Bye-Bye Free Checking…

Or: The Durbin Amendment & How it Affects Me… (Part 2)

And the pain continues…

When last we met, I wrote of how the Durbin Amendment made you have to pay an extra $5 a month to your bank for having a debit card. The sad thing was that the Durbin Amendment was designed to make people that have debit cards pay less. This should not be taken as a statement that sounds a lot like ‘those evil banks.’ They’re not. The government in its infinite wisdom cost them $12.9 billion dollars annually in passing Durbin. Banks, like us; have jobs, buildings, employees, pensions, light bills and everything else. It’s pretty hard to take $13 billion on the chin, so they do what any business does when the cost of business goes up: they pass it along.

In truth, we as consumers paid little, if anything, for using our check cards. Now, we have to pay $5 extra monthly for having a debit card, because the government wanted to save us money (for having a debit card). Back in my poli-sci courses in college we called this the ‘stick and carrot’. In other words if you want to move a mule, you can hit it with a stick, or tempt it with a carrot. The problem is that the government in effect created a big stick and beat $13 billion in damages to the banks and they can’t take all that abuse. By the way, you’re about to lose your free checking too…

Didn’t you read that letter from the bank? No? Probably made to look like junk mail.

Well adding $5 per account wasn’t enough, so unless you’re a high roller and keep anywhere from $15k-25k in your bank, your monthly fee is about to go up, even if you have free checking. With some banks you can get around it if you have direct deposit. Problem is that everyone’s employers do not offer direct deposit, and it’s not at all banks.

Remember now, that the reason for these hikes is that the government wanted to save you money. You meaning the debit card holder. The way it implemented these nice feelings for you was to make banks take a $13 billion loss in fees by restricting what they could charge businesses for accepting debit cards. Confused? That’s OK, because it makes no sense. It’s like the government trying to get your kids to eat more peanut butter, so a law is passed saying that Kroger has to sell Peanut Butter at a loss. So Kroger ups the prices on everything else it sells and now Mom can’t afford to buy Timmy peanut butter at any price because her grocery bill just shot up.

Seriously… where is the carrot? Where is the “win-win” solution that we are taught in business school? Why not offer a tax incentive to banks that are able to reduce debit card fees charged to business owners that accept debit cards? There is no loss of fees, but instead a gain in momentum. In that arena, any bank that charged a $5 monthly debit card fee or removed free checking in order to get the tax benefit would simply be drained of its clientele as they left for greener pastures.

If this sounds like you’ll use your credit card a lot more in the future than your debit card, the government won’t mind. They get a cut of every credit card sale before taxes are even paid. Didn’t they mention that?

I realize that many people right now are leaving their current banks for other banks and verbally beating up many account managers that have no authority in these fees what so ever. Please remember that they had no say. Also, a bank has to keep the lights on and the bills paid, and employees paid just like anyone else. My grand parents use to say that, “Water finds its own level”, and here and now is no different. They have to fill the gap the government caused and a $13 billion dollar stick beats a mule mighty hard.

Why is My Bank Charging Me $5 a Month Now For a Debit Card?

Or: The Durbin Amendment & How it Affects Me…

Most people have never heard of the Durbin Amendment unless they are a banker, congressman, or a guest on Hannity & Colmes. I am here to tell you all about it. However to understand this better, we have to take a side step and discuss something in parallel first.

Sometimes the government does things that we are pretty sure wasn’t thought through, and other times we are absolutely positive. Generally, this is when the government walks to into a private business arena and starts making changes with out ever studying that industry or the elastic nature of macro economics. The worst of the worst however, is when something is enacted that is so silly that it actually causes the polar opposite of it’s scope and intent. To that parallel faithful reader, I point you to the stately Spotted Owl.

