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Check Processor Settles With Attorney General
CONTACT: Elliot Burg, Assistant Attorney General, (802) 828-2153
May 15, 2008 - Vermont Attorney General William H. Sorrell announced today that his office has reached a settlement with an Ontario, California, company that processed electronic and paper-check debits (charges) from consumers’ bank accounts on behalf of telemarketers whose scripts were fraudulent or otherwise unlawful. Under the settlement, the company, Alliance Payment Technologies, Inc., and two of its principals—CEO Paul G. Hook and President Don R. Hook—will provide automatic refunds to over 800 Vermont consumers whose bank accounts were debited by the company in connection with any telemarketing or internet transaction. They will also cease doing business with certain types of telemarketers, follow detailed pre-screening and monitoring procedures, and pay the State $40,000.
The settlement is contained in a Consent Judgment and Permanent Injunction filed with the State’s Complaint in the Washington Superior Court in Montpelier last week. According to the Complaint, Alliance did processing for at least two telemarketing companies that marketed advance-fee credit and credit repair, both violations of the federal Telemarketing Sales Rule. Alliance also did processing for at least eight other telemarketers whose scripts contained misrepresentations of fact, such as that consumers could obtain government grants or could be protected from all telemarketing calls.
In addition, Alliance violated Vermont law by:
- Processing unsigned checks for telemarketers without legally-required advance written consent from the consumers whose bank accounts were to be charged.
- Processing bank debits for telemarketers whose “return rate”—the percentage of debits that involved a consumer request for a credit or were otherwise rejected—was extremely high (40 percent or more for at least 23 telemarketers), indicating a likely lack of authorization and/or fraud in many cases.
- Processing bank debits for telemarketers who did not offer consumers a three-day right to cancel their transaction, as required by Vermont law.
- Processing electronic debits based on outbound telemarketing calls to consumers with whom the telemarketer had no existing business relationship, contrary to current banking standards.
To settle the case, Alliance and the Hooks agreed to:
- Refrain from processing bank debits for “high-risk goods or services,” including credit repair, advance-fee loans or credit cards, offers to reduce the incidence of telemarketing calls, recovery of money lost to fraud, discount membership clubs, identity theft services, and government grants or loans.
- Refrain from processing demand drafts without the consumer’s prior written authorization.
- Extensively pre-screen telemarketers before providing bank processing services.
- Monitor the return rates of most telemarketing and internet-based clients, and investigate the cause of any rate above 3.0 percent in a month, and any rate of unauthorized returns above 0.2 percent in a month. Clients found to be offering high-risk goods or services, or engaging in unfair or deceptive practices, will have ten days to correct their conduct; if the conduct recurs, the client must be terminated immediately.
Exercise heightened scrutiny for clients that employ middlemen, use a post office box or similar address, or offer high-risk goods or services, and for clients that have had processing services terminated for excessive return rates or unlawful conduct, have been sued for unfair or deceptive conduct (unless they were exonerated), are based outside the United States, or transmit money outside the country.
Pay a full refund to approximately 820 Vermont consumers whose bank accounts were debited by Alliance on behalf of a telemarketer or a seller over the internet, with limited exceptions.
- Pay $40,000 to the State of Vermont.
Commenting on the settlement, Attorney General Sorrell stressed that fraudulent telemarketers and internet sellers need the assistance of payment processors in order to take advantage of consumers. “We will hold these third parties to the requirements of the law,” he said; “Vermont consumers deserve no less.”