As a small business person, you’re looking for ways to keep your credit and debit card processing costs down. So when someone calls claiming to be associated with your current card processor, Visa or MasterCard, or your bank and promises big savings, of course you’d be all ears. But according to a lawsuit filed by the FTC, the deceptive practices of one processing outfit have given new meaning to the word “swipe.”
A bit of background about how the typical smaller retailer is able to accept credit cards. Many businesses get access to credit card services through an ISO, an independent sales organization. In effect, ISOs act as the go-between for retailers that want to accept credit cards and the financial institutions that are members of credit card associations like MasterCard and Visa. ISOs sell processing services to businesses, allowing them to open merchant accounts with a financial institution. That’s where the proceeds of a business’s credit and debit card sales get deposited. The business pays processing fees, including a "discount rate" — a percentage of each sale they make.
Merchant Services Direct LLC is an ISO that specifically targets smaller retailers. The FTC says the company’s sales agents called businesses, promising lower rates for processing credit card transactions. Merchant Services Direct made similar claims on their website — for example, “Save 30-60% with whole sale processing.” (That's how they spelled it.)
Rather than discussing the details over the phone, sales agents typically showed up at the target’s place of business. They told owners they were there to “upgrade” their current processing services. They also claimed that a “cost analysis” showed the business could save money by using their services. The pitch people often quoted a fixed per-transaction cost, without mentioning loads of other fees tacked on to the deal. When skeptical merchants asked about additional costs, the FTC says some sales agents just flat out lied.
According to the lawsuit, the deception didn’t end there. Merchant Services Direct’s agents falsely told businesses their current “swipe” terminals were out of date or incompatible with its services. The FTC says the sales agents also pressured business people to sign on the spot certain documents labeled as “applications” with the assurance they could cancel anytime. What were unsuspecting business owners really signing? Binding contracts that referenced 40-50 pages of terms and conditions accessible only through an obscure link on the defendants’ website. Businesses found themselves locked into expensive long-term leases, despite false assurances that the terminals were free. What about the promise of lower rates? Untruthful, says the FTC. Businesses actually ended up paying more for processing through Merchant Services Direct, plus were dinged with undisclosed fees and surcharges.
What happened when businesses got fed up and called to complain? The FTC says the run-around continued. Customer service reps promised discounts or refunds that never materialized. Businesses that cancelled were hit with hefty fees disclosed only in fine print on that “application” or on the defendants’ website.
The FTC’s lawsuit charges Merchant Services Direct and related parties — Sphyra Inc., Boost Commerce Inc., Generation Y Investments LLC, Kyle Dove, and Shane Hurley — with a host of misrepresentations. The case in pending in federal court in the State of Washington.
In the meantime, the FTC has tips for small business owners on spotting B2B deception.
Let the business buyer beware. The first step toward protection is knowing that businesses like yours have become the target du jour for some operators. They try to capitalize on the fact that: 1) Margins in a small business can be razor-thin; 2) You’re open to opportunities to cut your overhead; and 3) You’re a busy person with a company to run. The FTC has resources to help you see through the hype and identify a potential B2B rip-off.
Pulling a fast one. Of course, every salesperson wants to close the deal. But if a sales rep pressures you to sign on the dotted line before you’ve had a chance to mull things over, show them the door. Furthermore, a “Sign now. You can always cancel later.” pitch can be a clue that’s something’s amiss.
What’s the buzz? Large corporations have entire departments to investigate the best B2B deals, but what’s a smaller enterprise to do? When it comes to products and services essential to your company — office supplies, processing services, and the like — ask for personal recommendations from other business owners in your community. Positive word-of-mouth from trustworthy people in your local small business association or trade group is more reliable than any sales pitch.
Search and deploy. Curious if a company is on the up-and-up? A quick online search for its name and words like “review” or “complaint” could make for interesting reading. Of course, like online consumer reviews, you have to read anonymous B2B reviews with a wary eye. But post after post warning small businesses about a company’s shady reputation should give you pause. Here's a video with tips on evaluating online reviews and recommendations.