We all remember this plucky, little guy from a few years back when every pundit from Al Frankin to Zell Miller couldn’t avoid speaking about him and his dwindling habitat. They told us that the Spotted Owl was no Panda that refused to eat to save its own life or mate to save its own species; but a brave, endangered critter that should adorn our realm with its be-speckled plumage. It just needs a little protection (Dear Reader: in this text, protection loosely translates to: Gestapo like government power crushing all in its blind path). So what they did was they passed laws that basically said if you found a Spotted Owl on your land, you could do nothing with the land for fear it might drive the stately fowl off, and if a wounded Spotted Owl was found, the EPA would rush in and nearly compound all issues by shutting everything down. What happened? Farmers who found Spotted Owls on their land could not farm their land. Let me repeat that: Farmers could not farm. In other words, they were kept from legally farming, lost the farm and were basically dispossessed in favor of an owl. This did not stand long and farmers who found owls on their property, rather than be put on the street and evicted from their homes, shooed (or shot) the birds. Wounded birds were no longer found on anyone’s property, as they had long since been buried. Recap: Bill to Save Spotted Owls puts many in an early grave.

Now to the Durbin Amendment and the geniuses that got it up and running. The Durbin Amendment is really about one thing: fees that the government saw as being exorbitant for a person to retrieve their own money. This actually makes sense, because what they were saying was that a higher fee to use a credit card (Because a cardholder is in effect borrowing money against their good name) is one thing, but charging these same levels of fees for a person to use a check/ debit card is another. Why? Because a debit card is based on hard currency in a bank account. It is finite, traceable, and it belongs to the debit card holder. It is  practically cash. It is the cardholder’s money in the bank, and the bank is letting them use a debit card so as not to withdraw all that cash to walk around with. It’s a plastic check. Again, this all makes sense.

But that is where the logic ends.

This is because the only way the government was able to make banks charge less for use of a debit card was what? Why to reduce the fees that banks could charge businesses where people use their debit cards, of course. This only cost the banks about $12.9 billion annually, so they have to make that back. How? By charging you and me a $5 fee every month to have a debit card.

Have you ever even seen a Spotted Owl?

Merchant Account Scam #2: Trade Associations = Savings

Snidely, we hardly knew ye...

In a perfect world…

Don’t get me wrong, Trade Associations are wonderful ventures. They give presence and weight to business that otherwise might get lost in the shuffle. They are the the proverbial school of fish that makes little fish look bigger to predators. The problem is that like in other areas there are some apples that just ruin the bunch, and if you don’t think power can corrupt have a conversation with a Teamster.

I have bid on several different companies in the past two years alone that had a trade association setup, “so there was no way to beat their rates”. Famous last words. In each case, I could beat the rate with no real sweat equity. In a couple, the rate was so bad as to be a bit embarrassing as to have to inform the business owner how bad they were being taken advantage of. How could that be? It’s a Trade Association. They have all the power. They have thousands of business so they can get better rates, right? The issue here is that the trade association soon realizes how much money is on the table and they very well could get a bonus or a percentage back from the merchant provider. This is not illegal. This is how the industry works.

Take your bank for example. They get a percentage. A good one. Really good. Before you ask, the answer is: “No. They are not the company processing your account.” They have an agreement with the company processing your account and they generally get 50% just for getting you to sign up with their processor. This is not illegal. It is their percentage for referring all of the business to that processor. Trade Associations can do the same thing, and just like drug reps wooing the local doctors offices; there are perks to sign up with them. The merchant account provider could very well offer a signing bonus for every account referred, or even a percentage. Thus the more they make, the more the trade association makes.

Now let me give two really good ‘outs’ so as to remove any trade associations from actually trying to take advantage of their individual businesses. 1) They are not merchant providers themselves. They do not know all the rules and all the ways businesses can be taken advantage of, and I am sure several have been duped themselves. Unfortunately, pride goes before the fall and many think that because they are (insert industry name here) Trade Assoc., that they have the power and the merchant providers would not dare take advantage of them. To this I have one business name to throw out: Wal-Mart. They thought they were big enough to buck the system and they found out it bucks back. 2) Rates increase over time unless actively fought. Without having someone to constantly watch your account and help you manage it, even if you got a fantastic rate (and in the beginning many do), it would slowly climb out of control. Maybe your trade association did get you a really good rate and their only perk back from the merchant provider was that all of their accounts would get really, really low rates. This is what the merchant provider does not tell them: without maintenance, rates go up. Way up.

