The settlement bars Florida residents Donald Tetro and Edward Lipton from engaging in deceptive billing practices in the future, and requires them to provide e-mail confirmation of web site membership requests and prompt refunds of improperly billed charges.
The deal also requires implementation of rigorous fraud detection and prevention mechanisms and requires that the defendants obtain a $100,000 bond before billing or collecting fees for premium rate phone services or internet services, which will be forfeited if they violate the terms of the settlement.
Editor's note, 09/06/2010: The headline of this story has been changed after Edward Lipton, one of the subjects of the story, got in touch. Our original headline was inaccurate, for which we apologise to Mr Lipton.
We have declined Mr Lipton's request to remove this page. Mr Lipton claims that the FTC made untrue allegations. Its press statement, on which our story was based, and related court documents, are still available at the FTC's website. We consider that our story is an accurate report of these proceedings.
Mr Lipton asked that we publish his comments on the case as an alternative to removing our story. We are happy to agree to that request.
Mr Lipton writes:
This was a billing action by the FTC based on only 1,200 Visa credit card complaints. We billed hundreds of thousands of consumers per month without objection. The FTC focused on the complaints by individuals who were properly billed but simply did not want to pay. The dispute resolution process of Visa requires merchants to have a credit card imprint (or swipe) and a cardholder signature on a document in order to maintain the charge against a cardholder's allegation that the charge was false. Because we were billing customers by internet or phone, we did not have the card and could not defend the statements by cardholders.
The truth is that often husbands incurred the charges and wives paid the bills. When a wife called our customer service department and learned what the charge was for, she defended her husband's version of the truth (because she didn't want to consider the alternative). While we would always give the customer a credit (to avoid any further discussion of the matter), if the customer called their card issuer to disputed the charge, it turned into a chargeback (a bank initiated refund) which Visa saw. Visa saw our numbers (which were higher than brick and mortar merchants who took physical posession of the credit card, with signatures) and determined that it did not want our business. We were terminated as a merchant by Visa and I was out of the credit card billing business in February of 2000. The FTC was tipped by Visa.
But when the action commenced later that year the FTC realized that it could not show that we had engaged in any deceptive practices. Within weeks of the commencement of the action (without any discovery taken), the FTC lawyers encouraged us to stipulate to settle it. I wanted the FTC to prove its claims and clear my name. But the lawyers had started the case and would not give my business back until they could make a public statement for the FTC's own purposes. They installed a receiver who was costing me over a hundred thousand dollars a month until I settled. In the end, the receiver (who was working for the FTC) forensic accountants, software analysts and the FTC could not find evidence of any wrongdoing (because we weren't doing anything wrong). The only actual business practice of ours that was "enforced" pertained to our representations made to people who were mailed a bill (not credit card customers) after the services were provided, if they had not paid the bill. In our follow-up letters we rightfully and properly said that the failure to pay the bill could result in us reporting the failure to pay the legitimate charge to the credit agencies (Equifax, Eexperian, TRW). In fact, we never reported anybody, although it was our right to do so. The FTC took the position that if we "threatened" to report them, then we should have reported them. But if we were not going to report them, then we should not threaten them with the possibility (whether or not we could do so legally). This was the only thing that the FTC said we did "wrong." In the end I signed the stipulation, to get the receiver out of my life and to stop the bleeding.