The Federal Trade Commission has brought a number of actions against payment companies in recent months, accusing them of promulgating and aiding deceptive sales practices.
Depending on the circumstances, the allegations pertain to the sales schemes of ISOs themselves or the sales practices of the merchants they serve. All appear to incorporate telephone contact with prospects to either set appointments or close sales.
Based on the related FTC statements, it is clear that some of the defendants' actions, if substantiated, are reprehensible. When it comes to merchants' actions, however, the level of ISO and processor responsibility seems more difficult to discern.
To help shed light on this issue, we asked our Advisory Board the following questions:
Following are a portion of the answers we received. The remaining responses will appear in a subsequent issue of The Green Sheet.
We wish to thank all board members who participated and hope their answers offer you valuable insights.
1. Any successful system requires checks and balances. The bigger a company gets, however, the more difficult it can become to keep all new clients entirely satisfied. Merchant complaints will occur regardless of how diligently customers are serviced. What is important is learning how to recognize patterns of undesirable behavior and learning how to handle complaints that may stem from bad hires.
A good rule of thumb is to keep an ethics clause in the agent contract. Ethics statements can allow an ISO to arbitrate complaints on a case by case basis and penalize deceptive agents by forcing them to own 100 percent of refunds or credits. If an agent is alarmed by a clause that regulates their potentially harmful behavior, they are probably not an ideal candidate. ISOs can mitigate their expenses while keeping their clients happy with such a clause.
Even if an ethics clause is out of the question, it is not entirely difficult to spot a pattern of poor behavior and regulate a problematic agent. If a merchant becomes incensed and an ISO's primary sales tactic is to benefit, not deceive, management should refund the client - even if it means maintaining the account at a negative revenue balance.
ISOs spend so much money creating a positive image about their brand that satiating an irate merchant to keep them satisfied is pennies in comparison. An ISO that does not care about their reputation is doomed to inevitable failure. Good riddance.
2. We live in an era of information. All of the managers at our firm have undergone diligent training in Internet research. Businesses that treat customers poorly or illegally will have negative Internet footprints. Businesses that have been created with the sole purpose of deceiving or cheating customers for profit will traditionally follow the same patterns of application:
It would be great if there were a true catchall to identify fraudulent or unscrupulous merchants, but the best we can do is learn from mistakes and pay attention to our underwriters.
Often enough, sales departments become frustrated with underwriters because approvals equal earned income. Too often it is easy to forget that the protections that come with a strong underwriting process can keep an ISO from taking unnecessary risk.
3. B2B sales is a vast and varied industry. It seems to be highly improbable that the FTC's action against a mere three firms in one particular sector will lead to swooping, industry-wide federal regulation. Stranger things have happened, but hot-button topics such as industry regulation typically come strapped with national controversy and usually take a long time to institute.
If federal regulation should become a reality, I'm not terribly concerned. If a regulating law is well-written and it is designed to dissuade unethical characters from entering my domain and sullying the reputation of the industry I built my career around, I will welcome it with open arms.
If the law is poorly written and becomes a hindrance to our industry, then we all become hindered equally. Regulation means change, and change means opportunity.
1. There is no way that any ISO can ensure that every sales rep is above board. I am sure every ISO out there has had one or two bad deals due to what a rogue sales rep may have said in order to close a deal.
Taking the time to train a salesperson to do it the 'right way' doesn't always mean that they will, and you can't listen to every presentation that a sales rep makes. On the other hand, you cannot know what a merchant thinks or how they interpret what a salesperson says either. This is where the expression 'buyers are liars' originated.
Over the past 28 years, I have learned that the perceived value of 'something' greatly wanted greatly diminishes once that 'something' is delivered. In other words, the merchant who says, 'I need it yesterday, and I will pay anything to get it!' really didn't mean it when he is paying $99/month for a terminal because I was the only company that would deliver.
A month later, that merchant sees the sales rep as a vulture that took advantage of the situation rather than the hero that delivered.
What we do to protect against issues like this is not have any direct sales reps other than ourselves and have great referral relationships. We do most (if not all) of our business from referrals, and in every case, we communicate with the merchant directly in order that they know what's up right from the very start.�
On a side note, I have often said that our industry could do a better job policing itself with respect to who we let sell services. I would like to see our industry operate more like the real estate and insurances industries (that is, if you have a criminal record, you cannot sell real estate or insurance products) instead of sending the message: Just got out of prison yesterday? Come sell merchant accounts for us today!
2. At Acquiring Solutions we perform an in-depth telephone interview with the merchant followed up with a site inspection (if necessary). We want to know everything, and if we ask for something that we don't get, chances are you aren't getting a merchant account.
