Washington state, FTC slam processor for deceptive practices

The Federal Trade Commission secured a $600,000 settlement with Washington-based payment processor Riverside Payments, its equipment affiliate and their operators. The settlement, which stems from a joint action complaint with Washington state, also allows affected businesses to terminate their payment processing agreements with Riverside without incurring early termination penalties, the FTC said in a press release.

The settlement resolves allegations that the firms deceived small businesses by falsely promising to save them money on payment processing services and making it nearly impossible to cancel despite a "risk free" cancellation policy.

The FTC and Washington state allege that Riverside, Cascade Equipment Leasing LLC, and their owners and executives, Brandon Skinner and Jason Reese, falsely promised small businesses that they would save money on payment processing services, while failing to clearly inform the businesses that they were being enrolled in automatic renewal contracts for payment processing and equipment leasing.

"Riverside and Cascade promised small businesses significant savings, but instead of saving money locked them into costly, multi-year contracts and made it very difficult to cancel," said Christopher Mufarrige, director of the FTC's Bureau of Consumer Protection. "The FTC will hold accountable companies that deceive small businesses, whose hard work powers our economy."

Deceptive quote sheets, false claims about earnings

The FTC and Washington state allege that Riverside's sales pitches included a quote sheet that compared the costs prospective clients paid their existing payment processor with the amount they would save if they used Riverside's services instead. The complaint alleges that Riverside violated the FTC Act and other federal laws by obtaining customer's financial information using false or fraudulent statements.

The complaint alleged that Riverside at times claimed that small businesses could save 40 to 60 percent by switching to Riverside, but in reality, small businesses that switched to Riverside typically ended up paying more than they did with their previous processor.

The quote sheet failed to include various fees, the complaint stated. Among them: activation fees, batch fees and fees for supposed non-compliance with data security standards or inactive processing.

In addition, Riverside's 26-page electronic contract buried key information not clearly disclosed by sales agents, according to the complaint. This included information about automatic renewals for processing services after the initial three-year term and a $695 early termination fee. The complaint also alleged merchants were on the hook for leasing equipment from Cascade, which locked customers into automatic renewal contracts that lasted one year longer than processing contracts.

And that's not all. The complaint alleged that small businesses that attempted to cancel their contracts did not hear back from Riverside and were left in a loop of fruitless phone calls and deflection. Even business that were willing to pay Riverside's "improperly disclosed" $695 termination fee, were told there was no direct line to call to cancel; they were told to leave messages and wait for call backs that never materialized.

Additionally, the FTC and Washington alleged in their complaint that Riverside made false and unsubstantiated claims about how much money its commission-based sales agents would earn. The company's advertisements claimed agents could earn between $75,000 and $95,000 a year, and that top agents could make as much as "100K." In reality agents, on average, made just $3,787 a year, according to the complaint.

No more misrepresentations, unsubstantiated claims

The order and complaint require Riverside to notify customers that they will waive early termination fees for a period of 60 days. Additionally, the companies are prohibited from:

• Misrepresenting costs, savings, cancellation conditions or any other material fact about their products and services;
• Making unsubstantiated claims about the amount of savings customers will realize;
• Making unsubstantiated earnings claims; and
• Misrepresenting any aspect of a negative option feature related to products and services.

The order also requires the companies and their owners to clearly and conspicuously disclose to customers, prior to obtaining their billing information, all material terms of the transaction, to obtain customers' express informed consent to use a negative option plan to bill, and provide customers with a simple way to cancel a negative option plan.

The proposed order resolving the FTC's and Washington state's allegations imposes a $32,083,921 judgment against Riverside, Skinner, Reese and Cascade. But all except for $600,000 will be suspended due to the companies' assertions that they don't have the money to pay the full amount. However, the full amount will be due if they are found to have lied about their finances, the FTC stated.

The U.S. District Court for the Western District of Washington still needs to sign off on the complaint and final order, the FTC noted.

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