Factoring of Credit
Card or ACH Transactions for Fraud
FTC Halts Texas E-Payment Processor
By Roy Mark
07/03 - The Federal Trade Commission (FTC) Wednesday continued its summer
campaign against Internet fraud when it filed a complaint in U.S.
district court charging Electronic Financial Group, Inc. (EFG)
and its principals with providing assistance to fraudulent telemarketers
seeking to drain funds from consumers' checking accounts.
The FTC alleges that the defendants violated the law by processing
transactions through the Automated Clearing House Network (ACH
Network) for numerous fraudulent telemarketers and by engaging
in the deceptive marketing of their own advance-fee debit cards.
On Tuesday, the court, after a contested hearing, the court entered
a temporary restraining order enjoining the defendants from making
misrepresentations in the course of marketing or providing of customer
service for ACH transactions, debit cards, and credit-related goods
The defendants are also barred from processing ACH transactions
or causing consumers' accounts to be debited when certain conditions
are met, including when the debit purportedly was authorized as
a result of telemarketing, and violating the Telemarketing Sales
The court also appointed a temporary monitor over the corporate
defendants who is responsible for reviewing defendants' business
practices and reporting to the court prior to the preliminary injunction
According to the FTC, the Waco, Texas-based EFG provides a variety
of electronic payment services to clients in the U.S. and Canada.
Among its services, EFG processes electronic debits and credits
to consumer bank accounts through the ACH Network, a nationwide
electronic funds transfer system that provides for the rapid interbank
clearing of electronic payments.
The FTC claims the defendants processed ACH transactions on behalf
of numerous fraudulent outbound telemarketing operations, a number
of which the FTC previously sued as scams. Some of EFG's clients
are telemarketing companies with whom EFG enters into a direct
contractual agreement to provide ACH processing services.
Other EFG clients are other ACH processors, who in turn have contractual
relationships with the telemarketers.
The FTC's complaint alleges that the defendants violated the TSR
by providing substantial assistance and support to numerous client
telemarketers whom they knew (or consciously avoided knowing) were
engaged in business practices that violated the TSR.
In addition, the FTC charges that EFG assisted and facilitated
at least four client telemarketers engaged in deceptively selling
advance-fee credit cards, and a fifth client engaged in deceptively
selling a lottery scam.
The complaint also claims that in providing ACH payment processing
services to merchants engaged in outbound telemarketing, the defendants
engaged in an unfair practice by systematically breaching a contractual
provision with its bank that required EFG to adhere to the National
Automated Clearing House Association Operating Rules (NACHA Rules)
governing the ACH Network.
The NACHA Rules include a rule specifically prohibiting the processing
of ACH transactions on behalf of merchants engaged in outbound
telemarketing to consumers with whom such merchants have no existing
Trade Commission v. Electronic Financial Group, Inc. et al.
Capital Payment Systems LLC was sued in May 2008 by the State of Ohio along with BANCTECH PROCESSORS, INC., ELECTRONIC CHECK CORPORATION, BRUCE C. WOODS, ALI NAKHAI for dealing with telemarketing fraud operations as their key business model.