As an e-commerce seller, the stability of your payment processing system is critical to your business’s success. However, as the recent Federal Trade Commission (FTC) case against the payment processor Click (formerly known as CardFlex) reveals, not all payment processors operate with integrity. This $52.9 million lawsuit serves as a wake-up call for e-commerce sellers, highlighting the risks of working with unreliable processors and the potential for devastating consequences.
If you’re navigating the world of online selling, understanding how to evaluate payment processors is just as important as choosing the right product or platform. This guide will break down the core lessons from the Click case, provide actionable steps to protect your business, and outline best practices for choosing a reliable payment processor.
Why the FTC Took Action Against Click
The FTC’s lawsuit against Click reveals the dangers of lax underwriting practices and regulatory violations. At its core, the issue was Click’s willingness to approve merchants without proper verification, ignoring critical red flags such as businesses being on the MATCH list (a blacklist for high-risk merchants). This allowed Click to onboard merchants unfit for processing, bypassing essential checks like:
- Fraud screenings
- Credit and identity verifications
- Business model evaluations
Additionally, Click was accused of helping merchants evade chargeback rules, exploiting the system for financial gain. This kind of misconduct not only led to the FTC intervening but also created a ripple effect that impacted merchants using their services.
For legitimate businesses using Click, the fallout was severe. Funds were frozen, payment processing was abruptly terminated, and merchants were left scrambling for solutions - all without warning. The case underscores the fact that when a processor goes down, so do the businesses relying on it.
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How This Affects Your Business
Even if you run an honest and compliant e-commerce business, working with an unreliable payment processor can jeopardize your operations. Here’s why:
- Frozen Funds: When the FTC or another authority intervenes, a processor’s assets - including your payments - can be frozen indefinitely. Merchants often wait months or even years to recover their money, if at all.
- Account Termination: If your payment processor is shut down, your merchant account is likely terminated, leaving you unable to process new transactions.
- Reputational Damage: Being associated with a problematic processor might make it more difficult to secure a new account with another provider.
- Disrupted Cash Flow: Without access to your funds or a backup processor in place, your business can experience significant cash flow challenges.
The lesson here is clear: choosing the right payment processor isn't just about finding good rates; it’s about ensuring the long-term health and reliability of your business.
Red Flags to Watch for When Choosing a Payment Processor
To safeguard your business, it’s essential to recognize the warning signs of unreliable payment processors. Here are the key red flags:
1. Instant Approvals
While quick approvals sound appealing, they often signal a lack of thorough underwriting. A reputable processor will take time to evaluate your credit, business model, and transaction history. For online businesses, underwriting should typically take 2–3 business days and sometimes up to a week.
2. No Verification or Documentation
If a processor skips important steps like identity verification or credit checks, it’s a major cause for concern. Thorough onboarding protects both the processor and the merchant by ensuring compliance with regulatory standards.
3. Offers That Seem Too Good to Be True
Promises of ultra-low rates (e.g., under 3% for most e-commerce merchants) or no reserves should raise suspicion. Reliable processors need to account for risks associated with chargebacks, refunds, and high-ticket transactions.
4. Guaranteed Approvals
No processor can guarantee approval without reviewing your application. Claims of guaranteed approval, especially for high-risk businesses or those on the MATCH list, are likely misleading and indicate unethical practices.
5. History of FTC or Regulatory Issues
A quick search of the FTC’s website or industry forums can reveal whether a processor has had legal or regulatory issues in the past. While not all investigations result in wrongdoing, repeated violations should be a dealbreaker.
Best Practices to Protect Your Business
To ensure your business remains secure and operational, follow these best practices when selecting and working with payment processors:
1. Do Your Research
Thoroughly investigate any processor before signing on. Check their reputation, transparency about fees, and history with regulators. Look for reviews from other merchants in your industry.
2. Prioritize Underwriting
A detailed underwriting process may take longer, but it’s a sign of a trustworthy processor. Don’t rush into partnerships with companies that promise instant approvals or minimal documentation.
3. Diversify Your Payment Processing Options
Never rely on a single processor for all your transactions. Having a backup processor ensures that your business can continue operating even if one provider experiences issues or shuts down.
4. Understand Terms and Conditions
Carefully review your processor’s terms, especially prohibited business categories and chargeback policies. Misunderstanding these terms can result in account freezes or termination.
5. Be Honest About Your Business
Full transparency with your payment processor helps establish trust. Disclose your business model, transaction volume, and any past issues upfront. This honesty can prevent surprises later.
6. Prepare for Reserves
If you’re a new or high-risk business, expect your processor to require a reserve - a percentage of funds withheld as security. While inconvenient, reserves can often be reduced or removed after 3–6 months of strong performance.
What to Do If Your Processor Goes Down
If you find yourself in a situation where your payment processor is shut down or under investigation, act quickly:
- Secure a Backup Immediately: Reach out to other reputable processors with a clear explanation of your situation.
- Consult Legal or Financial Experts: Seek advice on how to recover frozen funds or resolve disputes.
- Communicate with Customers: If payment delays impact your customer experience, be proactive in addressing concerns and offering alternative solutions.
Key Takeaways
- Choose Processors Carefully: Research your payment processor’s reputation and avoid companies with a history of FTC violations or lax practices.
- Avoid Red Flags: Stay away from processors offering instant approvals, no documentation, or guaranteed rates.
- Diversify Your Options: Always have a backup payment processor to minimize disruptions during emergencies.
- Expect Underwriting: A thorough underwriting process is a hallmark of a reliable processor.
- Stay Vigilant: Continuously monitor your processor’s performance and industry reputation.
- Plan for Reserves: Be prepared for a reserve period, especially if you’re a new or high-risk merchant.
- Act Quickly in Crises: If your processor goes down, secure a backup provider and seek expert assistance to recover funds.
Final Thoughts
The FTC’s case against Click serves as a stark reminder of the importance of doing your due diligence when selecting a payment processor. While it’s tempting to prioritize speed and convenience, cutting corners in this area can leave your business vulnerable to financial losses and operational disruptions.
By recognizing red flags, adhering to best practices, and maintaining a proactive approach, you can protect your business from the fallout of unreliable payment processors. Remember, the stability of your payment processing system is as crucial as any other component of your e-commerce operation - treat it with the care and attention it deserves.
Source: "Too Good to Be True? Payment Processing Red Flags" - Click and Convert with Maria Sparagis, YouTube, Jan 23, 2026 - https://www.youtube.com/watch?v=j8U4edK3Bek
