Earlier this month, the United States District Court for the Western District of Texas permanently banned Madera Merchant Services and B&P Enterprises, LLC from payment processing for their involvement in business practices that scammed consumers out of millions of dollars. The Federal Trade Commission and Ohio Attorney General Dave Yost filed their complaint in 2019.

The joint complaint filed against Madera alleged that Madera and B&P, along with their owners, operated a payment processing scheme that used remotely created payment orders or remotely created checks (“RCPOs”) to withdraw money from consumer accounts on behalf of third-party merchants in violation of Section 5 of the FTC Act, and the FTC’s Telemarketing Sales Rule (“TSR”).

An RCPO is a check or order that a payee creates electronically using the payor’s bank account information. RCPOs are not signed by the payor; rather, the RCPO usually includes a statement that the accountholder authorizes the payment. RCPOs are not subject to the heightened level of monitoring like ACH and card transactions, and are ripe for committing fraud. Fraudulent merchants can use RCPOs to create unsigned checks that withdraw funds from consumers’ bank accounts without their authorization.

The complaint alleged that Madera and B&P used RCPOs to withdraw funds from consumer accounts for merchants who were engaged in fraudulent and deceptive schemes, including telemarketing schemes. When the complaint was initially filed, the FTC concurrently filed a complaint against Madera and B&P’s largest merchant client – Educare Center Services (“Educare”).

Educare operated a telemarketing scheme by which it would cold-call consumers and market credit card interest rate reduction services promising that, in exchange for a fee, Educare would substantially lower the interest rates on consumers’ credit cards. Educare offered a 100% money-back guarantee if it failed to deliver on its promise. For a vast majority of consumers that enrolled in Educare’s interest rate reduction program, Educare did not secure the interest rate reduction, and it would fail to honor its money back guarantee.

Madera and B&P provided payment processing services for Educare. Madera and B&P opened business checking accounts under various names with various financial institutions, misrepresented the type of business for which they were opening the account, and failed to disclose the reason they were opening the account – to process consumer payments for third-party merchants using RCPOs. The TSR specifically prohibits the use of RCPOs in connection with telemarketing.

Madera and B&P agreed to be permanently banned from the payment processing industry in order to settle the charges brought by the FTC and Ohio. In addition, an $8.6 million monetary judgement was issued, but likely will be suspended because of an inability to pay.