Merchant Account Underwriting Tools

Of interest to Underwriters

The sole purpose of all Blogs on this website is to inform underwriters and risk managers of questionable activities in the acquiring industry so that they are pointed to sources of further inquiry for their business decisions.

As underwriters evaluate applications it is helpful for them to be wary of merchants that have been involved in potential chargeback events in the past. The principals will be looking for processing accounts again. Scammers who are in MATCH will frequently use associates listed in FTC filings or news articles but not in MATCH as straw men the next time around

Underwriters will want to be extremely wary of merchants whose websites indicate the following marketing methods as outlined by the judge may be used:

Excerpt taken from FTC V Jeremy Johnson et al. United States District Court For The District of Nevada. Case 2:10-cv-02203-GWF

“The Defendants in this case operate a far-reaching Internet enterprise that deceptively enrolls unwitting consumers into memberships for products or services and then repeatedly charges their credit cards or debits funds from their checking accounts without consumers’ knowledge or authorization for memberships the consumers never agreed to accept. This scam has caused hundreds of thousands of consumers to seek chargebacks. (reversals of charges to their credit cards or debits to their banks accounts).

The high number of chargebacks has landed the Defendants in VISA’s and MasterCard’s chargeback monitoring programs resulted in millions of dollars in fines for excessive chargebacks and led to the termination of numerous of Defendants’ merchant accounts through which they had been billing their victims.

Yet, rather than curing their deceptions, Defendants have employed a variety of stratagems to continue and expand their scam, thereby causing un-reimbursed consumer injury to mount to more than $ million since 2006. For instance, in 2009 Defendants incorporated more than 50 Shell Companies using mail drop addresses and straw-figures as owners and officers because they knew that it was unlikely they could obtain additional merchant accounts using existing companies, due to these companies’ negative chargeback histories

Defendants then applied through intermediaries called Payment Processors for new merchant accounts in the names of these “front” companies in order to continue processing the credit and debit card charges for the online memberships Defendants sell.

They have also attempted to drive down their chargeback rates by threatening to report consumers who seek chargebacks to an Internet consumer black list they operate called “” that will “result in member merchants blocking [the consumer] from making future purchases online!” And they have attempted to counter the large number of complaints about their conduct strong>by flooding the Internet with supposedly independent positive articles and other web pages.

Defendants lure consumers into their scam through websites that claim to offer free or risk-free information about products or services (“products” or “programs”) such as government grants to pay personal expenses and Internet-based money-making opportunities. As explained in greater detail below, Defendants’ government grant and money-making opportunity websites are replete with misrepresentations about the availability of grants for personal expenses and the likely profitability of the money-making opportunities. Moreover, the government grant websites frequently feature testimonials that falsely represent that consumers who use Defendants’ grant program are likely to obtain grants such as those obtained by the consumers in the testimonials.

Consumers who arrive at Defendants’ websites fill out a form and provide their credit card or bank account information under the mistaken belief that their credit cards will be charged or bank accounts debited only a small fee for shipping and handling, such as $1.99 or $2.99, to receive information about obtaining government grants or making substantial amounts of money. However, buried in the fine print on the Defendants’ websites (if disclosed at all) or on a separate Terms page are details that completely transform the offer as understood by consumers.

Instead of providing a free product or service for the nominal shipping and handling fee, Defendants immediately enroll consumers in multiple expensive online Negative Option Continuity plans whereby consumers are charged recurring fees or other additional fees until they affirmatively cancel enrollment in the plan (“Negative Option Plans”).

Defendants enroll consumers in online Negative Option Plans for both the advertised (“core”) product as well as for additional products and services, which are known as “Upsells,” many of which are “Forced Upsells.” Defendants’ Forced Upsells are products Defendants automatically bundle with the core product and from which consumers cannot opt-out when signing up for the core product. Pursuant to the Negative Option Plans, Defendants charge consumers’ credit cards (or debit their bank accounts) hefty one-time fees of as much as $189 and then recurring monthly fees of as much as $for the core product, as well as recurring monthly fees for the Forced Upsells costing as much as $.

When consumers receive their credit card or bank statements, they learn that they have been billed far more than the de minimus shipping and handling fee they agreed to pay. Instead, their statements show expensive charges for the core product as well as for one or more of Defendants’ Forced Upsells. Where the core product is offered by Defendants’ marketing partners or clients, consumers find charges or debits for Defendants’ Upsells as well as for the marketing partner’s or client’s core product. Some consumers fail to notice the unauthorized charges for several billing cycles, if at all.”

Merchant account fraud by the “merchant” can destroy the profits of the processor.

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