Payment processor Paddle will pay $5 million to settle FTC charges for enabling foreign tech support scammers to defraud vulnerable American consumers through fake virus alerts and unauthorized subscription charges.
Key Takeaways
- Paddle processed over $37 million in payments for deceptive tech support schemes that targeted vulnerable Americans, especially older adults
- The UK-based payment processor has been banned from handling payments for tech support businesses using telemarketing or pop-up security alerts
- Internal communications revealed Paddle was aware of fraudulent activities but continued processing payments despite high complaint rates
- The settlement marks a shift in accountability, extending responsibility to payment processors for preventing fraudulent transactions
- Paddle allegedly violated payment card network rules by acting as an unregistered payment facilitator and enabling merchants to charge consumers before completing verification checks
FTC Cracks Down on Payment Processor Enabling Tech Support Scams
The Federal Trade Commission has secured a $5 million settlement with payment processor Paddle for facilitating deceptive tech support schemes that targeted American consumers. According to the FTC’s complaint, Paddle provided foreign-based tech support operations with access to the U.S. payment system, allowing these overseas companies to deceive consumers through fake virus alerts and unauthorized subscription charges. The settlement, filed in the U.S. District Court for the District of Columbia, represents a significant enforcement action against a company that allegedly enabled fraudulent activities despite clear warning signs.
“Paddle provided foreign-based tech-support schemes with access to the U.S. payment system, allowing these companies to harm consumers,” said Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection.
Deceptive Practices and Ignored Warning Signs
The FTC alleges that from April 2020 to at least June 2023, Paddle processed over $37 million for Restoro and Reimage, companies registered in the Isle of Man and later Cyprus, that used deceptive pop-up alerts masquerading as security warnings from legitimate companies like Microsoft or McAfee. These alerts frightened consumers into purchasing unnecessary software or services. Additionally, Paddle processed $12.5 million for another tech support operation called PC Vark, despite high complaint and chargeback rates that should have raised red flags about potential fraud.
Internal communications cited in the complaint revealed that Paddle was aware of the fraudulent nature of these operations and their particular impact on elderly consumers. Despite this knowledge, the company not only continued processing payments but also sought revenue-sharing deals with high-risk processors and special indemnity agreements with PC Vark. The FTC further claims Paddle used chargeback prevention tools to mask fraud rates and allowed merchants to charge consumers before completing proper verification checks.
“We are now seeing a shift in accountability in preventing fraudulent transactions, in the name of protecting consumers from this kind of deceptive activity,” said Suzanne Sando.
Settlement Terms and Broader Implications
Under the settlement, Paddle is permanently banned from processing payments for tech support businesses that use telemarketing or pop-up security alerts. The company must also implement a comprehensive screening and monitoring program for its merchant clients, obtain proper registrations with payment networks, and clearly disclose all material terms to consumers before charging them. The $5 million monetary judgment will be used to provide refunds to affected consumers, adding to the $610,000 in refunds the FTC recently sent to victims of a similar tech support scam.
Paddle has downplayed the charges, noting that only two of its telemarketing clients were involved in the alleged violations. The company emphasized that it serves over 6,000 digital product companies and that the vast majority of its clients are legitimate businesses.
“Paddle serves over 6,000 digital product companies, whose innovative technology collectively brings incredible value to consumers all around the world,” said Paddle CEO Jimmy Fitzgerald.
This case signals a significant shift in how the FTC approaches consumer protection in the digital payment space. By holding payment processors accountable for the fraudulent activities they enable, the commission is expanding the scope of responsibility beyond the direct perpetrators of scams. This approach recognizes that payment processors serve as critical gatekeepers in the digital economy and have both the ability and responsibility to prevent fraudulent transactions from occurring through their systems.
“I’m cautiously optimistic that this is a good sign of more consumer protections to come,” said Suzanne Sando.
