Credit Card Processing, Scams and Fraud

Credit Card Processor Scams

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Recently, we received a comment here on our blog that perfectly illustrated some of the deception, half-truths, and spin that many credit card processing sales reps use to pressure and mislead businesses. Disreputable processors range from deceptive to outright scam, and it’s important to know what you’re getting into when you’re choosing a credit card processing company.

Take a look at what this business owner was told about hidden fees, cancellation fees, equipment, and more to learn what to watch out for so you can avoid making decisions based on sales rep scare tactics and keep yourself from falling for processing scams.


Matching Quotes

“I signed up with [company name removed] mainly because they gave me a “price assurance guarantee” and said they would match any quote from any other company.”

CardFellow alert level: Yellow.
We’ve written extensively on the possible pitfalls of matching rates, so I won’t go into it in depth again. The gist is that if a company is matching another company’s rates, it was probably overcharging you to begin with. Additionally, you can’t be sure that it won’t raise your rates right back up in a few weeks. We’re marking it a yellow flag because reputable companies could offer to match pricing, but in general, consider it a warning sign.

Equipment Leases

“I’m in a four year lease, $90/month for one terminal without a cancellation option.”

CardFellow alert level: Red.
Don’t lease a credit card machine. If a processor tells you that you have to, or it’s the only option available, find another processor. It’s almost never to your advantage, and in most cases it’s wildly expensive. The business owner didn’t specify what terminal he was leasing. If we assume it’s a basic chip card-capable terminal, the cost to buy the machine outright would likely be $300-500. Instead, this business will end up paying $4,320 over the course of the lease!

Leasing companies are also not known for their ethical practices. One of the most active lessors, Northern Leasing, is currently being sued for racketeering. Save yourself the headache (and the money!) and don’t lease a credit card terminal.

Adjusting Rates

“A week later [another processor] showed me much lower rates and offered the same terminal for $85. I notified my sales rep of the situation and she had me contact her manager. The senior manager adjusted my rates and most of the fees to match without a fuss.”

CardFellow alert level: Yellow.
You may be wondering why this isn’t green, a-okay. After all, the processor adjusted the fees to match the better quote, so everything’s fine, right? Not necessarily. The processor can also readjust the fees back UP at any time. Do you want to spend your time poring over your statement every month to see if your pricing has gone up?

If a processor happily agrees to lower your “rates,” chances are you were already paying too much and likely will again. When you have a truly competitive processing solution, such as those found through CardFellow, there’s nothing left to cut.

Liquidated Damages

“He said that many cheap priced providers are not telling the whole truth about the thousands of dollars of hidden costs they charge their customers. He said many zero cost cancellation policies have fine print that allows them to charge thousands for liquidated damages in the event the merchant cancels early.”

CardFellow alert level: Yellow.
This is a little misleading in that it conflates two separate things. It’s true that some processors charge a liquidated damages termination fee, but it’s also true that some processors offer no-fee cancellation that does not have fine print or stipulations. (For example, here at CardFellow we prohibit cancellation fees of any kind.) There’s no reason to imply that no-cost cancellation policies secretly have hidden liquidated damages clauses.

“He proceeded to show me, in the [alternate processing company’s documents], where it’s $0.00 for the pre-estimate of any reasonable costs due to early cancellation. He pointed out the wording is deceptive because it is only a pre-estimate and in a previous line it states that significant injury to the processor will occur if agreement is cancelled early… said my actual costs for early termination would be $6000 to $7000.”

CardFellow alert level: Yellow.
We’re marking this yellow because it has the makings of a scare tactic, but we’d need more information to know for sure.

Liquidated damages mean that instead of charging you a flat rate for cancelling, the processor charges for their estimated losses. The actual amount you’ll be charged for cancelling depends on what you pay your processor each month, and how many months are left in your contract when you cancel. For example, if your processor makes $100 per month from you and you cancel with 2 years left on your contract, you’ll be charged $2400. (100 dollars x 24 months.)

The rep that quoted this business $6000-$7000 in cancellation fees could be basing that on the actual numbers… or could be using an artificially high dollar amount to scare the business into staying. The business came to us asking if the liquidated damages would really be that expensive, which leads me to believe that the rep didn’t use real numbers or explain the math to the business.

In general, we advise you to not stand for ANY cancellation fee, whether liquidated damages or flat rate. We prohibit cancellation fees for certified quotes at CardFellow.

Equipment Scare Tactics

“He also claimed that many low cost merchant services companies don’t have the best back-end software with properly updated encryption and protections, so customers are constantly getting statements that include $100 to $150 in surprise security fees each month.”

CardFellow alert level: Red.
This is a classic example of scare tactics. Be wary when a processor tells you that you should stick with them because other processors can’t do what they do. Encryption technologies are widely available from processors.

