Dive Brief:
- The Federal Trade Commission said Monday that payment processor Riverside Payments, its affiliate Cascade Equipment Leasing LLC and their operators have agreed to pay $600,000 to settle allegations that they deceived small businesses about payment-processing costs and cancellation terms.
- The proposed settlement, which stems from a joint action with Washington state, also allows affected small businesses to terminate their payment-processing agreements without an early termination penalty, the FTC said.
- “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,” Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, said in a statement. “The FTC will hold accountable companies that deceive small businesses, whose hard work powers our economy.”
Dive Insight:
The FTC and Washington alleged in their complaint that Riverside promised businesses they could save between 40% to 60% by switching payment processors. In reality, businesses that switched typically ended up paying more than they had with their previous providers, according to the complaint, which was filed Monday in the U.S. District Court for the Western District of Washington, along with a proposed order resolving the charges.
The order will have the force of law once approved and signed by the judge, the FTC said.
The companies allegedly failed to disclose several fees in sales quotes, including activation fees, batch fees and charges related to data security compliance or inactive processing. Riverside also allegedly buried important contract terms in a 26-page electronic agreement.
Those terms included automatic renewal of payment-processing services after an initial three-year contract, a $695 early termination fee and equipment leases through Cascade that extended one year beyond the processing agreement, according to the complaint.
The FTC and Washington also allege Riverside advertised a “no-risk” cancellation guarantee, promising customers they could cancel at any time without penalty, switch back to their previous processor and receive $500 for their time and trouble. Businesses seeking to leave instead allegedly faced repeated phone calls and delays, with some never receiving promised callbacks.
The complaint also challenges Riverside's earnings claims to prospective sales agents. The company advertised that agents could earn $75,000 to $95,000 annually, with top performers making $100,000. In reality, agents earned an average of $3,787 per year, according to the complaint.
The proposed order imposes a $32.1 million judgment against Riverside, Cascade and their owners, Brandon Skinner and Jason Reese. The judgment will be suspended after the defendants pay $600,000 because of their alleged inability to pay the full amount, the FTC said. The full judgment could become due if they are found to have misrepresented their financial circumstances.
The order also requires the defendants to notify customers that they can terminate their merchant-processing agreements without paying early termination fees or other penalties during a 60-day period.
Under the proposed order, the companies would be prohibited from misrepresenting service costs, potential savings and cancellation terms. They would also have to disclose material contract terms before collecting billing information, obtain customers' express informed consent for recurring billing arrangements and provide a straightforward cancellation process.
The companies could not immediately be reached for comment.
