Tuesday, May 1, 2007
An ISO's sales tactics can get it into hot water with the Federal Trade Commission. For the second time, the agency has taken action against an ISO for alleged unethical business practices, seizing control of Merchant Processing Inc. of Beaverton, Ore.
According to the complaint, agents of MPI failed to disclose the true terms of contracts to some of its merchants. A federal judge ordered a temporary halt April 12 to its operations, forcing the company into receivership while the FTC seeks an injunction against the owners.
The FTC had taken action against Certified Merchant Services Ltd. in 2002. CMS later agreed to pay $23.5 million to settle the charges (for more information, see "A $23.5 million lesson" by David H. Press, The Green Sheet, Feb. 28, 2004, issue 04:02:02). Payment came from a forced sale of CMS' assets.
"My immediate goals are to remediate the issues … and return us to a profitable situation - a competitive growth situation," said Michael A. Grassmueck, who was appointed Receiver of MPI.
The Green Sheet spoke with Grassmueck April 18 at the Electronic Transactions Association's annual meeting and expo, where he met with candidates to take over management of the firm. "My goal is to find a good, qualified industry person to head up this effort," he said.
Geoff Winkler, Director of Case Management for Grassmueck Group, is running day-to-day operations at MPI. He said a new manager has not yet been named.
Grassmueck described himself as a neutral, independent party who is cooperating with both the federal government and MPI's owners.
Grassmueck had temporarily furloughed the staff while he sized up the situation. But he has already re-opened the company, he said. "We are rehiring people. We're powering back up, as we speak." Sales staff, however, is not permitted to make calls until he evaluates the company's sales practices, ensuring it is in compliance, he added.
The FTC's four-count complaint alleges MPI, Vequity Financial Group Inc., Direct Merchant Processing Inc. and Aaron Lee Rian, President of all three companies:
Rian could not be reached for comment. His attorney did not respond to a request for comments.
Customer service was also part of the problem, according to the FTC. When merchants contacted MPI's customer service department, employees claimed not to have the power to assist them and were unwilling to transfer them to someone in authority.
Merchants were then transferred to voice mail, but messages were not returned, according to the complaint.
The Better Business Bureau's Web site states the BBB processed 104 complaints lodged against MPI over the past three years.
"In restoring a company, the first thing [Grassmueck] is doing is shoring up the existing operations, existing customer relations" and sales tactics to ensure that its operations are compliant, said Mary Dees Griffith, who was the Receiver in the FTC's action against Certified Merchant Services.
Grassmueck will analyze merchant complaints against the documentation he finds in-house, so he can "make his own assessments as to any ongoing issues that continue to exist" among the company's salespeople, Dees Griffith said. The sales staff may need retraining, "so they know what is considered appropriate disclosure from the standpoint of the FTC Act."
If the judge issues a preliminary injunction, the case will be set for trial, a process that can take from one year to 18 months. A settlement could bring early closure to the case, as it did at CMS, Dees Griffith said.
"It would seem to me that the chance of settlement should be fairly high," Grassmueck said. "But it's pure speculation."
Taking such cases to trial is usually prohibitively expensive for owners: Settlements usually require defendants to pay financial penalties and agree to be barred from practicing in the business, effectively forcing ownership changes of the companies involved, he added.
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