First Data Merchant Services, a business unit that Brookfield-based Fiserv Inc.
acquired in 2019, has agreed to pay the Federal Trade Commission $40.2 million to settle accusations it assisted in laundering credit card transactions as part of scams targeting consumers.
“First Data is paying $40 million because it repeatedly looked the other way while its payment processing services were being used to commit fraud,” said Daniel Kaufman, deputy director of the FTC’s Bureau of Consumer Protection. “When companies fail to screen out fraudsters exploiting the payment processing system to steal people’s money, they’re breaking the law – and injuring consumers.”
In a statement, Fiserv, which acquired First Data Corp. in July 2019 in a $22 billion all-stock deal, said the settlement was in the best interest of First Data, clients and their customers and consumers. It also noted the resolution related to a single independent sales agent.
"We remain committed to ensuring that our business partners and merchants operate with integrity, and our enhanced practices will enable us to continue to lead the industry in fraud prevention, and business and consumer protection," the statement said.
Fiserv has increased its investments in areas that improve detection of attempted fraud on its platforms, underwriting requirements, activity reviews and fraud alert protocols, according to a press release.
As part of the settlement, First Data did not admit or deny the allegations of the complaint.
The complain says First Data ignored repeated warnings from employees, banks and others that former First Data executive Chi “Vincent” Ko, through his company that served as an independent sales agent for First Data, was laundering, and First Data was assisting and facilitating laundering, payments for companies that were breaking the law over a number of years, according to the complaint.
Ko was later hired as an executive at First Data. Through his prior company, First Pay Solutions LLC, Ko opened hundreds of merchant accounts for at least four scams – three that were the subject of FTC actions, and one that was the subject of a U.S. Department of Justice criminal prosecution.
The FTC complaint said that Ko, between 2012 and 2014, opened accounts under false names, provided Wells Fargo Bank with deceptive information to open the accounts and ignored the evidence that his clients were engaged in fraud. The $40.2 million to be paid in the settlements will be used to refund consumers harmed by these scams.
The complaint also says First Data ignored several warnings about Ko and First Pay’s activity. Among the warnings was a 2014 email from Wells Fargo’s executive vice president, which stated:
“Why is First Data signing ISOs like [First Pay]? They are going to get First Data and Wells Fargo in trouble with the FTC and CFPB due to consumer deceptive practices…”
A 2014 Visa investigation required First Data to pay back $18.7 million in charges processed by Ko and temporarily banned First Data from bringing on high-risk merchants, according to the FTC. A 2015 forensic audit conducted as part of Visa’s investigation indicated that First Data had “no controls” on how the company managed high-risk merchants.
The complaint says that the defendants violated the FTC Act and the Telemarketing Sales Rule.
Under the terms of First Data’s settlement, First Data will be prohibited from assisting or facilitating FTC Act violations related to payment processing and evading fraud and risk oversight programs. The company will be required to screen and monitor certain high-risk merchant-clients, as well as establish and implement an oversight program to monitor its wholesale ISOs.
The settlement also requires First Data to hire an independent assessor to oversee the company’s compliance with the settlement’s oversight program for the next three years.
The terms of Ko’s settlement requires him to pay more than $270,000 – he is banned from payment processing for certain types of high-risk merchants, credit card laundering activities, making or assisting others in making false or misleading statements and assisting or facilitating violations of the FTC Act, according to the FTC.
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