The Green Sheet Online Edition
April 25, 2011 • Issue 11:04:02
Spring cleaning the ISO house
When dishonest ISOs and merchant level salespeople (MLSs) use deceptive practices to trap business owners into signing unfair processing agreements, the merchants feel cheated. And this gives us all a bad reputation. Such practices also invite complaints that can lead to government regulation.
My pet peeves are the gimmicks and intentionally fraudulent scams. Have you ever seen or used the line, "If I can't save you any money, I'll give you $x?" This is usually offered with the intention that $x will never be paid. Some MLSs deviously apply one rate across an entire statement, disregarding such things as mid- and non-qualified downgrades and other fee categories. Thus, it looks like the agent is offering major savings to the merchant (and no payment is due on the bet).
I also consider "free" terminals to be a gimmick. ISOs and MLSs make up for the giveaway in other ways.
Lies that hurt us all
Intentional fraud is something that we, as honest ISOs and MLSs, need to grab by the roots and remove from our own backyards before someone does it for us. Intentional fraud includes lying to get accounts, for example:
- Telling merchants their equipment is not PCI compliant when the equipment is compliant
- Making unauthorized changes to contracts, including lining things out or making changes after contracts are signed
- Making calls to merchants that begin with, "This is your processor and we need ..."
- Providing lower rates than a merchant is qualified to receive and applying surcharges to cover the real cost
- Telling merchants you are calling from MasterCard Worldwide or Visa Inc.
- Claiming that your company offers "direct pricing"
Inducing artificial merchant churn is another example of intentional fraud. For instance, getting a merchant to change processors multiple times to earn a bonus for each switch, as well as telling merchants they can leave their old processors without penalty when the merchants will, indeed, be penalized for switching.
The schemes we've seen
I asked GS Online's MLS Forum about the scams (or potential scams) they have encountered.
BER mentioned agents who promise to cancel leases and merchant accounts for their clients and take the leased machine to "settle up."
JOHN GALT? said he sees the prominent headline, "Rates as low as 1.1 percent on all credit cards*" with the explanation, "plus interchange fees," following an asterisk at the bottom of the postcard in three-point type.
SECONDGLANCE brought up another common practice: "One flat fee monthly for all of your processing, no additional fees!" LOPAND1 described an agent orchestrating just such a scenario: "'Here at XXX Merchant Services we have no contract and no hidden fees. Now please sign here, saying that you agree to the contract terms and conditions that I have not provided that also include all the hidden fees that I'm not mentioning to you.'
"It still amazes [me] how many merchants I speak to that brag that they have no contract," LOPAND1 added. "But when you ask them what they had to sign in order to get started with accepting credit cards, they go into a big defensive mode. I know I signed a contract, but it wasn't a contract like your contract. It was a 'no contract-contract with a free terminal,' and I have a flat rate of 1 percent on my $1,500 a month in volume."
A harmful practice I had not seen before was sent in by K-WAGS, who mentioned encountering an agent who signed a single merchant and sent the same contract to multiple ISOs.
MLSs and ISOs are not the only ones perpetrating fraud. "I don't know if this has been mentioned, but the most common scam/fraud attempt is happening now with inbound calls," CLEARENT posted. "A merchant calls wanting information on payment processing.
"They are an easy sell and even provide you with all of the paperwork. It seems so easy. You don't ask why they called across country, why they chose you, etc. The next thing you know, it's a bust out. They knew exactly what it took to get approved, and they knew what it took to slam through the transaction quickly."
When I wrote Navigating Through the Risks of Credit Card Processing, I advised merchants to sign with local agents because I believe they can provide better service with a more personal touch. Plus, it is a way for MLSs to ensure that the merchants they sign are legitimate.
My largest client resulted from an incoming call. The business is located a couple of hundred miles from my home. I let the underwriting department know that I had not seen the company's office or met the owner, but I would be doing the training in person. Working with your underwriters should help reduce fraud caused by "merchants" shopping for agents cross-country.
What we can do
How can we combat the gimmicks, scams and fraud? Several options come to mind. We need to determine which will work the best while causing the least interference.
Education would be a good start. New MLSs need to know how to deliver service the right way. Let the ISOs handle company-specific training like apps and underwriting, but the basics should be taught in some uniform manner. Many inexperienced agents are simply instructed to start knocking on doors and call if they need help. Even worse, some are taught to do improper or fraudulent things.
Educating business owners is also important, and we can get the word out. Write blogs, start classes at local chambers of commerce, and work with business startup and accountant groups. Learn how to approach media outlets. Teach business owners what to watch out for without trying to sell to them.
Once you are seen as a trusted adviser, they will approach you. One jewelry store used to say in its commercials, "An educated consumer is our best customer."
In researching "Straight talk on professional certification," The Green Sheet, April 11, 2011, issue 11:04:01, I found that most members of the MLS Forum do not believe certification will help because it brings no barrier to entry for new agents and will not penalize those who refuse to follow the rules.
If certification is rejected, we will need to consider registration of not only ISOs, but also MLSs. With registration, the likely barriers to entry would be fees and some type of training and testing. The details of the registration process could vary depending on who is leading the charge.
If the cause were led from within the industry, the purpose would be to clean up the industry and allow healthier margins. With government entities leading the campaign, you would have different rules in different states, and some would use registration and licensing to enhance state coffers and "protect" merchants without regard to the health of the industry.
Twelve years ago, I sat in an insurance licensing course. The most important point conveyed was to not mess with old people. Ethics in the processing industry needs to be stronger. People shouldn't have to be told not to cheat others. Ethics training would emphasize acting in the merchant's best interests and making a fair profit in doing so. Violations in ethics should be dealt with severely. When we fail to take action, we invite mandates. And the government is already getting involved. Many have railed against the Durbin Amendment to the Dodd-Frank Wall Street Reform Act of 2010.
Those who have heard the Sen. Richard Durbin, D-Ill., media interviews, including the March 28, 2011, interview on CNBC, know the man has no clue about how credit card processing works or who receives interchange. His "intel" is coming from retail organizations like the National Retail Federation and the National Association of Convenience Stores.
In the absence of our own grassroots organization to reform our industry, Durbin and others who have no idea of how this industry works are stepping in to do it for us.
Remedies to consider
There are a few mandates I could live with. These include requiring that:
- The merchant signature appear on all pages of the contract
- The section stating that the contract, as written, supersedes all changes - whether oral or in writing -be printed in all capital letters and initialed by the merchant
- All merchant fees appear on a statement sent to the merchant, with all fees being for the same month in which they are incurred
- Statements show the reason for all downgrades listed in them
I will provide a PDF with further details on these requirements to any reader who requests it.
Please share the scams you are seeing with others on the MLS Forum. Create your own database on these practices, and educate the merchants you meet with. Help your customers avoid fraudulent schemes and the agents that present them.
As always, I welcome your ideas. Remember that what you do today defines your tomorrow.
Bill Pirtle is the President of MPCT Publishing Co. and author of Navigating Through the Risks of Credit Card Processing. He is also a merchant level salesperson for Clearent LLC, Electronic Payments Inc. and Electronic Merchant Systems Inc. Bill's website is www.creditcardprocessingbook.com, and his email address is firstname.lastname@example.org. He welcomes all connections on Facebook and LinkedIn.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.