Why I Am Angry with the Merchant Credit Card Industry

I received a call last week from a representative of an Independent Sales Organization (ISO) asking me to be an affiliate to promote Merchant Credit Card Accounts and related services.

Overpriced Services

He told me that I could make a $100 to $400 affiliate commission, depending upon how much they could sell to the merchant. Prices to the merchant ranged from $600 up to about $3000. There's big money in selling Merchant Credit Card Accounts to naive small business people.

I was appalled, though I tried not to show it. I feel that too many (though not all) ISOs are ripping off unsuspecting merchants with over-priced services. As you can see from a companion article in this issue -- Best Merchant Credit Card Account Prices Directly through Banks http://wilsonweb.com/wct4/mcca-banks.cfm -- you can often purchase the same services for much less by dealing directly with the banks who issue the accounts.

You Lease Equipment, Not Services

The most blatant abuse, in my opinion, is the propensity ISOs have to lease a service. Where equipment is involved, a lease might make sense as an alternative to purchasing it outright. But a service is much different than hard equipment and should be treated differently. Leases are being used in order to induce small businesses to finance fat commission checks and gross price mark-ups.

For most services you might expect to pay a set-up fee and then a monthly fee over the life of the service. But many ISOs, such as industry giant CardService International, are setting merchants up with a large overall fee, and then encouraging merchants to "lease" the service over three or four years. If the small business were to fail or close before the lease is up -- and many, many will -- tough luck.

ISOs explain to me that no one is forcing the small business merchant sign the lease, that they are told they could pay the whole cost up-front and save money. But in practice, leases are pushed, and I think it's unconscionable and tragic!

Sold to Leasing Companies

Typically, ISOs sell these contracts to the leasing services. It can be a nightmare. Here's a letter I received (names deleted) that describes the problem:

When I read this kind of letter, I get mad.

A Look at Leasecomm Corp.

How does leasing work? I took a look at the homepage of one of the popular leasing companies sometimes used by Merchant Credit Card Account ISOs -- Leasecomm Corporation. http://www.leasecomm.com Here are some quotes taken from their website to give you an idea of how their service helps make sales for their clients -- merchant account ISOs and others:

"Leasing reduces sticker shock
Customers who flinch at the total price of a product often are more willing to purchase when they can break payments into small monthly sums. Leasecomm helps dealers overcome pricing objections in sales discussions."

"Funding Service Contracts
If you sell a service, not a product, you can still benefit from doing business with Leasecomm. We offer funding for sales that don't involve hard assets, and we even pay up front for service contracts. There's no waiting months or years for the revenue from today's sale -- freeing you to grow your business at a faster pace."

"We collect from customers so you don't have to
Our dedicated, professional billing and collection team handles lessee accounts, freeing you to spend more time selling."

Complaints about Leasecomm

I found a page at Complaint Station on Leasecomm with comments from a lot of unhappy people, many of whom indicate they were pressured into signing leases for Merchant Credit Card Accounts by less than scrupulous vendors. You see the same theme in complaint after complaint, that the leasing company claims it is "not responsible for anything that any agent pitches, promotes, or promises." http://www.thecomplaintstation.com/l/leasecomm_toc.htm

I was told recently by a Merchant Account ISO that leasing companies would no longer write leases for Merchant Credit Card Accounts and related services. But when I spoke with Stephanie Courtney in the marketing department at Leasecomm Corp., she told me Leasecomm plans to continue to provide leasing services for Merchant Credit Card Accounts and related software.

She said that people who feel they have signed a lease that has been misrepresented to them can contact the customer service department at Leasecomm and request a particular form on which to make their claim. They submit a completed affidavit of misrepresentation, which is then presented by Leasecomm to the vendor for a rebuttal. Leasecomm determines whether or not to charge back the dealer for the remainder of the lease and any fees already paid. She told me that it doesn't happen very often.

"Why not?" I countered. "There seem to be a good many upset small business people who feel they have been ripped off."

"If customers don't read the lease," she replied, "their claim of misrepresentation doesn't go very far, unless they have proof that the dealer out and out lied, and can compare the lie to the lease." She acknowledged that it can happen, but said "More times than not, the claim is not valid, but the customer just did not understand or did not read the lease." She assured me that all leases are personally guaranteed by individuals, not by their businesses, so that the leases are payable by the business owner whether or not the business fails.