Most Experts Say CMS Case Will Be Major Blip on Industry's Radar Screen

Question 1:

Please gaze into your crystal ball. How do you believe the FTC complaint filed against CMS will affect the ISO industry as a whole?

We have received hundreds of letters from readers expressing their feelings about the recent FTC complaint against CMS. Some are very negative, and others recognize that the brush that stands ready to paint CMS is very broad and may yet paint others as well. In an effort to get some focused feedback on how the FTC investigation might affect the industry on a broader basis, we asked our Advisory Board. Here are some of the responses.

Gary LaTulippe Schmooze "My crystal ball has a narrow, yet skeptical, field of view. Having read the charges via The Green Sheet, my intuition is that the organizations that see themselves as coming under the 'radar' scope will begin to tweak their operations for a period of time until they can find another way to operate.

"These people have designed a course of action that serves only one equation of the process, and that is themselves. The customer is a vulnerable piece of this activity and relies on the integrity of the person and organization with whom he is entrusting his financial welfare.

"Unfortunately, some will take advantage of the situation no matter what the risks, as they are unlikely to be discovered and exposed. Some of these people will spend many hours to research other ways to work outside the recognized system to make the quick hit and move to the next victim.

"My fervent hopes are to continually locate and expunge these types of organizations and make the consequences significant enough to cause them to cease doing business. There are outstanding examples of quality companies in our industry, and they should continue to be spotlighted as you have done in the past.

"We should all take the time to educate our clients as to how they can make informed decisions, check our references and feel that they are making the best decision for themselves and their clients.

"Hopefully this exposure will cause us all to reflect why we have chosen this field of customer service and take the time to work for our clients. The money aspects will certainly follow this course of action and keep us in the spotlight as a favorable part of the merchants' world."

Robert Joyce Alliance Payment Systems "This can only be bad for the industry. It feeds itself on the efforts of people who must produce to be paid and on companies that are usually undercapitalized or greedy, resulting in widespread questionable business practices. There's a veritable Pandora's box looming on the horizon."

Stacy Bell Advanced Payment Technologies "I think that this will have a positive impact on the ISO industry. Deceptive practices will probably be minimized by the scare of the FTC. ISOs will probably delve a little more into the backgrounds of the people representing them as well as implementing better internal controls."

Lee Ladd LADCO Leasing "My crystal ball is sometimes hazy, but the CMS case should not affect the industry as a whole. In some cases it should be a wakeup call. For those who are involved in unsavory or deceitful practices, they'd better understand the consequences. The FTC has a very heavy hand and can deliver a lethal blow to violators of good business practice."

Ross Federgreen CSRSI "The FTC complaint should serve as a wakeup call that unethical behavior will not and should not be tolerated. I understand that allegations are not proven facts, but this needs to be taken very seriously. Every organization needs to make sure that its agents are not only following the letter of the law but the spirit as well. From our own perspective, we have heard of and seen too many examples of questionable tactics and behavior."

Steve Christianson TransPay Processing "We heard some banks are requiring new term sheets (financial-charges disclosures) to be signed by merchants for any changes, including rates, downgrades, statement fees, etc. While we hope not to see a rash of minor legal actions, it should be a good 'cleansing' of the industry's bad boys.

"We constantly hear merchants complain about not being told about miscellaneous charges and fees until after they are signed and processing. Then they are unaware of a three- to four-year early termination clause that could cost up to $500 to leave that processor. Oh well, so goes the industry.

"I sincerely wish that the ETA would sprout some teeth and somehow come up with an ethics committee to address industry and merchant complaints about member ISOs and vendors. Enforcement actions would be limited, such as denying renewal membership and possibly perhaps a probationary status. Would it work? For the attorneys it would."

Bill Pittman RichSolutions "I believe the complaint will give the impression to businesses that ISOs in general are not reputable. You will probably see several stories and articles written about this to reinforce this impression. This exposure might make businesses hesitant to do business with ISOs and push the conservative businesses to banks like Chase because of their brand."

Scott Wagner Hypercom "If the FTC and the merchants who brought the complaint against CMS turn out to be right, maybe that will be a wakeup call to ISOs and other sales organizations that are not 'doing the right thing.' When a salesperson takes advantage of one merchant, it sends ripples throughout our industry. The next thing you hear merchants talking about is how so-and-so got slammed and that our industry is just a bunch of used-car salespeople. We all know there are plenty of professional salespeople and organizations out there, so to that end, the integrity of our business is critical."

