What's Happening?
The state of Washington and the Federal Trade Commission (FTC) have reached a $600,000 settlement with Riverside Payments, Inc., its affiliate Cascade Equipment Leasing, and their owners. The settlement resolves allegations that the payment processing
companies engaged in deceptive practices, misleading small businesses with false promises of cost savings and creating significant hurdles for cancellation. According to the complaint, Riverside falsely claimed that small businesses could save nearly 60% by switching to their services, but customers typically ended up paying more. The companies also allegedly failed to disclose various added fees, including a $695 early termination fee and equipment leasing costs, and made it extremely difficult for businesses to cancel services despite a promised 'no-risk' guarantee. Additionally, Riverside made unsubstantiated earnings claims to its sales agents, who on average earned significantly less than advertised.
Why It's Important?
This settlement provides financial relief and protection for small businesses in Washington that were allegedly harmed by Riverside's deceptive practices. Over 300 small businesses will be eligible for compensation based on their processing volume and will be able to cancel their contracts without termination penalties. The case highlights the vulnerability of small businesses to predatory practices in the payment processing industry, where complex contracts and hidden fees can lead to unexpected costs. Attorney General Nick Brown emphasized the importance of holding companies accountable for dishonest and non-transparent dealings. The enforcement action by both state and federal authorities underscores a commitment to safeguarding small businesses from unfair and deceptive acts, which are crucial for local economies. The requirement for clear disclosures and easy cancellation mechanisms in future business dealings will set a precedent for other payment processors.
What's Next?
The proposed order, filed in the U.S. District Court for the Western District of Washington, imposes a $32 million judgment against the defendants, which will be suspended after the payment of $600,000 due to their inability to pay the full amount. The full judgment will become due if they are found to have misrepresented their finances. The defendants are also mandated to notify customers about a 60-day waiver period for early termination fees. Furthermore, they are prohibited from misrepresenting costs, savings, cancellation conditions, or any other material facts about their services. They must also make clear and conspicuous disclosures, obtain express informed consent for negative option plans, and provide simple cancellation methods. This settlement serves as a warning to other companies in the payment processing sector to ensure transparency and fair practices in their dealings with small businesses.
Beyond the Headlines
This case sheds light on the broader issue of consumer protection for businesses, particularly small enterprises that may lack the resources to thoroughly vet complex service contracts. The alleged use of 'negative option features,' where a lack of action implies consent for recurring payments, points to a systemic issue in various industries where consumers (including businesses) can be unknowingly locked into services. The significant disparity between advertised and actual earnings for sales agents also raises concerns about labor practices and transparency in commission-based roles. This settlement could encourage small businesses to be more vigilant when entering into service agreements and prompt regulators to increase oversight of industries known for opaque contractual terms. It also reinforces the idea that consumer protection laws extend to business-to-business transactions, especially when there's a power imbalance.