“He stated, “Right there, that’s more expensive than your lease.” He continued, “What do you think these merchants do then? They get frustrated and cancel.” Now they are on the hook for thousands of dollars in liquidated damages and many go out of business. He says he, “Sees this all the time. He said he can show me at least ten statements that have security charges in excess of a $100.” I asked to see them, but nothing yet.”

CardFellow alert level: Red.
The manager is starting to lay it on pretty thick, painting a picture of a frustrating and expensive scenario. The business did the right thing by asking for proof of the manager’s claim. The fact that the manager didn’t provide the evidence the business asked for is a big warning sign.

Work with a transparent credit card processing company that fully discloses pricing and you won’t need to worry about hidden fees.

“[The manager] claimed if I try to purchase a terminal from a retailer like Amazon, the terminals can be bugged or hacked.”

CardFellow alert level: Red.
The irony is that in many cases it’s easier and smarter to get a terminal from your processor, but the reasoning given here is faulty and therefore points to scare tactics. Any terminal is potentially vulnerable to security threats. That’s why processors work with businesses to ensure the latest security standards.

The primary reason not to purchase a terminal from a third party has to do with compatibility with your processor. Terminals are programmed to run on specific platforms, and when you get one directly from your processor, you can be sure it’s compatible. If you purchase from a site like Amazon, you need to check not just the model but also serial number for compatibility. It will also not ship to you programmed, as it would from many reputable processors. Additionally, some of the low prices on terminals you see on auction sites only apply if you agree to process with the company selling it. These types of processing agreements are usually quite expensive to make up for the low terminal cost.

“He claimed I get a huge benefit when I lease from [processing company.] Their back-end software is updated every week and is very robust. He said they update the terminals regularly as well, and will replace them free-of-charge if one becomes outdated or damaged, including free overnight shipping. However I showed them their own document I had signed that states [processing company] is not responsible for the use, repair or replacement of the terminal or equipment in this lease. He then said that is the leasing company’s fault and instructed [another rep] to fix that and get me the proper document. That hasn’t happened yet.”

CardFellow alert level: Red.
There’s definitely a huge benefit to leasing, but it’s not for the business. It’s for the leasing company, gouging businesses hundreds or thousands of dollars on a moderately priced machine. Additionally, back-end software updates are common from processors and terminal manufacturers – there’s nothing special about that.

Again, the business did the right thing here by pointing out contradictory information and asking for clarification. And again, it’s a huge red flag that the processing company never provided the updated “proper” document. Remember, when it comes down to it, if you don’t have it in writing, you’re out of luck.

Automatic Signatures

“At sign-up, the signature process was a Docu-sign on the rep’s tablet. I signed once and my signature instantly appeared on a half dozen documents.”

CardFellow alert level: Yellow to red.
Complaints against leasing company Northern Leasing include allegations of forgery. Business owners claim that Northern Leasing improperly used their signatures to sign them up for contracts they didn’t agree to.

Automatic signatures can be a convenience, speeding up the process of signing your name in multiple places. But in the case of credit card processing, it’s especially important to read everything. We’re flagging this as yellow to red because a reputable processor might use an automatic signing tool in an ethical manner, but it’s far too easy for a processor to improperly use it.

Protect Yourself

This business owner lamented that, “After reading much about this and doing my due diligence on this complicated subject, I can see why, even having my manager, accounting manager and myself in the same negotiating room together, we didn’t get this right.”

Unfortunately, this is a common occurrence and a big part of why CardFellow exists. The processing industry is complex, and it’s in some processors’ best interest to make it as confusing as possible.

Avoiding hassles

So how can you avoid this type of hassle? Sign up at CardFellow. We explicitly prohibit the type of problems this business (and many other businesses) see when they look for processing in the open market. This business owner signed up and received very competitive quotes through processors in the CardFellow marketplace, with none of the headaches of his current processor.

We have legal agreements with processors that dictate what they can and can’t do within our marketplace.

Additionally, we require:

  • fully-disclosed pricing
  • no cancellation fees
  • no equipment leasing
  • a lifetime rate lock
  • and more.

We also keep your information private so that you won’t get sales calls. If you choose a processor through us, we monitor your statements for you, to make sure your pricing is as quoted, and that you’re paying as little as possible to take credit cards.

It’s also free to use. There’s no risk of getting locked into another mess to get our expertise. Want to see for yourself? Sign up now.

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Ellen Cunningham

BY Ellen Cunningham

Ellen has a degree in English, which she puts to work every day researching and writing articles, processor reviews, and social media posts. She enjoys the challenge of explaining complex topics - making her a perfect fit for credit card processing - and strongly believes in CardFellow's mission of empowering business owners through education.When she's not busy following the latest industry news, Ellen can be found cycling the beautiful trails of southern New England, narrowly losing at pub quizzes, or practicing her trapeze skills in aerial circus class.