This is one of the number one things I have to tell office managers and business owners that are often overpaying thousands of dollars per year. They more than likely were not paying that rate when they signed up. It just crept up so slowly they did not see it. More than likely they were not fooled to start with, they just thought the rate was static. It isn’t.

My Business Takes Credit Cards: How Can I Switch Companies?

What’s the difference between being in the middle of a contract for your business’s merchant account and a Siberian Gulag?

Answer: One’s a cold desolate waste with little to no human interaction, no aid, no help, no hope of escape from the lonely despair knowing that you are lost for what seems forever, and the other is a prison in Russia. Sound familiar? Feel familiar?

I apologize for my industry. A lot… and often. In a world where we have all forgotten the importance of each customer and the fact that we are all ultimately in a service industry; merchant accounts have become the worst. There are so many people out there trying to retire off of each and every account, that misrepresent data, and worst of all, never respond to issues that it makes my job all that much harder. Here’s what to avoid:

The Larger Bank: Don’t get me wrong. Banks are fine. We maintain accounts at a larger bank, and at a local bank. Both have their pluses and minuses. However, I would never get my account at a larger bank. True story: My business partner was at a business sponsored get together where he was chatting with a guy from one of the large banks here in town, and when discussing what they each did, the bank rep quickly said how he used to be in the merchant department and left. “Not because I minded sales mind you,” he said, “but because they told me once the sale went through I was not to interact with the customer anymore. I was to send them to an 800 number. Even if they had an issue. How could I ever build a customer case like that?!” Sadly, this is the standard.

The Guy That Says, “There is No Contract”: Yes there is. The last time I was bidding against another merchant account provider that said “there is no contract”, I bet the company owner my car against a box of granola that there was in fact a contract. MC/ Visa will not give someone a merchant account with no contract as someone must sign as a guarantor. Whenever someone says that there is no contract, tell them this: “Great! I will not sign any documentation then!” Watch the color drain from their face as they then back peddle and explain how you have to sign something. If there is no contract, why would you have to sign?

The Lease: The Lease is the big, bloody bear trap that the only way to get out of it is to chew your own leg off, and then you still have to pay out the remainder. Never EVER sign a lease. The average lease costs $1,000 per year, per terminal for a machine you could buy brand new for $300-400, and refurbished for $120.

Exhorbitant ‘De-Conversion’ Fees: Literally stated, deconversion fees translates as “money you and your business are charged as a penalty to keep you from switching to someone else“. Standard is $300 for a standard 3-year contract. Higher rates are $500-600. The worst are companies that average the amount they make off of your business per month and then charge you that times the number of months left on your contract. Plus they often throw in attorney fees which as you can rightly imagine means any dollar amount they want to assign. Her it is expressed an an equation: (Monthly fees they get from you) x (number of months left on your contract) + (legal fees) = (You being very sad).

Thufir Hawat the human computer from the book Dune would say, “The first step in avoiding a trap, is knowing of its existence.” In other words, before you sign up with anyone, read the contract. I mean actually read it. Generally, the most one has to pay is the deconversion (sometimes ‘called the early termination’) fee. More times than not, the business you are potentially signing with will eat that cost up to a certain amount. Ask these questions when unsure:

1. What is the term of the contract? (Standard is 3 years. Be wary of anything different). Show me on the contract the term of the agreement.
2. What is the termination fee? Does it decrease over time? Show me in the contract.
3. Is this a lease? If you answer ‘no’ and it is I will sue your company and you specifically.
4. Do you have support? I mean your own support? Can I call you? Will you put that in writing?

So Your Business Takes Credit Cards: The Year In Theft

One of the number one questions I get asked is simply: [With all of the advancements] Why is it more difficult to accept plastic now than it was?

Really?

How about theft? Or Fraud? Or the thousands of people everyday trying to actively abuse the system? My grandparents always said that no one they knew really locked their doors. Of course they meant a long, long time ago… in a galaxy far, far away… but today it’s different. There are all kind of locks on processing credit cards because there are all kinds of ways to steal. Remember this simple phrase: A safe that is not locked is no safe at all. It’s a really heavy box. The really crazy thing here is that the system has a paper trail that is not too hard to follow and the bad guys almost always get caught. That being said, let’s look at some things people have done.

1. The Self Tipper: So we are in a restaurant and there is a waitress who the management needs to talk to. Why? Well, over the past week, several people have been calling in to complain about unexplained charges on their card. Here’s what’s happening: She had been writing down the card data and going back in and re-entering the card AND giving herself a tip on top of it. This is because a waiter gathers both credit card charges and cash over the course of the shift and then has to give the restaurant the amount they sold at the end. First they give all the credit card receipts, then cash until the amount of food is paid off and they keep the rest. In effect, she was having to turn in less cash as she was off-setting the bill.

2. The Back Draft: So now we are in a tire store. The store is losing money and has no idea how. It is so bad, that a manager basically comes up front and watches every sale which is being made, no cash register can be opened without a manager’s key, and yet all product is accounted for as either in stock, or has a sales receipt listed as being sold. So where is the money going? Well as it turns out the management may be watching the transaction, but doesn’t know what to look for. Here’s what’s happening: The person at the counter was teamed up with the customer who was a cousin with a different last name, as well as a few friends. Cousin (or friend) would come in, buy $400-600 in tires, give employee a valid card which would be charged for the full amount, and then leave with the goods. However, the employee at the end of the shift would then credit back either the majority of the money or all of it to the accomplice’s card.

3. Charge-Back Charlie: This is one of the worst of the worst. This is the guy who buys stuff on his card all the time and then basically refuses to pay for it. Either he’ll buy some electronics or hire a contractor that accepts credit card payment, and then calls his credit card issuing bank and complains that either the store did not live up to what it said it would do, or that the contractor did not get his approval before leaving the job and thusly fight the charge in its entirety.  Here’s what’s happening: As sinister as this is, this one is done right out in the open. He is counting on the law of averages and if he keeps fighting it, he knows plenty of people will just quit fighting and he gets it for free. Plain and simple: it’s out right theft.

Here’s the Rules of the Road:

• Most Retail business fraud is from within
• Most Card-Not-Present accounts such as over the phone or internet, it’s from the outside
• Almost all fraud leaves a paper trail (in the end, 90%+ of the good guys win)
• Appreciate the complications, MC/Visa is trying to help you LOCK YOUR SAFE!

All of these stories are true and have happened right here in my own hometown. If you have had some credit card fraud, feel free to call  or email me and we can review ways to make your business safer.

Well the Economy Must Be Up…

Growth is Good

Our firm has a particular insight into what is happening with the world at large as we see one thing and one thing only: the transactions going through all the businesses we handle. It stands as a great litmus test for business and how businesses are doing. As a whole since businesses are doing 10% more than in the past quarter and 30% over their same numbers last year (minusing out particularly volatile companies as well as new businesses which have signed up), I’d say they are doing well.

New machines, new equipment, and more pieces for the branching out areas of existing clients is also a great sign to see. After all, if there is one thing we love, it’s setting up a business we already have with the capacity to do more. This is because common sense dictates that the best resource any company has is its current client base. It just plain costs less to sell to them than to anyone else. In our industry though, when they need more, they come to you. Though placement of check processing equipment is down (it brought that on itself), credit card terminal placement is up per business. Simply stated, more businesses are having more credit card stations per location. That is generally a sign of one of two very divergent things: a very tough market where customers simply will not wait, or an increase in overall sales blooming into new areas and management answering the call. As a provider, I will take either one, but I clearly prefer the latter.

Third a drop in chargebacks. A charge back is a particularly nasty bug where a person reports to the credit card company that they did not make said purchase from your business. Sometimes it’s legitimate as with a stolen identity. However, there are plenty of people out there (and I mean right here in hometown, USA) that will make a purchase and then fight the charge. It’s the definition of dirty, but when the economy is down, false chargebacks go up. We are seeing them go down and that is a wonderful thing. Especially as a chargeback rating of 1% will get your merchant account de-listed. That means MC/Visa just cut you off from accepting credit cards at your business. Fear not though, good and faithful servant, as that is considered a very large number compared to how many chargebacks there actually are.

