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Payment Processor Cons Small Businesses Out of Millions

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Payment Processor Cons Small Businesses Out of Millions

Small businesses often depend on credit card processing companies to process payments and keep their businesses flowing. There are several legitimate payment processing providers, but there are others that target and manipulate businesses with deceptive practices. Most recently, the Federal Trade Commission (FTC) filed a complaint against payment processing company First American Payment Systems LP (First American) for deceiving several small businesses. The majority of these deceived business proprietors operate restaurants, salons, or small retail businesses, with many having limited English proficiency. The company is accused of using illegal sales tactics, misrepresentation, and lies to lure businesses into purchasing services, then defrauding them. The harm caused by First American's actions has resulted in a $4.9 million settlement to help the businesses that were injured. Let’s look at how the scheme went down and what small businesses can learn from the case.

According to the FTC complaint, sales persons lied to businesses, coercing them to leave their current payment processor and enter contracts with First American. The agents misrepresented the cost of monthly fees and made unsubstantiated claims that consumers would save money by switching to First American’s services. They falsely claimed the business could cancel services at any time without penalty and that the contract was short term. In reality, the contract locked businesses into a three-year agreement that included a $495 cancellation fee. The contracts also imposed an automatic renewal provision. The fees businesses paid were often much more than what the sales representatives claimed. The savings claims made by sales reps didn’t materialize. First American often raised merchant rates annually, sometimes twice in a year.

First American also illegally took money from their customers' bank accounts for various fees and debited their bank accounts. Clients were required to provide First American with direct access to their bank accounts. The company uses ACH electronic funds transfer to process debits and credits. When the businesses cancelled or disputed fees and put a “stop payment” on ACH withdrawals, First American suspended their accounts and often placed their account in collections. They even continued to make ACH debits to accounts that had already revoked First American’s debit authorization by making withdrawals under different corporate names.

First American agreed to settle the complaint by refunding clients harmed by their illegal practices as well as agreeing to stop making misleading claims and unauthorized bank withdrawals.

White Open Sigange

Small businesses should take note of this case and develop steps to avoid being defrauded. Here are some key points to consider:

  • Take your time and don’t allow the sales person to rush you into a decision.
  • Read the contract thoroughly and make sure you understand what you are agreeing to.
  • Get any promises, guarantees, and terms in writing. Keep a copy of the agreement.
  • Don’t rely on the sales agent's claims. Do your own research on the offer.
  • Search online for reviews, testimonials, complaints, and reports on the business. Use the word “scam” along with the company name to see if anything alarming comes up.
  • Ask the company for references of other clients that have used their services and talk to them about their experience.
  • Be mindful of any auto-renewal clauses or automatic withdrawal requirements that are part of the offer.

Other tips for businesses to keep in mind include:

Monitor Sales Agents. Sales agents represent your company and are often the first and only company representatives clients interact with. Representatives should be trained to avoid unethical practices. Sales managers should provide as much information as possible to their sales team and sales pitches should be reviewed so they do not cross legal boundaries. If any red flags come up regarding sales practices, they should be addressed immediately.

Make Cancellation Requirements Clear. Cancellation terms, fees, and procedures should be clear and not hidden in the agreement.

Use Ethical Online Auto-renewal Practices. If your agreement offers negative options for recurring charges you must (1) clearly disclose the terms before obtaining the customer's billing information; (2) get the consumer's expressed informed consent before charging the customer's account; and, (3) provide a simple way for the customer to stop recurring charges.

No Fast Talk. Sales pitches should be factual and not misleading. Be prepared to answer the customer’s questions and if you do not know the answer, truthfully inform the customer that you will provide them with the answer in a prompt manner. Avoid using high-pressure sales tactics.

Share this information with small businesses and others. Make sure to follow Business Consumer Alliance on Facebook for scam alerts, tips, and more.

About Business Consumer Alliance Business Consumer Alliance (BCA) is a non-profit company that started in 1928. The broad purpose of BCA is to promote business self-regulation. BCA's mission is achieved by assisting consumers in resolving complaints with businesses and using that complaint information, along with other relevant information such as customer reviews, to forecast business reliability. With community support, BCA can identify trustworthy and ethical businesses and warn the public to avoid unscrupulous businesses whose purpose is to defraud the marketplace. BCA also helps businesses promote themselves by providing services and tools to protect their business and reach out to their customers. BCA obtains its funding from member businesses who support the mission and purpose of the organization and who agree to abide by high standards of ethical business practices.