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9 COMMENTS

  1. from Yves de Ternay, on February 3, 2018 22:53:46

    Hello,
    A company is contacting Merchant in New York State claiming that New York State is now “a zero fee State” and they try to set-up an appointment with the owner to explain how it works. It is in fact to explain that in New York State a Merchant can now transfer the credit card fees including the Interchange fees to their customer.
    It is stated on their website as follow:
    “With the new patented technology that meets standard regulations set forth by the major card service providers, state law and federal law (§124.STAT.2073, 9b2), business owners allowed to apply a small service charge to each sale, thus offsetting their credit card processing costs. The state of the art terminal with Cash Discount Program Software installed, automatically encourages customers to pay with cash. If such payment is made the software applies a discount to the sale amount and eliminates a service charge”

    I was told it isn’t legal in New York state?

    • from Ellen, on February 5, 2018 08:42:07

      New York is currently in the middle of court battles about the surcharge option. It’s best to talk to a licensed attorney in New York to determine current legality.

  2. from Marcus, on January 17, 2018 11:31:09

    Hello. Very confused. I have received several calls from a guy claiming to be from the Statements Department of Wholesale Bank Merchant Services. He says they are a seller of wholesale rates to 420 ISO processing companies who then retail the rates to people like me. Apparently there is $89.24 of mistaken over- fees that have thrown a red flag on his side and he wants to remove those fees.
    In order to remove the fees I need to send him a copy of one statement from Oct, Nov, or Dec and write CNS2600 on the front. I can black out my merchant ID if I wish. My current processor is Redstone Payment Solutions who I have been with a long time. He claims to have all my information but can only make the correction if I request it by following those instructions.
    Very plausible scam ???

    Thanks

    • from Ellen, on January 17, 2018 13:32:17

      Hi Marcus,
      Not so much a scam as a shady sales tactic. It’s a pretty common one. The caller wants your processing statement because he is not affiliated with your current merchant services company and doesn’t have access to your current pricing. If he sees your statement, he’ll know what you’re paying, so he can claim that he’ll save you a ton of money. If you’re concerned, you can always call up Redstone and explain what’s going on, but we see this kind of thing fairly regularly.

      In general, it’s not a good idea to send statements to processors. Your current processor has access to them, and any prospective processors don’t need one to provide a quote – they just want to see it because then they know how much you’re paying now so they can try to make their pricing look better. If you do want to send statements to a processor, you should only do so AFTER you have a written quote.

      I hope this helps!

  3. from Crystal, on February 23, 2017 11:43:44

    I received a phone call from WholesaleBanc. Our current merchant is Wholesale Payments. Wholesale banc had me send over one of our invoices from wholesale payments, and are telling us that we are being over charged and they want to help us get our money back. They say they are conducting an audit on wholesale payments, and that wholesale payments is not complying with new percentage laws. How legitimate is their claim, I’m not quite sure who to believe.

    • from Gordon, on June 26, 2017 22:28:23

      I got a call that showed on my call display as coming from Dallas yet the area code was 215 (philadelphia).
      He said my processing fees were going down and he wanted to send someone by to explain the new lower rates to me, and that I should have a recent merchant statement available to compare.
      He scheduled the rep to come to my business at 6;30 on a Friday night. I don’t know any bank rep that works on Friday night’s.
      I called the number back I got a recording that the number was out of service.
      Scam in the making I’m sure.
      The guy showed up on the Friday night and I kicked him out.

    • from Ellen, on February 23, 2017 11:54:58

      Hi Crystal,
      There are no “new percentage laws” that I’m aware of, and it’s a fairly common tactic for processor sales reps to make exaggerated claims in order to get your statement or try to entice you to switch processors.

      It’s certainly possible that you’ve overpaying (many businesses are) but the way to remedy that isn’t to send statements to a random processor that cold calls and hope that they’ll give you a fair deal. Instead, what I’d suggest is using a third party comparison service (like CardFellow) to compare the best pricing you’re eligible for. Our quote tool shows you the real numbers for multiple processors, it’s free to use, there’s no deceptive sales calls, and you benefit from CardFellow’s free expert advice and independent statement monitoring. Check out this explainer video: https://www.youtube.com/watch?v=tk-4V9w6ryI

      And give it a try here: https://www.cardfellow.com/sign-up

  4. from zach mario Yildiz, on December 14, 2016 15:22:55

    I wish I read this before.
    I was led to believe by a credit company that they will be saving me money. I signed a contract for fifteen months.
    Find out later was not all that, called to cancel, they are demanding ETF fees which I am not sure what that is – I would appreciate advice.
    I asked to cancel the agreement less than a week into it.

    • from Ellen, on December 14, 2016 17:27:56

      Sorry to hear about that, Zach! ETF standards for early termination fee, which is a cancellation fee they’re charging you to end your contract before it’s up. How much are they asking?