FTC vs. Merchant Processing Inc.

This is an interesting example of fraud allegedly perpetrated thru misrepresentations in sales and in the alterations of contracts. Although the victims here were small businesses, the fraudulent tactics are also common to predatory sub-prime consumer lending fraud, car loan financing, and even health club contracts. Essentially misrepresentation, bait and switch, supported by altering contracts by claiming additional undisclosed contract pages are part of the agreement.


http://www.ftc.gov/opa/2007/04/merchantprocessing.shtm

"For Release: April 13, 2007

FTC Takes Aim at Oregon Operation That Targeted Small Businesses
Court Freezes Assets, Appoints Receiver to Stop Fraud by
Firm Selling Credit and Debit Card Processing Services

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 Generalâ??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 merchantsâ?? 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 FTCâ??s complaint, the defendantsâ?? 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 merchantsâ?? 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 They also tell the merchants that the credit card swipe equipment they currently are using is outdated or incompatible with their systems, or that the merchants will need to replace their systems in order to get the special low rate.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 merchantsâ?? 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 defendantsâ?? 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 donâ??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 werenâ??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.

..."