A Payment Processor Promised 40–60% Savings — The FTC Says Owners Paid More Instead

A payment processor told small businesses they could cut their card-processing costs by 40% to 60%. The Federal Trade Commission and the State of Washington say the opposite happened: owners who switched typically paid more than before, then found it nearly impossible to leave. On November 2, the agencies announced a proposed settlement with Riverside Payments, its equipment-leasing affiliate Cascade Equipment Leasing, and their two operators. The allegations double as a checklist for anyone who has signed, or is about to sign, a merchant-services contract.

What the FTC and Washington allege

According to the complaint, Riverside, Cascade and their owners and executives, Brandon Skinner and Jason Reese, falsely promised small businesses they would save money on payment processing. The agencies also allege the companies failed to clearly tell businesses they were being enrolled in automatically renewing contracts, both for processing services and for leased equipment.

Riverside's sales pitches included a quote sheet that compared what a prospect paid its existing processor with what it would pay Riverside. The complaint says Riverside at times claimed businesses could save 40% to 60%. In reality, the FTC and Washington allege, businesses that switched typically ended up paying more than they did with their previous provider.

Where the extra costs allegedly hid

• The quote sheet. It allegedly left out fees, including activation fees, batch fees, and fees for supposed non-compliance with data security standards or inactive processing.
• The contract. A 26-page electronic contract allegedly buried key terms: automatic renewal after the initial three-year term, a $695 early termination fee, and the cost of leasing payment machines from Cascade.
• The equipment lease. The lease allegedly locked customers into an auto-renewing contract that ran one year longer than the processing contract.
• The "no-risk" guarantee. Riverside allegedly promised businesses they could cancel anytime without penalty, switch back to their original processor, and receive $500 for their "time and hassle." The agencies say those promises were false.

The cancellation loop

The complaint says businesses that tried to cancel typically did not hear back and were often stuck in a loop of fruitless phone calls and deflection. Even owners willing to pay the $695 termination fee, which surprised many of them, were allegedly told there was no direct line to call and that they must wait for a callback. The complaint says those callbacks often never came.

The agencies also allege that Riverside made false claims about what its commission-based sales agents would earn. Ads claimed agents could make between $75,000 and $95,000 a year, and that top agents could make "100k." According to the complaint, agents made an average of just $3,787 a year.

What the proposed order would do

• Money: A $32,083,921 judgment would be imposed on Riverside, Skinner, Reese and Cascade, but it would be suspended after they pay $600,000 because they say they cannot pay the full amount. The full judgment becomes due if they are found to have lied about their finances.
• Relief for customers: The defendants must notify customers that, for a 60-day period, Riverside will waive the early termination fee or any penalty for rescinding merchant-processing agreements.
• Conduct rules: The defendants could not misrepresent costs, savings, cancellation conditions or other material facts, and could not make unsubstantiated savings or earnings claims.
• Disclosure and cancellation: They would have to clearly disclose all material terms before obtaining billing information, get express informed consent for automatically renewing billing plans, and give customers a simple way to cancel.

The Commission voted 2-0 to authorize the complaint and the stipulated final order, which were filed in the U.S. District Court for the Western District of Washington. Christopher Mufarrige, director of the FTC's Bureau of Consumer Protection, said the companies locked small businesses into costly multi-year contracts after promising savings. Keep in mind that these are allegations, and the order has the force of law only once the judge approves and signs it.

If you are a Riverside customer

Watch your mail and email for the notice the order requires, since it describes the 60-day window to rescind without a termination penalty. Pull your signed contract, your equipment lease and your last few processing statements now so you know your term dates and fees. The FTC maintains a case page for Riverside Payments, Inc. where filings are posted. If you have questions about your own contract, a business attorney can review it.

Seven questions to ask before you sign or renew a processing contract

• What is my effective rate? Take three recent statements, divide total fees by total card sales, and compare the result with any quote. A pitch that only shows a headline rate tells you little.
• Which fees are missing from the quote? Ask specifically about activation, batch, statement, inactivity and data-security compliance fees.
• How long is the term, and does it renew? Get the initial term, the renewal length and the notice window in writing.
• What does leaving cost? Ask for the early termination fee as a dollar figure. In this case it was $695, and many owners say they learned of it late.
• Do I rent or own the terminal? Equipment leases can carry their own term and renewal, separate from the processing agreement.
• How exactly do I cancel? Ask for a direct phone number or email, and confirm any cancellation in writing.
• Is the guarantee in the contract? A salesperson's "no-risk" promise means little unless the written agreement says the same thing.

Build processing costs into your numbers

Processing fees are a recurring cost that quietly shrinks margin, so give them their own line on your profit and loss statement and compare it month to month. Check deposits and fees against what your contract says by reconciling them in your business bank account. An unexplained line item is a reason to call the processor, not to wait.

The takeaway

A processing deal has several moving parts: per-transaction rates, add-on fees and equipment, and the savings pitch usually covers only the first. Before you sign a long electronic contract, read the sections on renewal, termination and equipment, and ask for the effective rate in writing. If a salesperson promises an easy exit, make sure the document says so too.

Photo by Markus Winkler on Unsplash