FTC cracks down on non-disclosure of fees in the credit card processing industry

Posted on November 28, 2007

The FTC is suing MPI, a provider of credit card processing services to businesses, for engaging in deceptive sales and marketing practices. In other words, they getting nailed for misrepresenting to business owners the true costs of using them for credit card processing.

The FTC made the following allegations:

• Count One: Deception. MPI misrepresented fees to merchants and overstatement of expected savings.
• Count Two: Deception. MPI failed to disclose additional credit card fees such as surcharges for certain types of transactions.
• Count Three: Deception. MPI misrepresented lease buy-outs. Stated that they would pay off balances on merchant existing leases but did not do so.
• Count Four: Unfairness. MPI made unilateral modifications of contracts after merchants signed the agreements and without their knowledge requiring merchants to pay substantial fees and surcharges.

This is how they did it. MPI would approach merchants and tell them that if they leased a certain credit card machine for $39.99 per month for 48 months, they would get very low credit card processing rates. MPI sales people would perform a cost savings analysis and show merchants that even with the increased cost of the machine they would be lowering their overall processing costs.

In the process however, MPI failed to disclose all of the other fees such as surcharges on certain types of credit cards. With the additional fees included, merchants would usually end up paying more for credit card processing.

The practice by merchant service providers of offering an enticing low rate and not disclosing other fees is not unique to MPI. They were just more egregious and aggressive with their practices and ended up on the FTC radar screen.

Here is the FTC’s formal complaint: