Merchants, Wells Fargo to have their day in court

Merchants who filed a class action lawsuit against Wells Fargo & Co. will have their day in court. The U.S. Eastern District Court of New York struck down the defendant's motion to dismiss the case on July 25, 2018, finding plaintiffs' claims to be credible.

Initially filed Aug. 4, 2017, Patti's Pitas LLC and Queen City Tours v. Wells Fargo Merchant Services LLC, cites lack of transparency and unfair fee structures as causes of action. In his decision, Magistrate Judge Gary R. Brown wrote, "Upon review of all of the documents submitted and arguments made at oral argument, it appears, on balance, that plaintiffs have raised sufficient allegations to overcome, at least as to certain representative plaintiffs, the issues raised on this motion."

Plaintiffs allege Wells Fargo Merchant Services misrepresented the nature and amount of its fees, noting that merchants were locked into long-term contracts, with "numerous unanticipated, improper, inflated, and excessive fees." These omissions obscured fees and upcharges, making merchants unable to detect improper charges.

"Denial of motion to dismiss is an important step in the case which will allow us to do discovery," said Adam Webb a partner with Atlanta-based Webb, Klase & Lemond LLC. "We are very confident that discovery will reveal substantial improper conduct by Wells Fargo."

Clubbing baby seals

Attorneys for plaintiffs believe Wells Fargo Merchant Services made more than $200 million per year from unlawful and illicit practices. Their complaint cites a CNN interview with a former Wells Fargo employee, who recounted bizarre sales tactics when he worked at the company from 2011 to 2013. He said it was nearly impossible for a Wells Fargo merchant to get out of a processing agreement. "We used to be told to go out and club the baby seals: mom-pop-shops that had no legal support," he recalled in an interview. "It really was like a shady used car deal."

Counsel for plaintiffs wrote, "Defendant knows that the higher rates and surcharges will be charged for the vast majority of transactions, but deliberately misrepresents, obscures, and hides that critical information from merchants, including at the time merchants enroll and after merchants enroll and the upcharges commence. This is not a small problem but rather causes significant harm on a monthly basis to the majority of Defendant's customers."

Webb said that the more he saw of this case, the more the "massive scope" of the problem became clear. "Wells Fargo Merchant Services has roughly 475,000 customers, mostly mom-and-pop businesses, and nearly all of them have been defrauded in a substantial way," he stated. "How many businesses failed because Wells Fargo Merchant Services stole their profit margin?"

Editorial Note:

Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.

Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.