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Business & Technology Law Blog

Sep 01
0

PayPal Merchant Accounts: High Risk Internet Marketers Unwanted

By Mike Young, Esq. | Internet Lawyer | No Comments
paypal merchant accounts

Some PayPal merchant accounts are being closed

What do PayPal Merchant Accounts allow people to do?

PayPal is an online commerce facilitator that allows the transfer of currency from one person to another through the internet.

In an attempt to stop fraud, PayPal allows those engaged in internet commerce to avoid fraud that is inherent in other online transfers of money. Part of the safety guaranteed by PayPal manifests itself as PayPal does not credit one person for a transfer until the other person has made efforts to ensure that he or she will carry through with their part of the deal. This devotion to protecting people from online scams has allowed PayPal to expand to countries all around the globe, and to develop into one of the formidable forces in current internet commerce.

Why is the company shutting down high risk PayPal Merchant Accounts?

The company’s devotion to preventing fraud has caused it to take actions to shut down or otherwise limit the usage of Paypal merchant accounts by people it deems to be high risk. With little prior warning to individuals using the site, PayPal has prevented some users from being able to access their PayPal merchant accounts and the money therein contained because of their purportedly suspicious or financially impractical activities.

PayPal’s hope, in this interference with the accounts of its users, is to further cut down on fraud and to avoid interacting with insolvent people, and those gaining money in mysterious or unknowable ways. By targeting individuals engaging in suspicious activities on PayPal, either through massive transfers of money with no explanation, or other activities, PayPal hopes to both make the best financial decisions possible, and to maintain its thus far well preserved reputation as an internet commerce company free from many of the scams so prevalent on the internet.

What has the response been to the shutting down of PayPal Merchant Accounts for high risk users?

Many PayPal users are now complaining that the company has shut down their PayPal merchant accounts and taken possession of the contents of their accounts with little reason or warning. Users complain that legitimate business might be misconstrued by PayPal to be nefarious merely because a user fails to identify correctly what he or she is transferring, or the reasons why the transfer is being made.

Seizure of accounts by PayPal can lead to people being delayed access to the money in their accounts for up to several months as PayPal sorts out whether or not supposed ‘high risk’ clients are in fact dangerous for PayPal to continue doing business with. PayPal users should be encouraged to maintain good credit, have clearly established deposits and transfers, and work to not overdraft on other accounts to avoid the scrutiny and perhaps restrictions PayPal has come to recently enact.

It’s noteworthy that many (not all) of the Internet marketers complaining about closure of their PayPal merchant accounts have run shady online operations that expressly or implicitly violated the terms and conditions of having a merchant account in the first place.

Sep 08
0

Website Attorney: Should you use PayPal or ClickBank for your products?

By Mike Young, Esq. | Internet Lawyer | No Comments

Website attorney merchant accountAs a Website attorney, Internet marketers are always asking me about the pros and cons of using different systems to sell their products and services online. Here’s my take on the pros and cons of using PayPal v. ClickBank.

ClickBank (not really a bank) is popular for newbies with digital products. ClickBank handles just about everything, including your affiliates, but the fees are relatively high and you should expect many refunds because cheats who want your product but have no intention of paying for it. Because ClickBank controls the refunds, you’re essentially screwed by con artists.
Frankly, I no longer use ClickBank for digital products because of the number of people who cheat the system. If you’re going to use ClickBank, limit it to selling your low-dollar entry level eBooks and special reports.

PayPal offers you more control and many online purchasers prefer to use PayPal. In fact, if you get your own shopping cart with a merchant account, you’ll still want to add PayPal as an option or else you’ll hurt your conversions. Although PayPal doesn’t handle your affiliate program for you, you can use the “mass pay” feature to compensate your affiliates all at once simply by uploading one file each month with the email addresses and payment amounts for each affiliate.

PayPal doesn’t like sudden spikes in traffic that you see with a product launch and can freeze payments because of suspected fraudulent activity. You or your Website attorney may get to deal with client support if you have a big jump in sales or if a client claims they paid you with PayPal but didn’t receive the goods as promised.

To your online success!

