Another ‘High Risk’ Transaction Processor Settles with FTC

WASHINGTON, D.C. – Late last week, the Federal Trade Commission (FTC) announced that a Latvian payment processor, Transact Pro, and its former CEO, Mark Moskvins, have settled charges that they “engaged in unlawful conduct that enabled a deceptive ‘free trial’ offer scheme by U.S.-based defendants.”

The Transact Pro settlement stems from a related action against a Wyoming-based company, Apex Capital Group – the “U.S.-based defendants” referenced by the FTC.

While it doesn’t appear that either Apex or Transact Pro offered billing services for the adult industry, they did process charges for other products often promoted by adult webmasters as ancillary revenue sources, like “nutraceuticals” and dietary supplements – and the practice of offering “free” trials which result in the customer being enrolled in subscription billing programs is certainly something to which the adult industry is no stranger.

According to the original complaint filed against Apex, the company offered customers trials of products for just the cost of shipping and handling, typically $4.95. The actual cost of those trials quickly added up significantly more, however.

“In fact, Defendants charge consumers’ credit and debit cards the full price of the products –approximately $90 – approximately two weeks after consumers order the trials. Defendants also enroll consumers, without their knowledge or consent, in continuity programs, shipping them additional supplies of the products and charging them about $90 on a monthly basis.”

Apex also employed another billing method familiar to the adult space in days gone by – the not so well-disclosed “cross sale.”

“Defendants frequently also charge consumers for supposedly complementary products and enroll consumers in continuity programs related to these secondary products, without consumers’ knowledge or consent,” the FTC’s complaint alleged.

Subscription billing, free trials, cross sales, negative billing options and many of the other methods described in the complaints against Apex and Transact Pro can be done legally; the key is in clearly and conspicuously disclosing the terms of the offer, something the FTC said these companies didn’t do.

“Many of these websites purport to offer ‘free’ or ‘risk free’ trials of the products that include a negative option feature that is either not disclosed or is poorly disclosed in a manner that is neither clear nor conspicuous,” the FTC alleged in its complaint. “Consumers, without their informed consent, are then charged for products that are shipped to them each month until they take action to cancel and, sometimes, even after cancelling.”

The stipulated final order announced by the FTC resolves the charges against Transact Pro – and “prohibits them from the conduct alleged in the complaint, including credit card laundering.” The company is also banned from “payment processing, or assisting others in payment processing, for certain categories of merchants and requires enhanced screening and monitoring procedures for the company’s ‘high-risk’ clients.”

The order also imposes a $3.5 million judgment against Transact Pro, which the FTC “may use to provide refunds to consumers defrauded by the Apex Capital ‘free trial’ scheme.”

Together, Apex and Transact Pro “have taken tens of millions of dollars from consumers through this deceptive conduct,” the FTC alleged – and according to Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, it’s the sort of conduct the FTC intends to crack down on, wherever it is found.

“Transact Pro helped scammers drain people’s accounts without their permission,” Smith said. “The FTC will continue to aggressively pursue payment processors that are complicit in illegal conduct, whether they operate at home or abroad.”

Last summer, payment processors Allied Wallet and GTBill settled charges brought against them by the FTC and in September, the FTC obtained an injunction halting free trial offers from AH Media Group – further indications the FTC is keeping a wary eye on the ‘high-risk’ transaction processing space.

While I’m not aware of any transaction processors currently serving the adult industry that allow merchants to employ the sort of deceptive trial offers, cross sales and negative billing options described in the complaints against Apex and Transact Pro, merchants would be wise to double-check their current offers to make sure if they do include provisions like rolling “free” trials into subscriptions, such provisions are very clearly disclosed to their customers.

The FTC offers guidelines on what constitutes “full disclosure” on its website. If you think there’s any question that your offers, ads or agreements directed at consumers meet the standard required by the FTC, it’s worth giving that page a careful read.