Perilous Processing Co’s Punish Small Businesses

Many are starting small businesses for various reasons. Some are created in response to the difficult employment climate. Others are created due to the low barriers of entry as a result of technological advancements. No matter what the reason, a universal tenet for small business survival is cost-control. Sadly, there are companies out there taking advantage of small businesses under the guise of providing cost-saving credit card processing services.

Some of our clients have been duped into onerous lease contracts and some have had default judgments entered against them by companies purporting to offer discounted credit card processing services.  The pattern of deception has been remarkably consistent.  The following is a typical scenario:

  • Small Business Owner (“Owner”) is approached by a sales-rep (“Rep”) who claims that the Owner can save money on her business’s credit-card processing fees if the Owner switches to the Rep’s company, usually a merchant service provider.
  • The Rep convinces the Owner to enter into a lease for the credit card processing equipment in order to enjoy huge discounts on processing fees.  Often, the Rep tells the Owner that there’s a trial period just to test out the fee structure and/or service without any obligation.
  • Once the Owner is ensnared by the lure of purported reduced costs, the Owner executes documents that the Rep says are required to obtain the savings.  The documents usually contain hidden surreptitious terms, such as the Owner’s personal guarantee of a credit card processing equipment lease, an extremely distant venue for any legal disputes (New York courts for Midwestern & Western businesses/California courts for Eastern businesses), outside contracts which are incorporated by reference unbeknownst to the Owner, and guarantees that lock the Owner into a 4-year equipment lease.
  • These lease obligations can run between $5,000 and$7,500 per terminal so Owners who have multiple terminals at multiple locations face five-figure obligations as a result of the Rep’s deception.   The companies allegedly involved in these scams typically file lawsuits without giving the Owners proper service, obtain default judgments against the Owners, and use the default judgments to freeze bank accounts.  The Owners, flabbergasted by the account freezes, are more or less extorted into “settling” the lawsuits, even if the Owner barely used the credit card service.

If this scenario seems sadly familiar, you are not alone.  Many lawsuits have been filed against these shady credit card processing companies.  For instance, there’s a California class action case captioned Just Film, Inc. et al v. Merchant Services, Inc. et al, which names Northern Leasing Systems, Inc, Northern Funding LLC, and Merchant Services, Inc. as defendants.  In New York, a class action captioned Pludeman et al. v. Northern Leasing Systems, al was filed in which the class plaintiffs made similar allegations as the plaintiffs in Just Film, Inc.

If you feel that you may have experienced a similar harm, feel free to contact us for a consultation.