As politicians wrangled over the leadership and authority of the new Consumer Financial Protection Bureau that might turn the spotlight on more abuses, a certain shady payment practice that defrauded thousands of consumers took root and flourished for more than two years.
The scam came to light Jan. 5 when the Federal Trade Commission announced that as part of a settlement it has banned processor Landmark Clearing Inc. and two of its principals from using a new payment method that enabled them to debit thousands of U.S. consumers’ bank accounts for more than $11 million without their consent (
The payment method, called “remotely created payment orders,” involves entering a consumer’s name and bank account information into an electronic form, which is processed like an ordinary check, according to an FTC press release.
Instead of having the accountholder’s signature, remotely created payment orders say “Authorized by Account Holder” or “Signature on File.” Such payment orders require the accountholder’s express authorization for processing.
Between fall 2008 and spring 2011, Plano, Texas-based Landmark Clearing and its principals Larry Wubbena and Eric Loehr used such remotely created payment orders to process more than 110,000 payments on behalf of certain merchants without consumers’ consent, the FTC charged.
Consumers and their banks returned and rejected as many as 80% of the fraudulent transactions, but many other consumers experienced losses.
One example the FTC cited was John Chagoya, a California man who noticed a debit to his bank account initiated by Landmark and payable to Direct Benefits Group, one of Landmark’s merchants. The debit caused Chagoya to overdraw his account, resulting in fees.
"They never contacted me at all, and I never authorized anyone to debit money from my account,” Chagoya said in the release.
Landmark ignored red flags suggesting trouble including “astronomical” transaction-return rates, the FTC said.
“The return rates posted by Landmark’s clients provided obvious signs that they were engaged in dubious practices,” David Vladeck, the FTC’s Bureau of Consumer Protection chief, said in the release.
Unlike many other payment mechanisms, such as credit cards, “remotely created payment orders are not subject to significant oversight and monitoring, making them vulnerable to abuse,” the FTC noted.
As a result, remotely created payment orders have become a particularly attractive payment method for merchants and processors engaged in fraud and unauthorized debiting, the FTC said.
Landmark allegedly processed more than $5.7 million in debits through the First Bank of Delaware on behalf of Platinum Online Group, the FTC said. The firm also processed $5.3 million in debits through the same bank on behalf of Direct Benefits Group.
The settlement the FTC reached bans Landmark from processing payments through remotely created payment orders or remotely created checks, while permitting the defendants to provide other forms of payment processing “subject to stringent conditions.”
The defendants are required to screen and monitor prospective and existing clients to determine whether their business practices violate the FTC Act or the Telemarketing Sales Rule. It also requires them to investigate transaction-return rates of more than 2.5%, which is a red flag for unauthorized transactions.
Landmark and its principals also agreed to a $1.5 million judgment that will be suspended upon payment of $126,000 and the surrender of a parcel of land, the FTC said.
PaymentsSource could not reach Landmark officials for comment.
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