Bad Paper Woes
The Green Sheet has been receiving calls from a number of ISOs concerned about sub-par lease paper (see Letters to the Editor 97:04:02). It seems that Artex Leasing of Madison, WI, has processed leases for many ISOs (many through Merchant Card Services) who are still waiting for funding.
The Program:
According to documents from Quantum Resources, the marketing company handling the Artex Leasing program, Artex and Merchant Card Services were promoting a program of:
The documents state a rate of .0334 for a 48 month lease, or .0549 for a 24 month lease and offers lease funding from $500-$3000, with credit approval required for leases over $3000.
According to the Quantum marketing documents, which were faxed to ISOs, "If a merchant is approved for Visa/Mastercard, they are approved for the lease." The documents continue to state that paperwork received by 2 PM EST will be funded the following business day.
According to a Quantum representative, Merchant Card Services approached Artex Leasing, who primarily leases big ticket items, to help them do some research on the POS leasing market. They then worked together to develop an Artex leasing program for the POS Industry.
According to Joe Harrington of Merchant Card Services, Artex and MCS asked around for the industry average on leasing and came up with approximately 100-200 contracts per month. Artex and Merchant Card Services then inflated this number when organizing their financing, so they would be certain of having enough money.
The Dilemma:
Well, this may sound pretty good to you and it sounded pretty good to a lot of ISOs, too.
When the program was unveiled, Merchant Card Services sold 70 vendors in the first three days and accepted 600 applications in the first two weeks. According to Cathy Campbell, a vendor of Artex, the program took off because the leasing rates are good and the ease of paper work is attractive. Harrington agrees, saying that the program took off because Artex has come up with a program that is ISO friendly. The concept is that ISOs will be loyal if a program is easy and does not cost a lot of money.
In fact, ISOs liked the program so much that Merchant Card Services was inundated with applications and the Artex funding could not keep up with the demand. The warehouse line Artex had pointed at the program was anticipated to last six months, but due to the overwhelming demand, that funding was gone in the first two weeks.
Lack of Communication:
MCS, and ISOs who contacted The Green Sheet, tell us that no one was notified of the lack of funding, and therefore MCS continued to bring in applications. According to Harrington, MCS has funded $50,000 that hasn't been paid.
Sources at Quantum Resources stated that the program developed by MCS and Artex had a finite amount of money to get going (approximately $300,000 to $400,000) somewhat like a test market. Quantum says that there was a break in communication between the CFO at Artex and one of the people involved in ISO operations. Due to this breakdown, it wasn't communicated that there was a limited amount of funding for this first round.
But, MCS's Harrington says he has confidence in Art Martinson of Artex and therefore has advanced $50,000 of his own money. MCS also states there was a breakdown in communication at Artex. Harrington says he has confidence in the organization, if not in all its employees.
"If the people at Artex tell Cathy Campbell we're running out of money and to put the brakes on things and she, in turn, says `The sky's the limit,' when she knows that's the wrong thing, then the only thing missing is Cathy Campbell's spine," Harrington said in a phone interview.
When contacted by he Green Sheet, Campbell, who is an Artex vendor said she was informed at the last minute, and had no notice that she should tell ISOs to hold off on leasing. Campbell said she sent a notice from Artex to her offices apprising them of the situation and they in turn notified their employees and representatives. Campbell said it was up to each office to let their people know.
Cambell also requested that Artex be removed fromThe Green Sheet's Resource Guide. She stated that Artex is in the process of restructuring, funding is suspended for 2-3 weeks (as of April 11) and intends to be re-listed in a few weeks after hiring more people. In an April 21 conversation, Campbell stated that the 2-3 week date is accurate but, hopes to have everything back to normal by the first week in May.
Some ISOs received a fax in early April which stated that the response has been overwhelming, Artex is experiencing growing pains, and they need to curtail funding for 2-3 weeks. They continue to ask for patience and apologize, while telling ISOs they will be notified when funding resumes.
When The Green Sheet contacted other lease companies for their reaction, Artex was not a recognized name. They did point out that solid capitalized players are the ones who stay in business and ISOs need to look for stable companies. One stated that this situation is similar to US Leasing in 1984. US Leasing had been leasing airplanes and box cars and went into POS equipment. They lost a million dollars in two months and left the POS industry. The US Leasing and Artex debacles demonstrate that leasing planes and leasing POS equipment are entirely unique businesses.
The Resolution:
So, what now? What do you do if you've been involved and are waiting for payment? MCS is calling people to explain what has happened. Artex is redirecting a five million dollar warehouse line which they anticipate will take care of more than the need.
Merchant Card Services is offering to return leases to those that want them returned, although according to Harrington no one has taken him up on it yet.
Merchant Card Services has been trying to find other leasing for those that want it. As an example, MCS faxed 10 leases to LADCO Leasing and Leasecom. Of the 10, 6 were declined. ISOs who have contacted The Green Sheet have told us that they will be paid. According to one ISO, his lease was approved by another company but it was a B lease. He felt the sale wasn't strong enough to withstand returning to the merchant for more information. He did not want to jeopardize the sale so he has chosen to continue with MCS and wait for his money.
In The Future:
When this is resolved, Harrington indicated that MCS may take the leases of those that stuck with MCS through this situation and fund them at a lower rate in an effort to express his appreciation of the ISO's understanding and patience.
Harrington continues to state that the program is not a dead program. According to Harrington, he is going out of his way because he is an ISO himself and has respect for ISOs, and it's the ethical thing to do.
As we went to press, a recording on the MCS line states that Artex has suspended funding for 2-3 weeks. During this time Artex will be securing a larger warehouse line and hiring additional people. MCS will be funding a certain number of leases. If ISOs wish to know the status of a lease, they are instructed to leave a vendor name and lease. If ISOs wish to have a lease returned MCS will return them. MCS apologizes on behalf of Artex and expresses that the situation is not in the control of MCS Leasing.