-Mike the Website attorney

P.S. My law practice uses a combination of PayPal, bank wires, and business checks. However, my businesses use a branded version of 1ShoppingCart combined with  a merchant account from PowerPay … They work well together because PowerPay understands online product launches (many big marketers use them) and handles spikes in sales without freaking out and freezing your account. However, PayPal is always included as an option because almost half of our clients will choose it in the shopping cart.

Jan 28
0

Merchant Account: New Direct Marketing Best Practices

By Mike Young, Esq. | Internet Lawyer | No Comments

Since posting  Don’t Lose Your Merchant Account: 7 Free Resources for Helping Internet Marketers Stay Out of Trouble, my merchant account provider (PowerPay) has come out with updated best direct marketing practices. Rather than reinvent the wheel, I’m going to quote verbatim [my comments are in brackets within the quote] so that you can take the information and apply it in your online business. If you’re not using PowerPay, be sure to check out any different requirements imposed by your merchant account provider.

IMPORTANT ANNOUNCEMENT REGARDING DIRECT MARKETING BEST PRACTICES

As we shared with you previously, PowerPay has made changes in light of Visa and MasterCard’s desire to eliminate practices considered damaging to the brands (“brand damaging activity”), particularly in the Direct Response industry. As continued support for merchants conducting business in a manner that protects both businesses and consumers from fraud, PowerPay is providing additional criteria and Best Practice Guidelines.

Direct Response merchants are defined as those marketing directly to consumers. Historical marketing channels include radio, television, mail, and print, along with demonstration booths and door-to-door salespeople. Internet websites and marketing capabilities have presented new opportunities for this industry, along with new challenges.

“Prenotification Negative Option” or simply “Negative Option” practices in particular, have fallen under intense scrutiny. The advertising rules are defined and enforced by the Federal Trade Commission “The Prenotification Negative Option Rule”, for all avenues of marketing. Negative Option has been defined as a “category of commercial transactions in which sellers interpret a client’s failure to take an afbusinessative action, either to reject an offer or cancel an agreement, as assent to be charged for goods or services.”

PowerPay  will consider approval of merchant accounts for products and/or services employing “Negative Option”
enrollment under our defined “Direct Response Best Practice Guidelines”.

While practices defined in this document are geared toward internet websites, the FTC Rules apply to all marketing channels, including mail or telephone orders (MOTO). PowerPay  will review MOTO accounts for compliance with guidelines as applies to that channel, paying particular attention to described ‘prohibited’ practices.

DIRECT RESPONSE BEST PRACTICE  GUIDELINES FOR MERCHANTS

TRIAL  OFFERS

Marketing models that employ “Free-Trial”, “Deferred Billing” and/or “Shipping Only” are considered trial offers for purposes of this communication. Consumers must be receiving a tangible good or contracted service in exchange for charging of payment cards. Incentivized discount offers are acceptable when the cardholder is receiving goods or services in exchange for payment; however we will be unable to support accounts engaging in hidden or delayed charges and ‘free’ offers that are not truly free.

1.    Avoid using terms in your marketing and offer presentation such as “Free”, “Risk Free” or any similar and potentially misleading phrases when consumers will be enrolled in a monthly continuity program at the end of a trial period, or will be paying a deferred charge for the trial period. The phrase “Free Trial” is prohibited unless there is truly no cost or obligation incurred by the consumer.

2.    “Shipping & Handling Only” offers must be a fair and accurate shipping charge reasonable to be accrued by the merchant for providing the product.

3.    Trial offers must be extended for a minimum of 10 days.

4.    Trial periods should not begin until the product is shipped to the consumer.

MARKETING

1.    Avoid creating a ‘false sense of urgency’ for the consumer. Unless the consumer’s ability to order is genuinely taken away after a specified timeframe or order count is reached, this practice is prohibited. Use of applications such as countdown clocks, tickers, or language such as “Offer Expires Today!” is also prohibited.

2.    Product claims, by law, must be truthful. Claims regarding effectiveness must be substantiated by clinical research conducted to support the claims, and consistent with the formulas and ingredients in your product

3.    Qualifications for trial periods of a product should follow pre-determined rules disqualifying consumers who do not meet parameters, including but not limited to: Age, Weight, Height, and Location.

