Page 21 - GS200102

Views

discount benefits packages, multilevel marketing CMS argues that, under the FTC's
distribution, nutraceuticals (a category that includes first proposal, CMS wouldn't be able to
vitamins), payment aggregators, cryptocurrency, solicit Amazon as a merchant, because it
third-party payment processors, third-party
payment processors, penny auctions, real estate sells books by Princeton Review about
G
seminars and trainin programs, and computer how to get scholarships for college.
technical support services. CMS wouldn't be able to solicit Brigham
Unacceptable consequences Young University as a merchant because

CMS argues that, under the FTC's first proposal, CMS its business school represents that its
wouldn't be able to solicit Amazon as a merchant, services can assist students in starting or
because it sells books by Princeton Review about how running a business.
to get scholarships for college. CMS wouldn't be able to
solicit Brigham Young University as a merchant because
its business school represents that its services can assist systems on which they depend, based on nothing more
students in starting or running a business. CMS would than the FTC staff's biases against particular industries.
have to subject CVS or Walmart to heightened scrutiny,
because they sell multivitamins. And CMS would have to CMS also noted that the FTC is prohibited from regulating
subject Best Buy or Apple to heightened scrutiny, because banks, whose relationships with ISOs are regulated by the
the Geek Squad and the Genius Bar provide computer FDIC and other banking regulators. Thus, CMS argues the
technical support services. FTC is seeking an end-run around this limitation of its
authority by going after the ISOs, which act as a sales arm
CMS further alleges that, while the FTC narrowed some for the acquiring banks, and are there to simply facilitate
categories in response to comments from CMS' attorneys, the connections between merchants and banks, the entities
the FTC indicated it would insist on a ban on serving responsible for the processing of merchant transactions.
businesses that fall into certain categories, including any
company (like Amazon) that sells nutraceuticals with Accordingly, the complaint asks the court to end the FTC's
an option to purchase via subscription (like Amazon's overreach and threatened legal claims by granting CMS'
"Subscribe and Save" program). request for declaratory relief, and issuing an injunction
prohibiting the FTC from bringing (or threatening to
The FTC also kept the list of suspect categories requiring bring) any action against CMS in connection with the
heightened scrutiny and monitoring virtually identical, provision of its ISO services as described herein, premised
apart from moving subscriptions (for all products other on a violation of 15 U.S.C. § 45(a) or § 53(b), as such statutes
than nutraceuticals, which would still be subject to the give the FTC no authority to bring such actions.
outright ban), business-related education and grants
categories, and businesses that use telephones to induce Why it matters
sales from the categories subject to an outright ban to This is a bold move by CMS. By filing suit against the
one requiring heightened scrutiny. The FTC rejected any FTC rather than waiting for the commission to commence
further proposal to narrow these categories.
an enforcement action, CMS has taken the initiative and
framed the argument on its own terms as a champion of
And the FTC sought to set the threshold for chargebacks ISOs throughout the payments industry. This challenge is
(which would trigger a duty to "immediately" investigate) also set against the backdrop of a split among the federal
at 55 chargebacks per month, a level well below the "early circuit courts as to whether 15 U.S.C. § 53(b), which codifies
warning" threshold set by the card brands. Additionally, section 13(b) of the FTC Act, empowers the FTC to seek
the FTC's various draft orders all sought to impose a "strict monetary relief, including restitution – an issue that has
liability" standard – meaning CMS could be in violation recently put the FTC on its heels in enforcement actions.
of the order's terms without having any knowledge of the This lawsuit may represent a blow to the FTC's ability
facts giving rise to that liability. to police ISOs and hold them liable for their merchants'
FTC overstepping its authority actions absent strong evidence of complicity.

CMS argues this is not what the law intends and is far Also take note that – as evidenced by the FTC's proposed
beyond reasonable bounds of the FTC's authority. The FTC consent order to CMS – all nutraceutical, tech support and
Act empowers the FTC to police unfair business practices. negative continuity merchants, along with the ISOs that
According to CMS, however, the vague term "unfair" extend services to them, remain very much within the
doesn't confer upon the FTC the power to make banks' ISOs FTC's crosshairs.
vicariously liable for failing to prevent merchants from Bradley O. Cebeci is a senior attorney with Rome & Associates, APC. Brad
committing fraud. And, the FTC has no authority to eject
thousands of law-abiding merchants – which themselves focuses on Payments Law, Digital Marketing and FTC Issues. Contact
are not the subject of any legal action – from the payment him at bcebeci@romeandassociates.com.
21