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The Federal District Court in Oregon has frozen the assets of Beaverton-based Merchant Processing, Inc. (MPI), its owner, and affiliated companies. The court ordered a temporary halt to claims the Federal Trade Commission alleges are deceptive, and appointed a receiver to temporarily take control of the business. The FTC alleges that the defendants used deceptive tactics to sell credit and debit card processing services to thousands of small businesses across the county. The Washington State Attorney General’s Office also has sued the defendants.

In its complaint, the FTC alleges the operation falsely promised that it would save the small businesses money and that it would buy out the merchants’ existing equipment leases, often worth thousands of dollars. The FTC also charged the defendants with failing to disclose fees and concealing pages of fine print from the merchants until after they had already signed contracts. The FTC charged MPI, its owner, Aaron Lee Rian, and affiliated companies Vequity Financial Group and Direct Merchant Processing with violating the FTC Act.

According to the FTC’s complaint, the defendants’ sales representatives call and visit small businesses around the United States and promise they can save them hundreds to thousands of dollars a year in processing fees by offering lower rates than the merchants’ current credit card processing service. They also tell the merchants that the credit card swipe equipment they currently are using is outdated or incompatible with their systems, or that the merchants will need to replace their systems in order to get the special low rate.

Many merchants already are under a contract to lease their card swipe equipment, but the defendants claim they will buy out the merchants’ current leases if they sign a new, usually more expensive, lease. With the claimed lower processing rates, the sales agents promise overall savings despite the higher lease payments. The FTC alleges the defendants’ agents then have the merchants sign third-party equipment leases and processing agreements while concealing pages of fine print. According to the FTC, the sales representatives often don’t leave copies of the agreements with the merchants.

The merchants soon find their fees are not lower, and they end up paying additional fees that they weren’t told about. MPI does not buy out their previous equipment leases, so merchants often end up paying on two leases or spending thousands of dollars to get out of the old lease. Then, to cancel the new, more expensive processing service, the merchants must pay a substantial, previously undisclosed cancellation fee.

The FTC also is seeking preliminary and permanent injunctions halting the deceptive claims and unfair practices, and refunds for the small businesses.

Posted under Customer Service

As we rush into the intense holiday shopping season, U.S. Senator Charles Schumer released a study today showing that interest rates charged by store credit cards in New York City are significantly higher than those charged by bank-issued credit cards. Schumer is calling for increased vigilance by shoppers to make sure they are not being lured by ‘too good to be true’ deals in a broad range of stores around the city.

“A store credit card is like a wolf in sheep’s clothing,” Schumer said. “You might think you’re getting a real bargain at the register but just wait until the bill comes. Consumers could be in for an unwelcome New Year’s surprise if they fall prey to these high credit card rates. As the holiday shopping season revs up, shoppers must beware of the pitfalls of these high-rate cards.”

According to the Schumer survey, several retail stores in New York City offer consumers a modest discount at the register in order to lure consumers into accepting store credit cards. Typically, these retailers knock off 10 to 15 percent on the first purchase. Those savings can quickly turn into a big loss if the customer does not pay off the credit card balance in full each month, or if payments are made late, which results in additional fees.

Schumer’s survey of 23 New York retailers includes data on store credit card interest rates and grace periods, including stores selling men’s and women’s clothing, electronics, furniture, and house wares. Almost all of the stores charge rates over 20%, well above the average bank-issued credit card rate of 10-13%.

The highest rate in the survey was found at Sears, which charges 24.15%, on all purchases on its store-issued credit card. Six different stores — Ann Taylor, Express, Victoria’s Secret, Lane Bryant, Abercrombie and Fitch, and Lerner New York – each offer credit cards at 22.8%. Only four of the 23 stores surveyed offered an interest rate below 20% — Banana Republic, Crate & Barrel, Filene’s Basement, and Kohl’s.

Schumer’s analysis showed that, over time, consumers who make purchases on store-issued credit cards can easily pay hundreds of dollars more in interest payments. A shopper who spent $300 using a retail store credit card with an annual percentage rate (APR) of 22.8% and only paid the minimum monthly payment on their Ann Taylor credit card would pay up to $115.28 over 39 months. The average APR for these store-issued credit cards is almost 22%. Shoppers who charged on their regular bank credit card would pay far less in interest.

“You don’t need to be Albert Einstein to know that higher interest rates mean bigger bills,” Schumer said. “Consumers should be wary of deals that seem too good to be true. When you sign up for a store credit card because you’re getting ten percent off your first purchase – after the bill comes it can turn into a ten percent additional cost if you don’t pay it off right away.”

Schumer said that consumers must beware of the high rates and urged shoppers to take steps to protect themselves:

• Shoppers should avoid using store-issued credit cards whenever possible;

• If a consumer is interested in signing up for a store credit card, the consumer should be sure to ask the sales representative about the details of the credit line’s interest rate and fees;

• Bills should be paid in full and on-time if customers are to avoid paying exorbitant interest.

Schumer will send a letter tomorrow morning to the Federal Trade Commission (FTC), urging the agency to examine the lending practices of retail credit cards. In the letter, Schumer will ask the FTC to formally recommend specific steps that retail stores could take to protect their customers:

• Retail store promotional material should advertise the store’s credit card interest rate and terms as prominently as they display the initial discount;

• Sales representatives should inform consumers verbally of the credit card’s interest rate, and explain that the rate is higher than a typical bank-issued credit card;

• Retailers should avoid luring college students and young adults who do not have established credit ratings into accepting store credit cards.

Click here to view study.

Posted under Finance

CardSystems Solutions, a company that processes credit card payments, reported that credit card security was breached in its computer systems. Information for up to 40 million credit cards may have been taken from the system, the company announced, as the result of a computer break-in identified on Sunday May 22. The company reportedly notified the Federal Bureau of Investigation of the incident on Monday, May 23, but details did not emerge until yesterday.

Credit card issuers were quick to react to the news. MasterCard, which reported that nearly 14 million of the credit cards were MasterCards, reiterated its “Zero Liability” policy, a program that relieves consumers of liability for charges in such matters.

“Hardly a week goes by without startling new examples of breaches of sensitive personal data reminding us how important it is to pass a comprehensive Identity theft prevention bill in Congress quickly,” said Senator Chuck Schumer (D-NY). Consumers’ personal and financial data has become the gold of the 21st century and we need to protect it accordingly.” Schumer is the co-author of a bill that would install various consumer protections in the industry, in addition to creating national standards for handling sensitive consumer information.

Security experts throughout the industry are warning consumers to be especially vigilant now because the CardSystems incident is apparently the work of hackers rather than the loss or exposure of data. “Check your statement at least every month,” advises Joan Bounacos, President of Consumer Help Web, a consumer advocacy company.

Bounacos called on credit card issuers to react faster to threats and notify consumers as soon as their data is exposed. “CardSystems reported that they found the incident on a Sunday, but didn’t report anything to the FBI until Monday,” Bounacos said. “Why expose consumers that additional day? Even though credit card issuers won’t hold consumers liable, the average consumer will spend hours fixing their credit and arranging to have the charges removed. No delay is acceptable.”

Posted under Privacy