An ongoing investigation of questionable sales practices at Wells Fargo & Co., which initially exposed fraudulent activities in the consumer banking division, raised additional questions about the company's merchant services division, Wells Fargo Merchant Services LLC. In an April 6, 2017, statement, consumer class action law firm Keller Rohrback LLP challenged the company's fee structures and retroactive billing of non-qualified transactions in monthly merchant statements.
At issue is a practice called enhanced billback. Processors using this method charge a flat fee for transactions in a monthly processing statement and then retroactively charge merchants for non-qualified transactions the following month. "Enhanced billback is also known as enhanced reduced recovery, blended rate or mixed rate," the attorneys stated. The attorneys said they became aware of the problem through negative online reviews that criticized the bank's non-qualified fee policies. For example, the website Cardfellow.com stated, "Wells Fargo Merchant Services is responsible for some of the highest rates and fees we have ever seen in the 10 years we've been helping businesses secure the most competitive credit card processing company."
Recent allegations against Wells Fargo and other major acquirers can be detrimental to the payments industry's reputation, according to Srii Srinivasan, Chief Executive Officer at Chargeback Gurus, an Allen, Texas-based risk management and mitigation firm. Srinivasan has seen numerous examples of poor service and "gotcha" fees when negotiating fee structures and contract terms on behalf of merchant clients.
"I myself have experienced it when I initially set up merchants for our business over a decade ago," she said. "It is difficult to nail down the exact fees and penalties in lengthy contracts; plus the actual fees for a transaction may depend on the type of card used and interchange fees, among other factors."
Srinivasan said most merchants do not understand how processors evaluate merchant account risk levels, the potential consequences of exceeding their chargeback thresholds, or why processors may hold funds in reserve after closing a merchant account. "Merchants do not understand the relationship between reserves and chargebacks," she said. "They don't typically call their processors with these questions, but look for a merchant advocate that can help them identify risks, mitigate them and keep their MIDs healthy."
Srinivasan wants to see more transparency in merchant services agreements and processing relationships. Following are her additional recommendations for an open, transparent dialog among payments industry stakeholders:
Given that Keller Rohrback has led class action settlements against JPMorgan Chase & Co., Mattel Inc., Crayola LLC, and Anthem Inc. financial analysts have stated that if the law firm can substantiate allegations of inflated fees and retroactive billbacks, this will likely lead to further actions, including a possible class action suit against Wells Fargo and its payment card processing partner First Data Corp.
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