Paddle Agrees to $5 Million Settlement Regarding Involvement in Technology Support Fraud Schemes

Paddle.com and its American subsidiary have agreed to pay $5 million to the Federal Trade Commission (FTC) to resolve allegations that they enabled misleading tech-support schemes detrimental to numerous U.S. consumers, including vulnerable older individuals.

Paddle, a UK-based payment processing company, assists software and digital product vendors with payment handling, tax compliance, and checkout processing as a “merchant of record.”

According to the FTC, Paddle did not implement sufficient screening and fraud prevention measures, allowing foreign operators such as Restoro, Reimage, and PC Vark to exploit the U.S. credit card system. These schemes utilized false virus alerts and pop-up warnings—frequently impersonating reputable entities like Microsoft or McAfee—to entice consumers into purchasing unnecessary software or tech support services, often through unauthorized subscriptions.

For instance, PC Vark employed deceptive alerts to sell scareware and directed victims to call centers. Paddle processed $12.5 million in transactions for PC Vark despite receiving multiple complaints and a chargeback rate exceeding 7%. In a prior settlement, Restoro and Reimage were involved in nearly identical scams, directing victims to upsell via phone. Paddle processed over $37 million in transactions for these companies.

From April 2020 to at least June 2023, Paddle processed over $37 million in charges for affiliated deceptive tech support merchants, collectively identified as “Reimage Limited,” which were initially registered in the Isle of Man and later relocated to Cyprus. Internal FTC communications indicated that Paddle was aware of the fraudulent activities and understood the disproportionate impact on non-technical, older consumers. The company allegedly concealed these activities to evade scrutiny from banks and card networks, using fraud prevention tools like Ethoca and Verifi to refund flagged transactions before formal reporting, thus obscuring actual fraud rates.

Additionally, Paddle permitted merchants to commence charging U.S. consumers before completing “Know Your Customer” (KYC) checks, processing significant sums without verification. The FTC contends that Paddle acted as an unregistered payment facilitator, failing to comply with Visa and Mastercard regulations by processing transactions for numerous merchants without proper disclosure or compliance.

Despite explicit warnings regarding scams and chargebacks, Paddle continued to pursue revenue-sharing arrangements with high-risk processors, further profiting from dubious clients. They even requested PC Vark to sign indemnity agreements to mitigate Paddle’s potential liability for consumer fraud claims.

As part of the settlement, which includes monetary relief of $5 million, Paddle commits to several restrictions:
– Prohibition from processing payments for tech-support telemarketers.
– Ban on assisting deceptive merchants or helping them circumvent fraud detection.
– Mandatory screening and monitoring of clients, along with activity reporting.
– Clear disclosure of subscription terms, informed consent, and provision for straightforward cancellation.

Paddle has publicly stated that the settlement reaffirms its policy against partnering with companies involved in deceptive practices, labeling such actions as “abhorrent.” They emphasized that their role was limited to processing payments for initial software purchases and not for the deceptive telemarketing practices that followed.

To prevent falling victim to scams, it is crucial to remember that reputable organizations such as Microsoft and McAfee will never utilize pop-ups or unsolicited calls to alert consumers about infections. Individuals should refrain from purchasing software from unfamiliar websites or advertisements, avoid making impulsive decisions based on perceived urgency, and implement ad blockers or internet security tools to prevent unwanted pop-ups and redirects.