Payment processor Paddle will pay $5 million to settle Federal Trade Commission charges for enabling tech support scams that specifically targeted and defrauded elderly Americans through fake virus alerts and unauthorized recurring charges.
Key Takeaways
- Paddle processed over $37 million in payments for tech support scams using fake virus alerts, despite knowing about high complaint and chargeback rates.
- The UK-based payment processor violated multiple regulations including the FTC Act and Telemarketing Sales Rule while enabling foreign scammers to access the U.S. payment system.
- Internal communications revealed Paddle was aware of the fraudulent activities targeting vulnerable elderly consumers but continued processing payments anyway.
- The settlement bans Paddle from processing payments for tech support telemarketers and signals a shift toward holding payment processors accountable for enabling fraud.
Foreign Tech Scammers Facilitated by American Payment System
The Federal Trade Commission has struck a significant blow against payment processors that enable foreign scammers to target American consumers. UK-based payment processor Paddle has agreed to pay $5 million to settle FTC allegations that it facilitated deceptive tech support schemes targeting vulnerable Americans, particularly the elderly. The company processed payments for fake virus alerts and pop-ups impersonating legitimate companies like Microsoft and McAfee to trick consumers into purchasing unnecessary software or technical support services they didn’t need.
“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.
The FTC’s complaint revealed Paddle processed over $37 million for merchants Restoro and Reimage, which used deceptive techniques to frighten consumers into buying their products. The company also processed $12.5 million for another entity called PC Vark despite clear warning signs of fraudulent activity, including exceptionally high complaint and chargeback rates that should have triggered immediate action.
Knowing Participation in Fraudulent Schemes
What makes this case particularly egregious is that Paddle wasn’t merely negligent – according to the FTC, the company actively enabled these scams while being fully aware of their fraudulent nature. Internal communications obtained by regulators showed Paddle knew about the deceptive tactics targeting elderly consumers yet continued processing payments anyway. The company even employed sophisticated chargeback prevention tools to mask high fraud rates and allowed merchants to charge consumers before completing required Know Your Customer (KYC) 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.
Despite receiving direct warnings about these fraudulent operations, Paddle not only continued processing their payments but sought revenue-sharing deals with high-risk processors and special indemnity agreements with PC Vark. The FTC also alleged that Paddle violated Visa and Mastercard rules by acting as an unregistered payment facilitator, further circumventing established protections designed to prevent exactly this type of fraud.
Settlement Terms and Company Response
The settlement imposes a $5 million penalty and permanently bans Paddle from processing payments for tech support businesses that use telemarketing or pop-up security alerts to generate sales. This represents a significant development in how regulatory agencies approach payment system abuse, focusing on cutting off fraudsters’ access to financial infrastructure rather than just pursuing the scammers themselves.
“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.
In public statements, Paddle has attempted to downplay the significance of the charges, noting that only two of its telemarketing clients were involved in the FTC complaint. The company characterized deceptive practices as “abhorrent” and emphasized that it serves over 6,000 legitimate digital product companies. However, the extensive internal communications cited in the FTC complaint suggest the company was far more complicit than it now claims. The settlement marks the FTC’s continued focus on payment systems as a critical chokepoint in combating consumer fraud.
