Digital Transactions Authoritative, insightful and timely information for payments professionals
By Linda Punch
If independent sales organizations needed more evidence that the Federal Trade Commission is monitoring their activities more closely, it came last week with the filing of yet another complaint against an ISO. Within weeks of charging two ISOs with violations of the federal Telemarketing Sales Rule, the FTC filed a complaint charging Spokane, Wash-based Merchant Services Direct LLC (MSD) with a more familiar violation: deceptive marketing practices.
“I view these [complaints] as alarming for the industry and as a very loud warning bell,” says Holli Targan, partner with Southfield, Mich.-based Jaffe, Raitt Heuer & Weiss PC. Targan is former president of the Electronic Transactions Association merchant-acquiring trade group and a member of the ETA’s executive board. “Although we’ve flown under the radar screen, that era is over.”
The FTC on July 30 charged MSD with making false and unsubstantiated claims and failing to disclose material facts to merchants seeking services and equipment to process credit and debit card payments. The FTC is seeking to halt the allegedly illegal practices and return money to victims. The Washington State Attorney General’s office filed similar charges against the ISO in the Superior Court for Spokane County.
MSD also does business as Sphyra Inc., Boost Commerce Inc.; and Generation Y Investments LLC. Other defendants are company executives Kyle Lawson Dove and Shane Patrick Hurley. A spokesperson could not be reached for comment.
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On various versions of its Web sites, the ISO also advertised “Guaranteed Lowest Rates,” claiming merchants could “save 30%” with “whole sale [sic] processing” or have “anywhere from 20% to 30% savings when switching to” MSD. In fact, according to the FTC, there were no wholesale rates, as third parties process card payments, not MSD.
MSD agents also allegedly duped some customers into leasing new point-of-sale terminals for two to four years, falsely claiming their current terminals were outdated or incompatible with its services, according to the FTC. Agents allegedly persuaded merchants to sign fine-print, binding contracts on the spot by telling them the documents were merely applications—a ruse made easier, the FTC said, by the fact that the contracts were labeled “application.” Merchants were often falsely told they could cancel at any time, the commission alleged. Many victims discovered their new lease obligation only after being billed, still owing the balance of their previous lease, which could have been thousands of dollars.
The FTC complaint charges that merchants who called MSD’s customer-service department reached employees who either did not help them or said they would waive fees or provide refunds but didn’t. Customers who were promised they could cancel the “applications” they signed with no penalty nonetheless were charged substantial cancelation fees, the FTC alleges. Generally, the ISO refunded money or waived fees only in response to complaints filed with the Better Business Bureau and state attorneys general.
While the acquiring industry has been trying for decades to put an end to deceptive marketing, such practices continue to be commonplace, Targan says. But the FTC’s stepped-up scrutiny of the card-processing business is a new developmnet and raises the stakes for ISOs engaging in unfair or deceptive acts.
“Companies need to take a look at how sales are being performed and make sure that deceptive and misleading practices are not being pursued by their sales representatives,” she says.
