A payment processing company that allegedly helped a bogus discount club program charge consumers tens of millions of dollars without authorization faces a $2.3 million lawsuit from the Federal Trade Commission and a permanent ban from working with high-risk customers.
According to the FTC’s complaint in the case, first filed in 2017, iStream Financial Services and its officers, Kris Axberg and Richard Joachim, allegedly withdrew money from consumers who were seeking payday or cash advance loans but had signed up for a coupon Coupon service and calculated initial fees of up to $100 plus up to $19.95 per month. Consumers were enrolled in the Discount Club program online and via outbound telemarketing.
The complaint alleged that 99.5 percent of consumers who were illegally charged for the “discounter clubs” never accessed coupons, and that tens of thousands called the defendants to try and reverse the charges, while thousands more contested the charges directly with their banks.
“The order announced today prohibits iStream from processing high-risk payments and directs it to pay $2.3 million that can be used to reimburse defrauded consumers,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau. “Unfortunately, that amount represents only a small fraction of the approximately $40 million in total losses consumers are suffering – a direct result of the Supreme Court decision in AMG. Without a legislative solution to restore the FTC’s strongest authority to receive refunds, these consumers, and millions more like them, cannot recover.”
Payment processors like iStream offer merchants the ability to receive customer payments for products and services through electronic banking. According to the complaint, iStream, in partnership with the merchants, used a payment method called Remote Created Check (RCC) to withdraw the funds from consumers’ accounts, causing significant harm to hundreds of thousands of consumers, often those who could least afford the unauthorized funds be debited from their accounts.
iStream, which processed all payments for Discount Club from November 2010 to April 2016, consistently ignored the high response rates generated by Discount Club’s transactions, a red flag that indicates illegal charges. According to the FTC’s complaint, iStream also ignored other indications of fraudulent activity, including the fact that the primary merchant customer involved in the scheme from 2010 to September 2013 was EDebitPay, LLC, a company that had been the subject of previous FTC enforcement actions was because it had engaged in very similar wrongdoing.
Under the proposed settlement order, defendants will be permanently barred from using any form of remotely generated payment orders, including RCCs, as well as from processing payments on behalf of customers whose business involves outbound telemarketing, discount clubs, or offerings to support consumers with payday loan. The order also prohibits the defendants from providing payment services to customers that the defendants know or should know violate the FTC statute or the Telemarketing Sales Rule (TSR).
The order requires defendants to conduct a thorough review of all of their existing customers, as well as all prospective customers, to ensure that the customers are not violating the FTC statute or TSR.
The FTC’s trial against the other defendants in this case, including the merchants who operate the discount club program, is ongoing.
The commission’s vote to approve the final order set was 4–0. The FTC filed the proposed order in the US District Court for the Northern District of Georgia.
NOTICE: Posted final orders are final when approved and signed by the judge of the district court.