One only needs to read excerpts from a recent report produced by The Council of Better Business Bureaus, Inc., to understand that crime is, indeed, everywhere. The CBBB report advises those interested in extra financial gain via credit card processing to be aware of ads such as this one:
Be aware, warns the CBBB report, because the seemingly innocent activity the merchant is being recruited for is known as Credit Card Laundering (also called "factoring"). It's what takes place when a merchant agrees to deposit another company's credit card sales drafts into their own merchant account, usually for a small commission. What the merchant has done is to take on the financial risk with a vendor that a bank or other financial institution was not willing to take.
This "guaranteed" easy income frequently turns into losses far beyond any commissions. And to make matters worse, by doing so, the merchant has also violated his/her own merchant agreement with his/her bank or credit card company. The end result could be criminal prosecution for fraud, as well as civil liabilities and damages. According to the report, there are several scenarios those seeking credit card processing merchants use to recruit legitimate businesses to do their dirty work. You might hear something like:
1."I'm a telemarketer, and banks will not give merchant accounts to telemarketers because of the bad reputation of travel and time share telemarketers."
2. "The bank wants all kinds of information and financial statements before it will give me an account, and that's an invasion of my privacy."
3. "The bank wants a large opening balance in my account, but I'm a new business and cannot afford that much yet."
4. "There was a problem in processing my application for an account, and it will be delayed for a while, but I already have a lot of credit card orders to process."
The report advises merchants to try to read through the shady excuses that some companies might use when attempting to recruit them:
"The real reasons some companies need credit card processing merchants are not always those stories they might tell you. There are plenty of legitimate telemarketers who do have merchant accounts. It may be because the bank or credit card company concluded that this particular telemarketer is a bad risk. And, if a bank ever does want a large opening balance before giving a merchant account, it is because the bank thinks, based on its investigation, this company poses some kind of a financial risk and the bank wants some kind of security to protect itself against any losses. Finally, if a company's application for an account has not been processed, that is hardly a satisfactory reason for another merchant to process its orders. The very fact that they have been taking orders without bank authorizations demonstrates its unreliability."
The rules are simple, and hardly worth violating. Once a merchant account has been established, regulations require that a member bank may not accept deposits from any person or entity with whom there is no merchant agreement. That means that merchants are only entitled to deposit drafts generated by their own business.
When agreeing to process other merchants' credit cards, you take on the extra responsibility of paying for any chargebacks. Many disreputable telemarketers bill consumers for their sales. Then, after receiving payment, they close their operations and move on to another location ówithout ever first sending any merchandise. The result is usually the consumer disputing the transaction. Many processing merchants and banks have suffered substantial losses, including bankruptcy, due to these voluminous charge backs.
The activity has lead to legal action. Most states pursue prosecution under a variety of anti-fraud statutes, such as mail fraud. Legislators in Florida have passed a law that expressly criminalizes credit card laundering. Visa and MasterCard have even initiated federal civil lawsuits against telemarketers, their agents, and their processing merchants for various laundering schemes they perpetrated throughout the world.
Read the Credit Card Laundering report in its entirety via their web site at www.bbb.org/library/cardlaun.html.
Reprinted with permission of the Council of Better Business Bureaus.
