Class action against MCPS alleges misrepresented fees, contracts

A class action complaint filed Dec. 22, 2017, against Merchants’ Choice Payment Solutions and Woodforest Bank, seeks damages for a large group of merchants, according to court documents. Plaintiffs have claimed the defendants fraudulently obtained contracts and overcharged for services.

Atlanta-based law firm Webb, Klase & Lemond LLC and Houston-based law firm Meade & Neese LLP are requesting rescissions for alleged fraudulently obtained contracts and refunds for improper fees. The case, titled Al’s Pals Pet Care LLC, et al. v. Woodforest National Bank N.A., is pending in the United States District Court for the Southern District of Texas and has been assigned case number 4:17-cv-03852. Numerous complaints against the defendants predate the August 2017 acquisition of Merchants’ Choice by Paysafe Group PLC for $470 million, according to plaintiffs’ counsel, who added that Paysafe subsequently agreed to be purchased by a group led by Blackstone Group LP and CVC Capital Partners.

A range of complaints

The complaints ranged from alleged unethical sales tactics to unnecessary equipment and service upgrades, including the following examples:

• Misrepresentation: In December 2016, a merchant level salesperson (MLS) employed by MCPS falsely claimed to be a merchant’s current processor. The MLS convinced the merchant to sign a new application to prevent her fees from increasing. Upon learning that MCPS was not her processor, the merchant attempted to cancel her service and was promptly charged a $495 termination fee, despite having never transacted with the processor, according to the plaintiffs.

• Ancillary, frivolous fees: Complainants allege that MCPS charged numerous fees, which included an $8 “Merchant Foundry Fee” for transactional data; $6.95 “PCI Protection Plan” for data security; $25 “Minimum Discount Fee,” which was not defined in the merchant application; and $10 “Monthly Service Fee” shown on the contract as an $8 fee.

• Predatory sales tactics: On February 14, 2017, an MCPS agent informed a merchant that he needed “a technological upgrade on his card reading equipment or he would not be in compliance with new payment industry standards,” court document stated. In addition to pretending to be the merchant’s processor, the MLS took possession of the merchant’s original POS equipment, the merchant claimed. The merchant additionally claimed to be stuck in a three-year agreement while being overcharged for services, including inflated debit card pricing, according to the complaint.

• Fraudulent telephone practices: Plaintiffs allege MCPS agents, posing as merchants’ current processors, are advising merchants to take immediate steps to secure pricing, avoid price increases or become fully compliant. These practices have caused numerous merchants to unsuspectingly enter into fraudulent contracts, while keeping existing contracts in play, plaintiffs added. In one case, a plaintiff who had been duped by an MCPS agent discovered that her existing processor was still deducting monthly service fees.

• Fee increases: Even merchants who knowingly entered into valid contracts with MCPS were routinely overcharged, according to allegations. “In Al’s Pals contract with Defendants, Plaintiff’s owner had agreed to pay a variety of fees. These fees were acceptable to Plaintiff and afforded Defendants a healthy profit margin. Nevertheless, Defendants repeatedly increased Plaintiff’s monthly fees, annual fees, and per transaction fees in violation of the contract,” the attorneys wrote. “Even more nefarious, Defendants have increased fees and informed customers that the fees were actually pass-through fees from the card networks, even though such fees were increased by Defendants and all proceeds went directly to their bottom lines.”

Too many victims to name

Court documents state the class action encompasses “thousands of merchants” and estimates thousands of class members are involved and may soon be notified of the action by recognized, court-approved methods, which may include U.S. Mail, electronic mail, and public notices.

“Defendants had direct pecuniary interests in the merchant agreements they entered into with merchants they contacted and to which they made these [false] representations,” the attorneys wrote. “Defendants made, and stand to make, substantial sums of money through termination fees and/or service fees from the merchants who sign agreements with Defendants.” The plaintiffs’ attorneys assert a class action is the most expeditious method for handling this many complaints. Such action “presents far fewer management difficulties and provides the benefits of single adjudication, economy of scale, and comprehensive supervision by a single court,” they wrote. “Plaintiffs and the Fraud Class are entitled to seek damages and/or rescission of their contracts with Defendants, or other equitable relief, including restitution of funds Defendants took from them without permission.”

E. Adam Webb, Managing Partner at Webb, Klase & Lemond said that defendants may claim rogue agents perpetrated these actions, but numerous MCPS branch offices were aware of the allegations before any legal actions were taken. He also mentioned his firm received additional intelligence on MCPS from a former agent. “When there’s this much smoke, you can be sure there’s a fire,” he stated. “And more affected parties are coming forward.”

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