First American Payments Settles an FTC Complaint Regarding Deceptive Practices

First American Payment Systems has agreed to a proposed federal court order requiring the processor to repay $4.9 million to small businesses affected by what the Federal Trade Commission called deceptive practices, according to the FTC. The settlement, announced Friday, was made in the wake of charges by the FTC that First American and two of its sales affiliates gouged small merchants with hidden terms, surprise exit fees, and what the FTC described as “zombie charges.”

In its complaint, the FTC alleges First American made false claims about charging low monthly fees, as low as zero in some cases, then imposed previously undisclosed fees when merchants attempted to cancel their service with the processor. The FTC further alleges the processor used an online enrollment system that obscures key contract terms, such as a hidden three-year obligation that automatically renews, and hit merchants with so-called zombie charges, that is, continuing to make withdrawals from a merchant’s bank account even after the merchants had canceled consent for such withdrawals.

In the case of the latter incidents, the FTC cited an example of First American attempting further withdrawals under different business names after the merchant had taken steps to stop payments from their bank account to the processor.

First American issued a statement in which it denied the allegations in the FTC complaint, stated it cooperated with the agency, and settled to avoid a lengthy legal battle and the costs that would have created.

Fort Worth, Texas-based First American, which was acquired by Deluxe Corp. in 2021 for $960-million, provides payment-processing services nationwide, which it markets through its affiliates Eliot Management Group and Think Point Financial.

“First American lured small businesses in with false promises of low costs and an easy exit and hit them with surprise fees and illegal charges when they tried to get out,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, says in a prepared statement. “Today’s order returns millions to merchants, bans unauthorized billings, and makes it easier for customers to cancel.”

In a blog posted the day of the settlement, the FTC reiterated that protecting small businesses from deceptive and unfair practices is a key priority for the agency, especially when it comes to the access to the credit card system, for which processors serve as an intermediary to merchant acquirers and card issuers.   

“That includes taking action when payment processing companies that offer small business owner’s access to the credit and debit card system allegedly use illegal tactics to pitch their services,” the blog says.

In its blog, the FTC lays out key takeaways from the settlement for other processors, including adhering to the Restore Online Shoppers Confidence Act, a federal statute that protects consumers and businesses from deceptive online auto-renewal practices, monitoring sales agents to ensure they avoid illegal practices, being transparent about cancelation agreements, and not preying on merchants with limited English proficiency.