By Lesley Fair

Savvy marketers understand the importance of having their house in order when it comes to complying with consumer protection laws. But are they aware that it can be just as important to make sure their business partners, contractors, and other affiliates follow the same standards? The Federal Trade Commission (FTC) regularly takes action not only against advertisers who disseminate deceptive claims, but also against the agencies, experts, fulfillment houses, payment processors, and others who help them. Therefore, it’s a risky business practice to look the other way when you come upon evidence that others involved in a promotion may be engaged in questionable practices.

The FTC’s settlement with CompUSA illustrates the importance of keeping tabs on what’s going on with your business partners. In addition to charges about CompUSA’s own rebate practices, the FTC alleged that the “big box” retailer was involved in the creation of the rebate program for products sold at CompUSA and manufactured by a company called QPS. In ads for the QPS rebates, CompUSA promised rebate checks within six to eight weeks. But customers soon began reporting that their QPS rebates were delayed or never arrived at all. Despite knowing about these problems, CompUSA continued to advertise the rebates until shortly before QPS filed for bankruptcy. Among other provisions, the Commission’s order against CompUSA requires the company to pay all due or overdue rebate requests from consumers who bought QPS products at CompUSA.

The FTC’s action against payment processor Universal Processing, Inc., underscores the importance of heeding the red flags that something is amiss. Universal Processing made debits on behalf of Pharmacycards.com, which claimed to sell discount cards for prescription medicine. The FTC’s complaint recounts a veritable travelogue of clues that should have alerted Universal Processing to look into its potential new client a little more carefully. According to the FTC, “Universal Processing agreed to use their entree to the banking system to debit consumer checking accounts on behalf of two individuals they had never met, purportedly from England, purportedly with a corporation chartered in Cyprus, who were using a Montreal customer service center, free, untraceable e-mail accounts, an unsecured web site hosted in India, a Vancouver, British Columbia, mailing address and who directed that the proceeds be sent to a bank in Cyprus.

Shortly after it started processing Pharmacycards’ charges, return rates skyrocketed – a tip-off that the charges weren’t authorized. Nevertheless, the defendants continued to process $1.2 million in debits and even attempted to convince upstream payment processors to continue processing the transactions. The FTC’s settlement with Universal Processing requires the company to monitor the return rates for payments processed for clients, investigate the cause of any return rate over 2.5 percent, and give up its ill-gotten gains from the Pharmacycards promotion.

What pointers do shrewd marketers take from cases like these?

• Know whom you’re doing business with. Have procedures in place for evaluating potential new partners or contractors.
• Burying your head in the sand won’t absolve you of responsibility. In many cases, you can be held liable if you knew or should have known that a third party with whom you’re doing business is engaging in deceptive practices.
• “Red flag” evidence of a third party’s questionable dealings may be in your files right now. Set up procedures for regularly reviewing consumer correspondence, calls to your customer service line, chargebacks and other telltale signs of trouble.
• As the saying goes, “Trust, but verify.” Protect your reputation by monitoring the performance of companies you’re doing business with.

Lesley Fair is an attorney in the FTC’s Bureau of Consumer Protection who specializes in business compliance.