In these economically-strapped times, the Federal Trade Commission(FTC) is cracking down not only on merchants who swindle consumers, but all parties involved in fraud, including payment processors.
Recently, a U.S. District Court for the Eastern District of Texas banned the use of “remotely created payment orders” by Landmark Clearing, Inc. “Remotely created payment orders” allow merchants to enter a client’s name and bank number into a form and are cleared like a paper check, except that in lieu of a signature, the words “Authorized by Account Holder” or “Signature on File” appear. Federal banking regulations require the creator of a remotely created payment order to have the express authorization of a consumer to process the debit, but they are not subject to a lot of oversight, which makes them susceptible to fraud.The FTC seems to have been tipped off by the exceptionally high chargeback rates Landmark’s clients were producing, sometimes higher than 80%. But the FTC didn’t just go after the merchants — they went after Landmark as well for promoting a service for merchants “with a high percentage of overall returns”.Landmark is now banned from processing remotely created payment orders. Which means that sites that rely on recurring billing should be 1) seeking to reduce their chargeback rates as much as possible and 2) keeping an eye on their payment processor to make sure they’re on the up-and-up.
