By sean

This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.

The FTC recently sued Merchant Processing, Inc. (MPI), an ISO based in Beaverton Oregon as well as two affiliates of the company Vequity Financial Group and Direct Merchant Processing Inc, as well as the president Aaron Rian and vice-president Michael DeGroat for using deceptive tactics to sell credit and debit card processing services to small businesses.

Unfortunately, the business practices which landed these guys in hot water, basically misleading merchants about fees, are quite common in the industry.  In the three merchant account providers I have used for my small business, not once have the fees been explained to me with 100% accuracy.  Even my current merchant account provider, who I am mostly happy with, neglected to mention some expensive fees (hundreds of dollars / month) before signing me as a customer. As a spokesperson for the FTC mentioned in a  Digital Transactions News article “These practices aren’t unique to MPI, and the FTC is serious about enforcing consumer-protection law in this industry“.

I encourage all small business owners to read the text of the FTC Complaint as well as the text of a parallel complaint filed by the the Attorney General of Washington State to gain a better understanding of how they could be duped by their credit card processing company.  By being informed we can all increase our odds of being dealt a fair deal.

The tactics outlined in the complaints include:

*  The Defendants misrepresented that: they would charge merchants lower discount rates and transaction fees on credit and debit card transactions, merchants would save money by using Defendants’ services, transaction funds would be made available to merchants within 24 hours, merchants would need to purchase or lease new terminal equipment in order to use Defendants’ services and Defendants would “buy out” merchants existing equipment lease agreements with other service providers

*  Defendants entered into written contracts with merchants who purchased service from Defendants, typically after a sales presentation by Defendants or their agents.  The terms of the written contracts often differed from the sales presentations in ways that affected how much Defendants charged merchants for their services.

*  After entering into contracts with Defendants, many merchants discovered that Defendants’ services cost more than their previous credit card processing arrangements.  Merchants also discovered that they were paying additional fees that increased the cost of each transaction over what Defendants’ sales representatives had promised.  Some merchants were charged more “per-transaction” fees than they had transactions.  Additionally, Defendants withdrew a monthly fee directly from merchants’ bank accounts, which sometimes was charged to merchants after they canceled their contracts with Defendant.

*  Merchants also discovered that many of the representations Defendants made regarding the bank card processing equipment were untrue.  For example, merchants discovered that they did not need to purchase new equipment in order to use Defendants’ bank card transaction processing services.  Merchants also discovered that they would be locked into costly equipment lease agreements with third parties, even if they canceled their bank card transaction processing service from Defendants.  In addition, Defendants did not “buy out” merchants’ existing equipment lease contracts with other service providers, resulting in merchants continuing to receive bills for equipment they no longer used.

In addition to dishonesty by the merchant account providers and their salespeople, the reason why we small business owners are easily ripped off is that the product is complicated and we don’t take the time to educate ourselves about how credit card processing works.  If you don’t do any research before shopping you are asking to be taken advantage of.  To avoid being taken advantage of, read these articles – “How to Read a 3-Tier Merchant Account Statement“, “Reading an Interchange Plus Merchant Account Statement” and “Overview – How to Get a Good Deal on Merchant Account Processing“.

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