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Beware of credit card processing scams

By Steven Bryan

A classic episode of The Brady Bunch introduced many people to the Latin phrase "caveat emptor," which translates to "let the buyer beware." Minnesota resident Audrey Lazarus learned that particular lesson the hard way when dealing with a firm called Bankcard Empire.

According to the Minneapolis-St. Paul Star Tribune, Lazarus responded to an online ad for the credit card processing company, charging $9,900 in fees on her Bank of America Visa to become a Bankcard Empire "affiliate" salesperson. After investing all that money, however, Lazarus did not receive any return on her investment and attempted to get her money back.

Lazarus' efforts did prompt the Minnesota State Commerce Department to issue a cease-and-desist order against Bankcard Empire because the company wasn't licensed to sell franchises in that state. Lazarus, unfortunately, now has a massive balance on her credit card account that Bank of America refuses to charge back to Bankcard Empire.

On the surface, it seems that Audrey Lazarus should have been protected under the Fair Credit Billing Act (FCBA), which allows consumers to dispute certain credit card charges. The FCBA protects you, for example, when your credit card number has been used without your knowledge or consent.

Based on the information in the Star-Tribune piece, it appears that Bank of America's investigation determined the $9,900 charge was legitimate and must be paid by Lazarus. She paid for materials to become a Bankcard Empire Affiliate, which she received, but the profits did not arrive as promised. Lazarus also signed an agreement that said any dispute between her and Bankcard Empire needed to be arbitrated in Arizona.

Christopher Elliott of Tribune Media Services says that disputing credit card charges is more of an art than a science. In order to protect herself against fast-talking salespeople, Lazarus should have taken some precautions before agreeing to the charges:

  • Online research. A recent Google search for Bankcard Empire returned their corporate website and several online reports about other consumers who invested thousands of dollars to become affiliates. The results even showed the homepages of several consumer watchdog groups, and one did defend the business practices of Bankcard Empire.
  • Be skeptical. If a business deal sounds too good to be true, it probably is. A company that asks for large upfront investments and uses high-pressure tactics should raise some red flags. Investors should always do their homework before reaching for the credit card.
  • Keep a log. If you really want to become a franchise owner or an affiliate, keep a notebook handy and write down the name and date that you talked to each person. Make sure that the company sends you a letter or email outlining everything you are supposed to get for your investment.

When making a purchase online, it always makes sense to keep "caveat emptor" in mind. The FCBA can protect you, but only up to a point.

Safeguarding your merchant account
Audrey Lazarus' story also points out a few precautions for merchants as well. When dealing with a credit/debit card processor such as Bankcard Empire, it always is a good idea to get fees and surcharges in writing before entering into any agreement. You don't want any surprises when checking your merchant account.

As for chargebacks, make sure you know exactly how your transaction processor handles refunds for disputed charges. Are the funds deducted immediately from your merchant account or is there a period where you can prove the transaction was done in good faith? The buyer always needs to be aware, but so does the merchant.

Article by Steven Bryan

Published: September 25, 2009

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