FTC Asks Court to Hold Payment Processors in Contempt for Systematically Violating 2015 Order

The Federal Trade Commission has asked a federal court to hold the operators of a payment processing operation in contempt for systematically violating their 2015 order with the agency over allegations they illegally processed credit card payments.

In a motion filed in federal court, the FTC alleged that Cliq, Inc., formerly Cardflex, Inc., along with its operators, CEO Andrew Phillips and Chief Technology and Security Officer John Blaugrund, have flouted their obligations under the 2015 order. The FTC asked the court to impose at least $52.9 million in compensatory relief for consumers, modify the 2015 order to permanently ban Phillips and Blaugrund from the payment processing business, and appoint a receiver to ensure Cliq and its operators comply with the 2015 order's requirements.

"Cliq and its operators flagrantly violated an FTC order requiring reasonable steps to prevent and detect fraud," said Christopher Mufarrige, Director of the FTC's Bureau of Consumer Protection. "We will not hesitate to hold accountable companies that ignore red flags and distort the honest functioning of the U.S. payment system."

The FTC alleged that Cliq violated numerous provisions of the 2015 order while processing for companies expressly prohibited by the order. This includes a group of merchants that have separately been indicted for crimes related to this processing. Cliq and its operators alleged violations include:

• Processing hundreds of millions of dollars in payments for at least three clients on Mastercard's Member Alert To Control High (MATCH) list, which includes merchants terminated for violating card brand rules such as having high chargeback rates. Chargebacks occur when a consumer challenges a credit card transaction because the product or service received is not as described.
• Assisting and facilitating clients' tactics to avoid bank and credit card network fraud and risk monitoring programs.
• Processing transactions for high-risk clients without engaging in a reasonable effort to screen those clients' business practices to determine if they are, or are likely to be, deceptive.
• Failing to monitor high-risk clients' sales and transactional activity to determine whether their businesses are engaged in practices that are deceptive, including ceasing all processing for clients with high chargebacks without establishing those clients were not engaged in deception.

Given their repeated violations of the 2015 order, Cliq, Phillips and Blaugrund should be held in contempt and the court should award compensatory relief for injured consumers as well as ordering actions to force Cliq into compliance, according to the FTC.

The motion was filed in the U.S. District Court for Nevada.