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CMS Settles Federal Charges for $23 Million

Company provided merchants with credit card payment services

The Federal Trade Commission has accepted $23.5 million to settle charges that Certified Merchant Services (CMS) violated the FTC Act while providing merchants with credit-card payment services.

The payment to the FTC came from a forced sale of CMSs assets, and will be used to provide full redress to merchants. The sale was part of a stipulated final judgment and order which also permanently bars the defendants from falsifying merchants signatures; altering or adding to signed documents relating to merchant accounts; certain billing and debiting practices; and misrepresenting the savings that merchants would achieve by doing business with CMS.

The judgment settled the FTCs first-ever complaint against an Independent Sales Organization (ISO) for practices related to the marketing of credit- and debit-card merchant accounts to small businesses nationwide.

The FTC filed its complaint in February 2002 against Certified Merchant Services, Ltd.; Certified Merchant GP, Inc.; Certified Merchant Services, Inc., and CMS-LP (collectively CMS); and Jonathan Frankel, Craig Frankel, and Randall Best of Plano, Texas.

The companies also did business under the names Transaction Merchant Services (TMS), Transaction Merchant Services.Com, and Electrocheck.

The Commissions amended complaint alleged that CMS contacted small business owners throughout the United States to induce them to establish merchant accounts and, in the process, violated the FTC Act by unfairly and deceptively: 1) modifying customer contracts; 2) debiting customer accounts without authorization; 3) making misrepresentations regarding various goods or services offered; and 4) failing to disclose various charges or fees.

In addition, in connection with providing card processing or check conversion processing, the defendants are permanently barred from debiting, billing, or receiving money, or assisting others in doing the same: 1) from merchants before the defendants have provided the merchants with the promised card processing services or goods; 2) from merchants for check conversion processing before the merchants have signed up for and activated such services; and 3) from merchants for services or goods after the merchants have cancelled in writing. If the defendants cannot defer automatic debiting, the order requires them to reimburse any debits that fall into the categories above.

The stipulated final order was filed by Judge Paul Brown of the U.S. District Court for the Eastern District of Texas, Sherman Division, on December 30, 2002. On January 27, 2003, the court made public a partially sealed version of the order. The judgment amount remains under seal; however, on January 5, 2004, the court ordered that the payment made to the FTC to satisfy the judgment was not covered by the seal and could therefore be made public.

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