FTC Charges Online Marketers and Merchant Account Entities

Warning shots have just been fired by the FTC with important lessons for affiliate marketers, publishers, and, in particular, merchant account signers. Ironically occurring the weekend before the 2017 Affiliate Marketing Summit East conference, the FTC filed suit against RevGuard, LLC and 60 other defendants with the Commission’s all-to-familiar allegations of negative option marketing in violation of the FTC Act, 15 U.S.C. § 45(a), and ROSCA, 15 U.S.C. § 1843, amongst other statutes. The lawsuit asserts that RevGuard and the other defendants engaged in illegal negative option marketing by operating a series of tooth whitening offers that would deceptively bill consumers for two or more purchases without the consumers’ knowledge.[1] A negative option plan generally refers to transactions in which a seller interprets the customer’s failure to take an affirmative action – typically cancelling an offer – as consent to be charged for goods or services on a recurring basis.


In the FTC v. RevGuard case, the FTC alleges that the defendants’ checkout pages were structured so that once a customer made a purchase, they were instantly redirected to another page that displayed a large yellow “complete checkout” button. They further allege when the customer clicked to “complete checkout,” they were then enrolled in a second negative option plan for additional product. The complaint is that nothing about the second “complete checkout” button suggested that the customer would be placing a second order, rather, the button was presented as a mere order confirmation.


While the FTC commonly cracks down on deceptive negative option schemes like the one just described, what is most significant about this case is the implication for business entities that act solely to process merchant transactions. In specific, the FTC named the following individuals as co-defendants to the lawsuit: (1) service providers that perform the fraud’s “back office” functions; (2) intermediate holding companies that obscure McNea’s (one of the scheme’s masterminds) involvement and obtain bank accounts to launder the merchants’ proceeds; and (3) merchant entities that obtain merchant accounts, web domains, and credit-card settlement bank accounts.[2] Thus, this case raises concerns for entities that did nothing more than open merchant accounts. Furthermore, and far more troubling, is that the restrictions imposed by the asset freeze were also applied to the aforementioned three groups of co-defendants – and not just the ‘top level’ affiliate marketers actually profiting from the scheme.[3] In particular, the Ex Parte Temporary Restraining Order issued by the Court declared that the asset freeze applied to, “. . . Defendants and their officers, agents, employees, and attorneys, and all other persons in active concert or participation with any of them, who receive actual notice of this Order, whether acting directly or indirectly . . . .”[4]


This case marks a bold example of the Commission’s treatment of merchant entities that obtain merchant accounts and should serve as a lesson for those that might be involved in similar arrangements. While the FTC v. RevGuard, LLC case is just getting started (it has not even been posted to the FTC website as of the date of this post), it promises to shake up the industry and force affiliate marketers to get creative with structuring future payment processing arrangements.

[1] FTC v. RevGuard, LLC et. al. Complaint at 21.

[2] FTC v. RevGuard, LLC et al. Emergency Motion for a Temporary Restraining Order at 12.

[3] FTC v. RevGuard, LLC et al. Ex Parte Temporary Restraining Order Granting Asset Freeze, Appointment of a Temporary Receiver, and other Equitable Relied, and Order to Show Cause Why a Preliminary Injunction Should Not Issue § 5.

[4] Id. at § V(A).

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