Merchant Services Inc., Fraud? Credit Card Processing equipment fraud. Merchant beware! misrepresentation Rip-off. Business owners, Don't be taken advantage of on your credit card processing.

There are many companies that market bankcard processing services nationwide. Most of these companies are reputable, but there are a few who apparently misrepresent the facts.

Does this sound familiar? Mr. K has three stores in the West Valley of Phoenix, Arizona. A representative from Merchant Services entered his store and proceeded to convince Mr. K that his current credit card equipment was obsolete.

This representative told Mr. K that his current hardware would not work with Visa's new SmartCard and he would have to switch out his equipment in order to accept the new card and that he would save thousands of dollars in lower processing fees.

When Mr. K called to close his account we asked to review the analysis and found that "fuzzy math" was used for the estimated savings. He then told us he leased the latest hardware for $84.94 per month for each location. He was leased a Nurit 2085 with Internal PinPad and a Check Reader after the $100 credit for each of the "obsolete" terminals.

Here is an excerpt from a letter we sent to Mr. K:
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Customer Name
Company

Dear Mr K:

I have completed the analysis on the Glendale Store statements. For this comparison I used a price of 1.XX% with $0.20 for Visa and $0.25 for MasterCard. Your other stores should have been at 1.XX and $0.20 and $0.25. A review of the other location showed a rate of 1.XX% and $0.06 per item. The other locations reflected the lower rate.

For this comparison I chose the 1.XX for simplicity. If they only compared the other location then their analysis may have shown a savings. Without reviewing their work I can't be sure. In our analysis we tried to make an "apples to apples" comparison. It is difficult with their statements because they don't give the total breakdown of all cards.

This analysis does not include the "cost of money." They are paying you net funds instead of gross funds. They take the discount rate out of each deposit.

The main place where we believe there to be misrepresentation is how they presented themselves and telling you your hardware was obsolete. They sold you Nurit 2085's probably with an Internal PinPad for $84.95 per month for 48 months. Using a "standard" lease factor they were paid approximately $3,274 upfront by the leasing company based on the $84.95 payment you provided and using a 48 month lease factor of 0.0290. Your total payments over the 48 months will be $4,077.60.

We sell the Nurit 2085 for $545 with the Internal PinPad on a 48 month lease at $17.42 plus tax per month. In our opinion you had better hardware than what they sold you. {Editor's note: This was definetly a Rip-off. This was a blatant lie by Merchant Services Inc.}

You had Hypercom T7P terminals at each location. The T7P will be compatible with Smart Cards with a different Pin Pad/Smart Card Reader. The Nurit 2085 is Smart Card Ready but may not be actually equipped with the Smart Card Reader. I have included a page from Hypercom's web site that shows the S7SC PinPad SC Reader and it clearly states that it is compatible with all terminals T7 series, of which your T7P terminals belonged.

It is our opinion their solicitation is in violation of Visa and MasterCard rules and regulations. Whenever we (Sales Organizations) use the trademarks of Visa and MasterCard we must always state or publish the processing bank. And never ever imply that we are Visa or MasterCard. The disclosure should ook something like this: 'Company is a registered ISO/MSP with Visa and MasterCard representing Bank of City, State.' You will notice that on our web site, our fax cover pages and any printed material that have those trademarks.

I have filed 4 complaints with the National Associations regarding the MSI Phoenix Sales Office and their solicitation practices, I have not heard back on any action taken against them. I have contacted Phoenix PD, they determined I was not an injured party even though their reps falsely stated that they were with my company, while I was on the phone with them and a merchant.

There are many merchants who have been taken by this sales pitch. I have forwarded the Attorney General's complaint form to them and have spoken to the Republic and several Investigative News voice mails. No one seems interested. .
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This is pretty disturbing, since there are not many SmartCards in the market place yet and the national card companies haven't made any announcements regarding SmartCards until recently. From the industry articles most of the SmartCard applications refer to Internet transactions or CO-marketing with various nationwide chains, as evidenced by the recent announcement of a Minneapolis based retailer issuing a co-branded SmartCard.

Remember Mr. K? The terminals he was sold were the "latest and greatest,' but they don't accept SmartCards. They are SmartCard ready, but the terminals in their current configuration will not accept a SmartCard. In other words Mr. K must send the terminals in and have a chip placed inside the machine before he can take a SmartCard. Mr. K has spoken to the corporate office of Merchant Services and still has received no satisfaction from the company. The leases that were signed are non-cancelable. It appears the courts may have to decide the outcome of this issue.

This particular company has a sales pitch that starts something like this: " Hi we're your merchant services company we set the discount rate for all of the banks and are calling to give you the wholesale discount rate.". If you get this call beware.

This happens nationwide with many different companies. We estimate that Millions of dollars are "lost" by hard working merchants who don't know any better. It is not illegal to sell hardware at a 1,000% mark up. But, when a sales person misrepresents the facts, tells a merchant their equipment is "obsolete" when it isn't, and claims they're with a company other than the one they represent, it becomes criminal.

It all comes down to being aware of what things should cost and knowing with whom you are dealing. And of course the old adage 'Caveat Mercator,' Merchant Beware.