Wells Fargo probe exposes high merchant fees

An ongoing investigation of questionable sales practices at Wells Fargo Merchant Services LLC, which initially exposed fraudulent activities in the consumer banking division, raised additional questions in the company's merchant services division. In an April 6, 2017, statement, consumer class action law firm Keller Rohrback LLP challenged the company's fee structures and retroactive billing of non-qualified transactions in monthly merchant statements.

At issue is a practice called enhanced billback, in which processors charge a flat fee for transactions in a monthly processing statement, then retroactively charge merchants for non-qualified transactions the following month. "Enhanced billback is also known as enhanced reduced recovery, blended rate, or mixed rate," the attorneys stated. The attorneys said they first became aware of the problem through negative online reviews that criticized the bank's non-qualified fee policies. For example, the website Cardfellow.com stated, "Wells Fargo Merchant Services is responsible for some of the highest rates and fees we have ever seen in the ten years we've been helping businesses secure the most competitive credit card processing company."

Industry values, best practices

Recent allegations against Wells Fargo and other major acquirers can be detrimental to the payments industry's reputation, according to Srii Srinivasan, Chief Executive Officer at ChargebackGurus, a Dallas-based risk management and mitigation firm. Srinivasan has seen numerous examples of poor service and "gotcha" fees when negotiating fee structures and contract terms on behalf of merchant clients.

"I myself have experienced it when I initially set up merchants for our business over a decade ago," she said. "It is difficult to nail down the exact fees and penalties in lengthy contracts, plus the actual fees for a transaction may depend on the type of card used and interchange fees among other factors."

Srinivasan said most merchants do not understand how processors evaluate merchant account risk levels, the potential consequences of exceeding their chargeback thresholds, or why processors may hold funds in reserve after closing a merchant account. "Merchants do not understand the relationship between reserves and chargebacks," she said. "They don't typically call their processors with these questions, but look for a merchant advocate that can help them identify risks, mitigate them and keep their MIDs healthy."

Open dialog, transparency

Srinivasan wants to see more transparency in merchant services agreements and processing relationships. Following are her additional recommendations for an open, transparent dialog among payments industry stakeholders:

• ISOs: ISOs and merchant level salespeople (MLSs) need to see the big picture from a merchant's perspective. Merchants are doing their best to run successful, profitable businesses, and they want clear, transparent pricing with explanations. ISOs could think of themselves as "partners" with merchants and take a long-term view of their relationships. This would include educating merchants about basic rules to keep merchants' MIDs alive and healthy. "ISOs can also partner with industry leaders that offer services and consulting to mitigate payments risk," she said. "ISOs who have asked me to help their clients have seen the benefit of establishing trust during the application process to set the stage for a long-term, healthy relationship."
• Merchants: Srinivasan understands that most merchants are too busy running their businesses to focus on understanding payments, merchants accounts and regulations, but she said they need to review their pricing and contract terms in detail, ask questions and perhaps even consult with an attorney before signing up for merchant services. "Do not give in to sales pressure," she said. "Take the time to do research, and know the common terms like reserves, interchange fees, chargeback fees, gateway fees, monthly minimums, etc."
• MLSs: MLSs need to focus on long-term relationships more than short-term commissions and quotas, Srinivasan stated. "Research and learn everything about fees, payment rules and contract terms so that you can educate your clients," she said. "Partner with industry leaders that can help clients." Diligent and educated MLSs who are honest and transparent in their dealings with merchants will establish an excellent reputation and gain referrals, she added.

Given that Keller Rohrback has led class action settlements against JPMorgan Chase, Mattel, Crayola, and Anthem Health Insurance, financial analysts have stated that if the law firm can substantiate allegations of inflated fees and retroactive billbacks, this will likely lead to further actions, including a possible class action suit against Wells Fargo and its payment card processing partner First Data Corp.

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