The Federal Trade Commission (“FTC”) plans to aggressively police companies that use deceptive marketing to take advantage of consumers’ fears relating to the COVID-19 pandemic. The FTC is focused on a broad range of potential deceptive practices, including unapproved or unsubstantiated health claims, work-at-home schemes, finance schemes, and misrepresentations as to the current availability of in-demand products, such as cleaning, household, and health or medical supplies. The FTC has already issued warning letters to seven sellers of unapproved and misbranded products who claimed that their products could treat or prevent the coronavirus, and additional warning letters or enforcement actions are likely to follow as the pandemic progresses and economic uncertainty increases.
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The FTC’s efforts to target COVID-19 fraud and deception will not just focus on merchants who engage in deceptive marketing, but will also target the payment processors and Independent Sales Organizations (“ISOs”) who facilitate consumer payments to those merchants. The current FTC leadership has increasingly targeted payment processors and ISOs who facilitate deceptive transactions, including a recent enforcement action that permanently barred a payment processor from the payments processing industry for failing to review and monitor its merchant clients. Even in cases where the FTC does not directly target payment processors and ISOs, the FTC has been aggressive in seizing merchant reserve accounts, which leaves the processor or ISO on the hook for chargebacks.
It is critical that payment processors review their compliance programs for screening and monitoring merchants to minimize the possibility that they end up in the FTC’s crosshairs as part of its COVID-19 enforcement sweep. The compliance review should address the following areas:
For more information, visit Orrick’s COVID-19 Resource Center or contact Jon Direnfeld, Tony Kim, Barrie VanBrackle or Parag Patel.