The Federal Trade Commission continues to scrutinize the payments ecosystem, viewing these companies as critical gatekeepers in the fight against consumer fraud. LegitScript’s recent webinar, FTC Payments Enforcement Trends: What Merchant Acquirers and Payment Service Providers Need to Know, examined the FTC’s evolving enforcement landscape and what it means for payments companies navigating today’s compliance environment.
Read our key takeaways below to better understand and mitigate your regulatory risk, then watch the webinar.
Understanding the FTC’s Mission
Established in 1914 amid growing concerns over monopolistic business practices, the FTC initially focused on promoting fair competition. Its mission expanded significantly in 1938 when Congress authorized the agency to take action against unfair or deceptive acts or practices, which is now a cornerstone of the FTC’s consumer protection authority.
The FTC’s jurisdiction is notably broad: rather than regulating specific industries, it regulates conduct. Any company involved in consumer transactions, advertising, or payment processing may fall within its purview.
Under these standards:
- Deceptive practices involve misrepresentations or omissions likely to mislead a reasonable consumer in a way that affects their purchasing decision.
- Unfair practices are those that cause substantial consumer harm that is not reasonably avoidable and not outweighed by benefits to consumers or competition.
The FTC’s Approach to Payment Service Providers
The FTC increasingly views payment companies as the first line of defense against fraud. Fraudulent merchants cannot easily operate without access to payment systems, making processors and acquirers natural enforcement targets. The agency has made clear that payment companies bear responsibility for preventing and responding to deceptive or unfair practices within their portfolios.
Former FTC Commissioner Christine Wilson summarized this stance:
“The FTC will pursue appropriate law enforcement when a payment processor helps a fraudulent merchant take money from consumers — either by actively helping the merchant hide its fraudulent conduct from acquiring banks and payment networks or by turning a blind eye to the merchant’s fraud.”
Enforcement Themes and Case Studies
The FTC targets not only intentional fraudulent activity by payments companies, but actions that could be seen as negligent. Recent FTC enforcement actions illustrate recurring themes:
- Ignoring red flags: The FTC expects prompt action when chargebacks spike, complaints mount, or public warnings surface.
- Merchant of Record (MOR) liability: Companies acting as the merchant of record may be treated as the seller itself, directly responsible for deceptive transactions.
- Expanded compliance mandates: Settlement agreements often include permanent bans, independent audits, and enhanced monitoring requirements.
Recent examples include:
- BlueSnap — Settled for $10 million after facilitating payments for a fraudulent debt-relief operation despite multiple internal alerts. The FTC imposed future processing bans and mandatory compliance reforms.
- Paddle — A UK-based payment platform acting as a merchant of record, fined $5 million for facilitating deceptive tech-support charges. The case reinforced that MOR platforms can face direct liability for unfair or deceptive billing.
These actions underscore a consistent message: “Turning a blind eye” can amount to facilitation — and liability.
High-Risk Merchants Attracting FTC Scrutiny
The FTC’s enforcement priorities shift with market trends and emerging technologies. Currently, the agency’s primary areas of focus include:
- Tech Support Services: Deceptive computer repair or “virus alert” schemes, particularly those targeting older consumers.
- Negative-option Billing: Free trials and recurring subscriptions lacking clear disclosure or cancellation mechanisms. Despite the Click-to-Cancel rule being delayed, the FTC continues to enforce related provisions under ROSCA and UDAP authority.
- AI-related Services: Unsubstantiated claims about artificial intelligence tools or detection products.
- Digital Marketing and Lead Generation: Misleading advertising funnels, impersonation of legitimate entities, and resale of consumer data.
- Supplements and Cosmetics: False or unverified health claims, as well as deceptive “free trial” practices.
- CBD and E-liquids: Unsupported health or therapeutic claims and omission of safety information.
- Alternative Lending: Misrepresentations about loan terms, hidden fees, and predatory financial products.
Each of these sectors presents heightened compliance challenges for payment companies and warrants enhanced diligence in merchant onboarding and monitoring.
Future Trends and Risk Mitigation
Emerging FTC Trends
- Expanded intermediary liability: The FTC continues to broaden the concept of “facilitation” liability, expecting payment processors to act as compliance gatekeepers rather than passive conduits.
- AI oversight: The agency is examining whether AI-driven underwriting, fraud detection, and merchant risk scoring tools align with UDAP standards and avoid discriminatory outcomes.
- Recurring billing scrutiny: Even without new rulemaking, the FTC will continue enforcing best practices for subscription transparency and cancellation functionality.
Best Practices for Compliance
To mitigate risk, payment service providers should implement a comprehensive compliance infrastructure that includes:
- Robust merchant onboarding: Conduct thorough due diligence, verifying business models, MCCs, and web content, and documenting all risk assessments.
- Continuous monitoring: Track chargeback ratios, refund patterns, and consumer complaints. Escalate and remediate issues promptly.
- Enhanced oversight for high-risk verticals: Apply heightened scrutiny, periodic reviews, and tighter approval thresholds for merchants operating in sensitive categories.
- Independent audits: Engage third-party compliance experts to review systems and demonstrate proactive risk management to regulators.
A documented, consistent, and well-enforced compliance process is the strongest defense against regulatory action.
LegitScript Helps Track, Interpret, and Advise on Regulations
LegitScript is a global leader in merchant risk management and monitoring solutions that empower payment providers, acquirers, and online platforms to identify and mitigate emerging risks.
With nearly two decades of proprietary data and regulatory expertise, LegitScript helps organizations manage compliance obligations, strengthen oversight of high-risk merchants, and protect consumers from harm.
To learn more about building a proactive compliance strategy, download our Merchant Onboarding and Monitoring Buyer’s Guide or set up a quick chat with us at legitscript.com/contact.
The full webinar recording is available now on demand.