4.    Unreasonable claims or guarantees are prohibited. Examples of claims considered unreasonable are: “Flushes  Pounds”,  “Flushes  Toxins”,  “Builds  Muscles”
–    Stating that use of a product will result in permanent weight loss
–    Stating that a product will cause the consumer to lose a specified amount of weight in a specified timeframe
–    Stating that a product will cause substantial weight loss no matter what or how much the consumer eats.
–    Stating that use of a product can cause weight loss (or muscle growth) in specific body parts

“Free Money”,  “Instant  Money”

–    Stating that the product can substitute the income of a full time job
–    Stating that money can be earned with little to no effort or investment
–    Stating that use of a product will earn you hundreds of thousands or millions of dollars
Additional  examples  include:

–    Stating that the product has been successfully used by an unrealistic or unsubstantiated number of people
–    Stating that a product will secure the consumer a job, either at the product’s company or another company
–    Stating or implying that a product is endorsed or in any way associated with President Obama or a government entity.

ENDORSEMENTS/TESTIMONIALS: [For more information, sure to check out my new product on testimonials and endorsements]

1.    Endorsements and testimonials of user experiences must reflect the true and honest opinions of the endorsee(s).

2.    Endorsements and testimonials provided must present a clear picture to consumers of realistic results of using the product. If advertisers do not have substantiation of a specific claim or endorsement, then generally expected results must be clearly disclosed and backed by substantiation of any claims.

3.    Blogs used for promotional purposes must be in compliance with published FTC guidelines, representing an accurate and full representation of the endorsee, or clearly designated as a fictional story if developed internally for marketing purposes.

4.    News Sites published in marketing materials must be in compliance with published FTC guidelines, and must be clearly presented to the consumer as an advertorial. Written consent should be obtained from a media outlet prior to using the logo.

5.    Implied celebrity endorsement by use of an image in your marketing is prohibited without express legal written consent.

AFFILIATE  MARKETING (CPA)  NETWORKS

A significant contributing factor to Historical Excessive chargeback violations has been the utilization of CPA Networks. Transactions generated from internet traffic and all other lead sources must be managed and monitored for potential fraud using an approved system. Third Party service engagement may be a requirement for account approval.

1.    CPA Networks should contractually be held accountable for monitoring traffic generated from participating marketers.

2.    Merchants must have monitoring plans in place to detect suspect traffic and monitor Affiliate and Sub-Affiliate performance.

BILLING  TERMS  DISCLOSURE

The FTC has recently published guidelines regarding “Negative Option” enrollment programs and is taking a very aggressive position against merchants utilizing/employing this business practice. Recommendations taken in part from the FTC’s website may include but are not limited to the following:

1.    Negative Option disclosures must be clear and conspicuous to the consumer and comply with published FTC
principals.

2.    The full price of products sold must be within reasonable “fair market value”
3.    Under no circumstances should consumers be billed for a product or service not disclosed.

4.    Consumers must be required to validate understanding of the terms of the offer twice during order submission.
The first validation can take place with the initial offer presentation prior to submission of credit card information, and the second during the checkout process. The conbusinessation order page must also require consumers to acknowledge that they agree to the Terms & Conditions and authorize the merchant to charge the credit card for the disclosed dollar amount. Terms must be displayed adjacent to the “submit”,”conbusiness” or any other “call to action” button conbusinessing the order. The price must be within 100 pixels of the “submit”,”conbusiness” or any other “call to action” button.

–    Terms must be in a minimum 12-point “easy to read” font.
–    Avoid visually distracting graphics from the display of terms.
–    Pre-checked boxes must never be used.
–    Consumers should be required to actively and individually select each offer or bonus during the checkout process when there are multiple offers or up sells presented. No offers or up sells should be pre-selected or pre-checked.
–    Consumers should not be able to move forward in the offer or checkout until the box acknowledging the terms is checked.
–    Verbiage must clearly disclose the enrollment into an ongoing membership with no distraction. An example of an acceptable disclosure is: “By clicking “Submit” you acknowledge that you understand you are being enrolled in a 10 day trial for $4.95, and after expiration of the 10 day trial period you will be charged $59 per month until you cancel your service”
–    All products or services purchased when the call-to-action button is clicked should be billed as a single charge unless the order is fulfilled at different times requiring multiple charges.
–    Shipping and Handling should not be billed separate from charges for the product or service.

