FTC cracks down on non-disclosure of fees in the credit card processing industry
Posted on Wednesday, November 28, 2007
The FTC is suing MPI, a provider of credit card processing services to businesses, for engaging in deceptive sales and marketing practices. In other words, they getting nailed for misrepresenting to business owners the true costs of using them for credit card processing.
The FTC made the following allegations:
- Count One: Deception. MPI misrepresented fees to merchants and overstatement of expected savings.
- Count Two: Deception. MPI failed to disclose additional credit card fees such as surcharges for certain types of transactions.
- Count Three: Deception. MPI misrepresented lease buy-outs. Stated that they would pay off balances on merchant existing leases but did not do so.
- Count Four: Unfairness. MPI made unilateral modifications of contracts after merchants signed the agreements and without their knowledge requiring merchants to pay substantial fees and surcharges.
This is how they did it.
MPI would approach merchants and tell them that if they leased a certain credit card machine for $39.99 per month for 48 months, they would get very low credit card processing rates. MPI sales people would perform a cost savings analysis and show merchants that even with the increased cost of the machine they would be lowering their overall processing costs.
In the process however, MPI failed to disclose all of the other fees such as surcharges on certain types of credit cards. With the additional fees included, merchants would usually end up paying more for credit card processing.
The practice by merchant service providers of offering an enticing low rate and not disclosing other fees is not unique to MPI. They were just more egregious and aggressive with their practices and ended up on the FTC radar screen.
Here is the FTC’s formal complaint:
Comments
Jeff McCann said on Thursday, December 13, 2007:
In a similar note, check out the Foreign Currency settlement at http://www.ccfsettlement.com to submit a claim for at least $25. The case is against the credit card companies which overcharged its cardholders who made a foreign transaction.
Joel Blanchfield said on Thursday, December 13, 2007:
I have worked for PPD for a year now and I have seen my share of Deception for many credit card processing especially coming form Banks. Thats why I call it a wild wild west in this industry. There really is few regulation governing this industry. Merchants are tied to a multi year contract and yet the rates always seem to go up. Not with us we do not tie merchants to a contract we do not raise prices we also provide full support and our CEO encorages us to give back to our communities
John K said on Thursday, January 10, 2008:
Unfortunately, the suit will probably not correct the "other" practice so many credit card processing companies engage in. By that I mean, the practice where they quote some absurdly low qualified rate then gouge merchants on downgraded tiers (and never show them what those rates are).
I've heard many merchants proudly say they're getting 1..49% or lower on their merchant account. If they added up all the fees, they'd see that well over 4% is being taken from their gross sales volume.
There isn't any precedence that I can think of and I can't imagine how it would be enforced, but I wonder if Visa / Mastercard shouldn't crack down on how companies explain their prices.
John Suh said on Thursday, August 07, 2008:
I run a small retail business. I use a credit card processing company (BS) to collect most of sales. I've happened to find early July '08 for the first time that BS had additionally deducted ARU (Alternated Response Unit) fees ($127 in Sep '09 and $16 in Oct '07) from its monthly deposits into our bank account, after deducting all the charges and fees. I asked BS what the ARU fee is for
and heard that it is too complicated to explain, anyhow, it was a mistake for it to bill the ARU fee to the merchants including my business. BS further said that it had refunded the wrongly deducted ARU fees to many merchants, asking in turn if I had not received its refund. I, of course, had not received a refund or any notice from BS since BS deducted the ARU fees in Sep and Oct '08. Moreover, though BS admitted the mistake and promised to refund the ARU fees early July '08, I have since never received the refund until 8/07/08. I suspect that BS first deducted the ARU fee(s) to merchants, then if
no dispute or complaint from a merchant, BS may have passed by, but if a
merchant found and complained of it, it would offer a refund to the merchant,
pretending it was a simple mistake. Though I'm not so sure, I cannot but think
it fradulent, or that BS took advantage of innocent small merchants. I would
presume there need to be an investigation into what BS has done in order for other merchants not to be victimized. Dear Sir, I do not know whether you are the right party whom I direct this issue to. If not, I apologize, and request you to let me know the agency or authorities concerned where I should contact. Thank you very much.
John Suh said on Thursday, August 07, 2008:
I'm sorry I put the wrong years in my earlier contribution of 8/07/08. Please see the below notes:
"...($127 in Sep '9..." was a mistyping of "...($127 in Sep '7...)
"...since BS deducted the ARU fees in Sep and Oct '8..." was a mistyping of
"...since BS deducted the ARU fees in Sep and Oct '7..."
hushdevil said on Friday, March 12, 2010:
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