Robert Carr Heartland Payment Systems "Perhaps when some ISOs lay awake at night thinking how to extract the next fee out of their merchant base, the legal department will be a little more careful in approving it. Perhaps we have seen the end of Y2K fees, re-underwriting fees, forced draft retrieval fees, delayed non-qual fees, obfuscated merchant statements, $99 leases for used XLs and other fees crafted by acquirers to disguise the real cost of their services. Perhaps the FTC will help fulfill the stated mission of the original BSA."

Mitch Lau Money Tree Services "I would like to think that other ISOs would be more careful about their 'hidden' charges."

Alan Gitles Merchant First Bankcard "It is more than a complaint. The court issued a TRO - I hope they make it a permanent injunction. It was long overdue; it could only help if it reduces unethical behavior. I doubt it will until the appropriate agencies take further action."

Craig Millington Compass Bank "Although this situation is long overdue, I am afraid it is going to start a whole new round of association investigations into the size and control of ISO operations."

Jared Isaacman United Bank Card "I think the fallout from the FTC investigation into CMS will help shape the mindset of ISOs, banks and agents with regard to ethical practices over the merchant base. The merchant contracts probably will become clearer with less fees disclosed in the fine print and more in the bold. If more regulations and policies get handed down from the associations, then perhaps that is a good thing.

"I think there are a lot of ethical banks and processors, but I also know there a few riding a thin line and a few that have stepped over the line. Overall, everyone in the business is going to rethink the way they have been running things, and in the end it will work out better for the ISOs /processors, but mostly it will work out best for the merchant."

James Marchese IRN Payment Systems "Certainly there will be industry changes. I think you will see V/MC setting more rules and guidelines to MSPs. Based on the FTC's findings with regard to CMS, I think you will see them looking into all of the industry's practices as a whole and making suggestions for regulations to our industry and, if not followed by V/MC regulatory laws, maybe passed to force us into mandatory practices. Basically, the sins of a few will affect the masses."

The Green Sheet remains hopeful that the FTC investigation will be resolved efficiently and quickly, with as little revenue loss for ISOs as possible.

Question 2:

How are you positioning the Visa Interlink rate increase with your sales force and/or merchants?

The Advisory Board representation of the industry was split on how to handle Visa's announced rate increases. Some organizations are passing it along, some aren't, and some leave the pricing decision in the hands of the agents. Pricing is still more of a business decision than a market response.

Robert Joyce Alliance Payment Systems "Not a problem. We're just passing the increase along, as is usually the case."

Stacy Bell Advanced Payment Technologies "By explaining that this does happen periodically, especially when the economy is not as strong as in years past or when there are increases in risk-management issues. We further explain that this rate increase, unfortunately, is out of our control and affects all ISOs across the board."

Ross Federgreen CSRSI "This is still in flux."

Robert Carr Heartland Payment Systems "We are passing along the fee increases to our merchants without markup as provided in our provisional 3 contract."

Steve Christianson TransPay Processing "Debit is still not a big factor in the industry, as far as we are concerned. Debit processing is best described as a benefit for the customer, as an alternative way to pay. While the merchants can save money on the fees paid vs. credit, more and more debit cardholders prefer the credit side since there is no cost to the cardholder while if they use debit some companies surcharge debit fees and then the cardholder's bank dings them for another fee.

"The increase by Interlink has a nominal effect since most debit services have not figured a way to add the charges to the merchant's statement anyway. In the West, we do not see many pure ATM cards anymore. Most are check cards with both debit and credit capabilities, both of which charge the cardholder's deposit account almost immediately after a transaction from either side."

Craig Millington Compass Bank "We plan to pass it along to the customers with a notice that this was imposed by Visa, not the bank."

Mitch Lau Money Tree Services "We will make them aware that we will be forced to pass through charges. We will also make Interlink the last system of choice." Alan Gitles Merchant First Bankcard "No comment."

Jared Isaacman United Bank Card "As of now we are not increasing our debit transaction fee to the current merchant base - that is a decision for our sales offices and agents to decide. We do educate our offices to the increase and have advised them to reflect that when they are setting the per-transaction fee."