BILLING  TIMEFRAMES

1.    A merchant may not bill a consumer the full price twice in a 30-day span. An acceptable billing cycle example would be:

–    Day 1 – Consumer signs up for a 10 day trial offer with paid shipping of $4.95 charged at the time of order.
–    Day 11 – The first monthly order is shipped and the consumer is billed the full price of $59.
–    Day 41 – The second monthly order is shipped and the consumer is billed the full price of $59.

2.    Consumers should not be billed prior to shipment of products.

REFUND  POLICIES [FYI – Website Legal Forms Generator includes a new refund policy created by me]

Merchants must not make it difficult for consumers to exercise the disclosed cancellation procedures and all cancellation requests must be honored in accordance with the stated terms of the transaction.

1.    Refund policies must be disclosed prior to the sale completion. Establish a clear, concise statement of your refund and credit policy. Your policy should be consistent with the objectives of your business and the products or services sold.

2.    Merchants must not require return of any trial offer product samples in order for the consumer to receive a refund, or cancel their ongoing subscription.
3.    “Full Money Back” or “Full Satisfaction” guarantees are considered false and prohibited unless the offer provides a full refund on all products, including but not limited to Shipping & Handling charges.

4.    Refunds should be for the full amount charged including shipping and handling

5.    All future billing to a client should be canceled when a refund is issued.

6.    All future billing to a client should be canceled when a chargeback is received.

BACK  END OFFERS, AKA  UP SELLS OR  CROSS  SELLS:

All sales should be directly between the business entities (merchants) processing the transactions and the consumer, with consumer authorization for all purchases.

1.    Under no circumstances can consumer data be shared with another company as this is a violation of Brand
Regulations, including but not limited to the Payment Card Industry Data Security Standard.

2.    Forced and hidden up sells are strictly prohibited

3.    Up Sells with recurring charges are prohibited, regardless of consumer opt-in or acknowledgement of the offer.

4.    A one-time bonus offer may be extended to the consumer for an additional product offered by the same company as the initial transaction. The price of the bonus offer must be clearly disclosed and the consumer must acknowledge the terms of the sale prior to providing credit card information for completion of the sale, and again at order conbusinessation/ submission.

DESCRIPTORS

1.    ALL MERCHANTS  DEFINED AS OFFERING A DIRECT MARKETING PRODUCT WILL BE ASSIGNED A DESCRIPTOR FORMATTED  TO COMPLY WITH VISA REQUIREMENTS, TO INCLUDE AN *.

2.    Billing descriptor should be consistent with the website name, marketing materials, purchase conbusinessation, and shipping notification (if any) sent to the consumer.

FULFILLMENT

1.    Orders must be fulfilled in a timely manner. It is recommended that all products be shipped within 48 hours (2 business days) from the date of order.

2.    A conbusinessation email should be provided for all online orders with physical shipment, within the prior 5 days to shipment or 2 days following shipment, including the following information:

–    Merchant contact information (at minimum a consumer service phone number)
–    Order information including purchaser’s name, unique order or client ID, summary of item(s) purchased
–    Terms of the order, including initial amount billed and future billing schedule (this should be stressed)
–    Cancellation and refund policy
–    Delivery conbusinessation / tracking information
3.    An invoice should be included with the product including the following information:

–    Merchant contact information (at minimum a consumer service phone number)
–    Terms of the order, including initial amount billed and future billing schedule
–    Cancellation and refund policy

CUSTOMER SERVICE:

1.    Multiple methods of cancellation must be provided for consumers to cancel or request refunds, including at least two options of contact. Example of acceptable service channels include: phone, email, mail, and online chat. Phone support is strongly recommended as one of the options.

2.    “Contact Us” information including contact methods and hours of availability should be prominently displayed in all marketing, offer and payment pages, as well as included in purchase conbusinessations, invoices and any other communication with consumers.

3.    Customer Service must be easily accessible and available during reasonable business hours

4.    Refund and Cancellation Policies must be followed as disclosed to the consumer at the time of order

5.    Hold times to reach Customer Service must be less than 2 minutes.

6.    After hours voice mail should include a greeting that properly identifies the merchant to the consumer, provides hours of Customer Service availability and an expectation for call back.

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