FTC turning microscope on third-party lenders

Some online merchants open multiple accounts to disperse chargebacks from customers.

Merchant account providers operating high-risk merchant accounts should tread even more carefully in deciding which merchants to back. A new task force led by the Federal Trade Commission (FTC) will be looking at third-party payment providers with increased scrutiny, FTC representatives announced last month.

Along with the FTC, the task force will comprise the Justice Department, FBI, FDIC, the office of the Comptroller of the Currency and a branch of the Treasury Department that focuses on money laundering. The task force is related to an intergovernmental organization created several years ago to monitor the payments industry.

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The FTC#039;s Karen Hobbs told Digital Transactions that some merchants apply for multiple merchant accounts in order to disperse chargebacks among different entities and skirt credit card company regulations. Visa and Mastercard both have chargeback limits on accounts that can lead to higher fees and account closure if they are exceeded.

But while the FTC is seeking those that deliberately bypass regulations by operating multiple accounts, opponents of the task force believe it could put an undue burden on businesses that have legitimate reasons for opening multiple merchant accounts.

The FTC is concerned with instances of consumer fraud, which have been on the rise for years and are especially common with merchants that process a significant amount of transactions, such as those that operate credit repair merchant accounts. Companies that are found to be committing fraud will be prevented from opening a merchant account, and those that do manage to get a merchant account will be shut down immediately.

Merchants that are concerned with the new FTC task force should consult a payment processing consultant to ensure that their payment practices will not be flagged by the FTC. Some companies may appear to be committing fraud when they actually are not.