Monitoring of merchants' websites and keeping updated financials is a part of merchant acquiring good housekeeping. Also establishing a good relationship with the loss-prevention team makes for fewer surprises. We also spend a tremendous amount of time educating the merchant as to the 'dos and don'ts' of merchant services. If approved, all site inspections are paid for by the merchant requesting services.
We also contact merchants annually to inquire if any of their business methods or product lines have changed. 3. Answering theoretically 'could it,' of course it 'could,' but objectively, I don't think that it would lead to federal regulation. Yes, it's true that the government has been looking at our industry through a microscope over the past few years, and it is certainly possible that a few bad apples may ruin the tree, but I do not think that a few bad apples will destroy the entire orchard.
1. You cannot spend 24 hours a day with everyone, so the only way to hammer home what you expect from all parties is to continuously confirm the company's position on what is acceptable and what is not. Also, confirm that the first sign of violation of company policy will be met with termination.
2. We use several methods. The first is from the welcome kit. As we all know, most merchants never read the welcome kit, so the backup to this is using our in-house retention and follow-up program.
After two weeks of service, we reach out to the merchant to ascertain exactly what needs to be fixed, changed and/or added. Part of the call is to determine if we represented ourselves correctly.
3. Yes, it can, but three days means nothing in the B2B arena. In the absence of some type of needed regulation of MLSs and ISOs on a state or federal level, having a period of 30 to 60 days to cancel a processing agreement is a good second option. It is long overdue, and if we as a company are performing as promised, 60 days is nothing.
1. At TSYS, we promote and expect ethical business behavior in every aspect of our business. As the saying goes, 'the best offense is a good defense,' and this is accomplished with appropriate background checks, training, education and collaboration between sales, risk and compliance.
While we believe our training, diligence and monitoring practices are industry leading, we regularly evaluate practices in an effort to improve all aspects of our sales process and representation.
2. The acquiring industry has historically been a self-regulated industry with well-established principles of risk management.
It is in the best interest of all in the payments ecosystem to not allow a few bad seeds to proliferate and cause consumer harm that ultimately leads to onerous government regulations that risk negatively impacting the payments industry, the economy and consumers.
At TSYS, our direct acquiring clients are vetted in accordance with a strict underwriting process, including AML/BSA [Anti-Money Laundering/Bank Secrecy Act] reviews, a review of the merchant's type of business, billing practices, and business character, all in an effort to prevent merchants with questionable business practices from accessing the payment system.
3. The federal and state focus on consumer protection could obviously lead to regulation of B2B contracts. That said, it behooves all in the payments industry to make an effort to educate regulators on our business, as well as undertake efforts to develop self-governing best practices.
Government regulation could cause processors to stop providing services to some businesses for no reason other than exercising an abundance of caution, as opposed to exercising practical risk assessments that uncover true high-risk merchants. So, as with many regulations, they could have unintended consequences to the economy.
We, along with other key industry stakeholders, are providing input to the Electronic Transactions Association in its efforts to compile best practice guidelines in response to the FTC's heightened scrutiny of the acquiring industry.
1. At Elite Merchant Solutions we have a comprehensive training program followed by an exam which each account executive must pass with 80 percent or above. Further, we employ a quality control department to ensure all applications meet our standards with respect to pricing. For example, when a merchant agreement is sent to us for boarding, our QC rep will analyze the pricing on the schedule A along with the merchant statement to ensure the merchant is getting what was provided on the proposal.
In addition, we have recently launched an incentive for our employees to obtain the CPP [Certified Payments Professional] designation, which we feel will be very helpful in ensuring the account executives representing Elite will be highly knowledgeable in all areas of the payment processing industry.
2. Every time a merchant application is sent in for boarding, we have someone reach out to the merchant to verify the business is in fact what is on the merchant application. We have various levels of evaluation based on the type of business being boarded.
We have designated levels 1 through 4 where 1 is a low-risk MCC [merchant category code] that can easily be verified, and level 4 is a higher-risk merchant that is evaluated with a lot more scrutiny.
3. I think anything is possible; however, I would find it unlikely that a renege period would be implemented by the FTC. However, I don't think it's a bad idea to provide a renege period, as it will only help the legitimate merchant service companies.
For instance, all too often I hear of a representative walking into a merchant and promising the world, and the merchant signs what equates to a death sentence for their business because he/she was blindsided by a very good salesperson. A renege period would allow the merchant to catch his/her breath and hopefully realize they are far better off by not going with this particular program.
It is a shame when merchants tell stories of getting bamboozled with a $99, 48-month lease on a $150 point of sale device and a program that actually costs them more on their payment processing. It is our practice that if you don't want to do business with Elite Merchant Solutions, then we would rather not force the issue and have an unhappy customer on our books.
One of the more disturbing practices I see is the liquidated damage agreements, which can cost a merchant tens of thousands of dollars to migrate to another processor. This is both unethical and a deceptive business practice and should be outlawed.
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