Minnesota Attorney General Lori Swanson today filed a lawsuit against a Texas company - Apex Merchant Group LLC - for using "bait and switch" tactics through which it promised small businesses it could save them money on credit card processing services, then hit them with higher undisclosed fees.
In some cases, Apex fraudulently altered the terms of signed contracts by later inserting new pages into the contract that contained higher rates and/or cancellation fees not agreed to by the small business, locking them into long-term contracts.
"Small businesses employ over half of our employees and often operate on thin margins. They cannot afford to be ripped off by credit card servicers," said Swanson in a news release.
There are more than 26 billion credit card transactions in the United States each year, according to the Federal Reserve.
Businesses that accept debit or credit cards must use a third-party processing company to act as a "go-between" between the business and the credit card companies to process each transaction.
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Third-party service companies aggressively compete for this business. Some businesses receive many calls and visits each week from credit card service companies that want them to change vendors.
Minnesota small businesses that signed up with Apex report that it engaged in the following misrepresentations and bait and switch tactics in addition to the alteration of contracts:
• Apex represents that it will save small businesses money on their credit card processing costs, but many small businesses indicate they paid more to process credits cards after switching to Apex.
• Apex promises that it will charge certain rates and fees, but then fraudulently alters the signed contract to change the terms of the agreement and/or increase the fees. In some cases, Apex altered the "transaction fee" - or the fee the business pays each time a customer uses a credit card - to increase it by as much as double.
• Apex tells small businesses it will buy them out of their current contract or reimburse their cancellation fee if they switch to Apex. In one case, Apex took almost two years to reimburse the cancellation fee of one Minnesota business. In other cases, Apex refused to reimburse the cancellation fees entirely.
• Apex represents to small businesses that its contracts do not contain an early cancellation fee and that the business can leave Apex at any time without penalties. In fact, Apex's credit card processing contract contains a $495 early cancellation fee buried in the fine print, which Apex uses to lock-in small businesses for three years.
The Attorney General's Office also issued a warning entitled Beware of Credit Card Processing Service Solicitations that contains information for small businesses on what to watch out for when purchasing credit card processing services and how to avoid pitfalls.
In 2002, the Federal Trade Commission (FTC) filed a lawsuit against a seller of credit card processing services, Certified Merchant Services, that was co-owned by Craig Frankel, one of Apex's investors and brother to Apex's current CEO Andrew Frankel.
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Not unlike the allegations in the latest lawsuit against Apex, the FTC's lawsuit alleged the company made misrepresentations and fraudulently altered its customers' contracts. Ultimately, in the FTC case, Certified Merchant Services was ordered to shut down.
The lawsuit - filed in Hennepin County District Court - alleges violations of the state's deceptive trade practices and consumer protection laws and seeks injunctive relief, civil penalties, and restitution.
People may report complaints to the Minnesota Attorney General's Office by calling 651-296-3353 or 800-657-3787. People may also download a complaint form from the Attorney General's Office website at www.ag.state.mn.us and mail the completed form to the Attorney General's Office at: 1400 Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101-2131. People may also file a complaint with the FTC at www.ftc.gov .