Finally, the level of attrition is down as the number of businesses closing are down, and that is a good thing. I remember hearing my grandparents speak of the depression (ie: the Great Depression, but what was so great about it no one knew). The amount of headache and heartache people, banks, and businesses saw was devastating. My grandmother said that it was so bad, she saw the worst fight in her life between two men over a rabbit. A RABBIT (I have an off day if the cell won’t text while I download on my ipod). Areas of commerce became wastelands of yawning, broken out windows in decrepit buildings. I never want to see that, but I saw plenty of companies closing doors as the forms passed my desk. That thankfully seems to be well passed us all.

Good news is good to the soul, and we love to see the growth in our area. The storm is not passed and I often complain that the mistakes we made in the housing market are hitting businesses with Rewards cards, but that is another rant. As for this month, this quarter, and this very day: business and thus the economy from where we see it, is up.

Merchant Account Scam #1: The Threat of Being “Turned In”

The Credit Card Gestapo are coming...!

OK, so what I am about to tell you is not a “for instance…” example. This happened last week right here in Savannah.

There’s an elderly man that owns a Bed & Breakfast right here in Savannah. He has seen a lot, done a lot, and is a cancer survivor. He has the scars to prove it. It has eaten up part of him and left his eyes badly damaged so that he cannot be in bright light and has trouble reading. He was referred to me like 99% of all our clientele by other very happy customers and he was in a pickle. A good guy,  a likeable guy, “a real mensch” was the actual terminology used about him.

So I call him. He was not happy. He was in a pickle.

Why? He had been thinking about moving his credit card business for his B&B from his current company to someone else and a man came calling on him (this is not coincidental, it’s just that guys from my industry are always calling, it’s why my firm is almost completely word-of-mouth). So the man presses and presses him until he is finally let in. Our mensch is honest and shows him his credit card machine and describes what he does. This is when it gets thick. Salesman informs the man that his old credit card machine is illegal. Illegal? (It’s a harsh term, but if his machine is too old it can be non-compliant, but there are no credit card police coming to get him). It is not only illegal, but it illegally stores all of the customer data ever (no, it doesn’t), and cannot ever be destroyed (yes, it can), and he is risking fines of $5,000-$15,000 per incident of use (only in terms of malfeasance, and if he were illegally storing his customer data which he wasn’t).

This is when the salesman pushes the contract. Well our mensch doesn’t want to sign a contract today. He wants to see if what he says is accurate. After all, he just filled out a compliancy form with his current company who supplied the machine years ago and they had not mentioned anything. Well now we turn from thick to ugly. The salesman informs our good man here who has been doing everything he was told up until that moment that the salesman is a ‘certified compliancy officer’ and that he is honor bound (I don’t think honor has any place in this article outside of the proprietor of the inn) to report him. He also said that he would be in the office until 3pm that afternoon and then he goes home (who goes home at 3:00 pm?), but that if he received his contract or a call to finish up the contract by then he, “could go ahead and take care of it”. Really? That’s sweet.

Did you miss that? There was a threat in there. He would report him. He was honor bound to do so. Well if it’s a matter of honor, wouldn’t he have to report him no matter what? Is this the way people are doing business now?

Here’s the truth: There are no credit card police. No one was coming to get him. He did in fact have an older machine. It was non-compliant. Whoop-de-doo. This added a small fee to his account every month and when he changed to a newer model (which a good company will give him for free, mensch or no…) it was gone. Still even then there’s a $4.95 PCI compliancy fee that he would have to pay, but any reputable company will wave that for the first twelve months of an account.

Here’s How to Handle It: If you are EVER put remotely in that situation: stay calm. Think. Would your current company you work with put you in this much danger? Perhaps. Here what you do. While your ‘officer’ waits for you to decide if he should report you or not, call your current company, get customer service, inform them who you are, and then tell them that a ‘certified compliancy officer’ is there at your business and says he is going to report you. Then hand him the phone…

You will never see so much back peddling in your life.