FTC Imposes $5 Million Fine on Paddle for Facilitating Fraudulent Operations
The Federal Trade Commission (FTC) has fined Paddle, a UK-based payment processor, $5 million over its alleged facilitation of access to the U.S. credit card system for fraudulent foreign tech support operations.
According to the FTC, Paddle used its position as “merchant of record” and a “reseller” to process credit card payments on behalf of unrelated third-party entities, thereby obscuring their identities from card networks and banks.
The FTC alleges that Paddle enabled pop-up-based tech support scams that tricked consumers into purchasing unnecessary software or services by using fake virus alerts, sometimes bearing brands like Microsoft or McAfee. Additionally, the company was charged with processing recurring subscription payments without clearly disclosing renewal terms or obtaining informed consent and continued to process payments despite warning signs about its clients’ fraudulent activities.
A Shift in Responsibility
Recent cases of online fraud have often viewed payment processors as neutral third parties, but this case may redefine accountability for preventing such risks within the industry.
“We are now seeing a shift in accountability in preventing fraudulent transactions,” explained Suzanne Sando, Lead Analyst of Fraud Management at Javelin Strategy & Research. “This not only means payouts to affected victims but also stricter enforcement of robust transaction and risk monitoring, as well as required reporting of suspicious activities.”
Consequences for Paddle
Paddle is required to obtain consumers’ explicit consent for subscriptions and provide a simple cancellation process. The company is also permanently banned from processing payments for tech support businesses that use telemarketing or pop-up security alerts.
“I’m cautiously optimistic that this is a positive step towards better consumer protections,” said Sando, adding the significance of more action against fraud and scams affecting U.S. consumers.
Paddle’s Response
In response to the charges, Paddle downplayed its involvement, arguing that only a small fraction of its client base was involved in illegal activities, and highlighting that just two of its telemarketing clients were ultimately charged by the FTC.
“Paddle serves over 6,000 digital product companies, whose innovative technology brings incredible value to consumers worldwide,” stated Jimmy Fitzgerald, CEO of Paddle, in a statement. “However, it is a reality that there are some bad faith actors out there.”