that the FTC will sell at auction.
In its complaint, the FTC alleged that the defendants knew I Works had been placed on industry lists of high-risk merchants due to high chargeback rates, but they still provided I Works “with full access to payment networks and did not engage in required underwriting processes when they opened I Works accounts,” the FTC said.
The FTC also said the CardFlex defendants helped I Works evade the payment card networks’ fraud-monitoring programs. They reportedly “opened nearly 300 accounts in the names of shell corporations on I Works’ behalf, and implemented a system that enabled I Works to divide its sales transactions between 30 separate accounts to avoid reaching the level that they would be monitored by the credit card networks,” the FTC said.
A CardFlex spokesperson said in a statement emailed to Digital Transactions News that “we are happy to put this investigation behind us. We settled to avoid protracted and disruptive litigation so that we could focus on serving our merchants. We remain committed to providing our merchants exceptional service and look forward to our future successes in the payment industry.”
CardFlex’s Web site lists its sponsor bank as Chicago-based BMO Harris Bank N.A. CardFlex also is an ISO for Central National Bank and Trust Co. of Enid, Okla. and offers a prepaid Visa card issued by Central National Bank.
