Dive Brief:

• A federal judge assessed $6.5 million in sanctions last week against payments processor Cliq after finding that the company violated multiple parts of a 2015 court order in a Federal Trade Commission enforcement case.
• In her ruling Wednesday, U.S. District Judge Miranda Du of the Nevada District Court denied the FTC’s request in its contempt motion which asked her to appoint a receiver to operate the company and ensure compliance with the order. Du also rejected the agency’s request to ban Cliq’s CEO, Andy Phillips, and Chief Technology Officer John Blaugrund from the industry.
• “The Court finds that Defendants have demonstrated neither substantial compliance nor good faith and reasonable interpretation of the Final Order,” wrote Du, noting “clear and convincing evidence” that Cliq processed payments that violated the order.

Dive Insight:

“We are extremely pleased with the court’s conclusion that Cliq violated multiple provisions of its 2015 order, as the FTC alleged, and that those violations facilitated millions of dollars of fraud,” Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, said Friday in an emailed statement.

In a Friday press release, executives at Cliq — which was previously called CardFlex — portrayed the ruling as a legal victory and said the company was “very pleased” with the outcome.

“We are gratified that the Court rejected what we always perceived as a massive overreach by the FTC — efforts to effectively shut down the company by imposing a receiver, banning top executives from any further industry participation and imposing severe eight- or nine-figure financial sanctions,” Joanna Oliva, Cliq’s president and chief financial officer, said in the release.

The company, based in Costa Mesa, California, has about 75,000 merchants in its payment system, Phillips said Friday in an email sent by a spokesperson for Cliq

The FTC had sought $52.9 million in compensatory relief, the amount that Cliq processed for a company named in the litigation, Target Fulfillment. 

In a March 2015 stipulated court order, the FTC said that Cliq had processed millions of dollars in payments for potentially high-risk merchants on Mastercard’s Member Alert To Control High-risk Merchants (MATCH) list. The agency also alleged Cliq facilitated its customers’ efforts to avoid bank and card network fraud monitoring safeguards and didn’t sufficiently screen high-risk clients, like those with high chargeback rates.

The 2015 order followed an FTC settlement in which the company and the two executives settled charges that they had illegally processed about “$26 million in unauthorized consumer charges,” according to a March 2015 press release.

Du said the $6.5 million penalty was “commensurate with the harm” shown in the case.

The penalty is “dramatically below the figures advanced by the FTC,” Phillips said, adding that “from a sponsor-bank and acquiring-industry perspective, that distinction is highly significant because it reflects the Court’s rejection of the FTC’s effort to transform a processor into the insurer of all alleged downstream merchant conduct.” 

Cliq has spent about $10 million over the past five years to comply with its responsibilities under the order, Phillips said.