The Federal Trade Commission has charged an operation that sells credit and debit card payment processing services to small businesses with violating federal law.  

The defendants are Merchant Services Direct (MSD) LLC, also doing business as Sphyra Inc.; Boost Commerce Inc.; Generation Y Investments LLC; Kyle Lawson Dove; and Shane Patrick Hurley. The Washington State Attorney General’s Office has simultaneously filed an action against these defendants in the Superior Court for Spokane County, Wash.

The defendants allegedly made false and unsubstantiated claims and failed to disclose material facts to storefront businesses and sole proprietorships before they applied for services and equipment to process credit and debit card payments. The FTC seeks to halt the allegedly illegal practices and return money to victims.

According to the FTC’s complaint, as an "independent sales organization," MSD sells to small local businesses the ability to accept credit and debit card payments. The businesses pay fees whenever their customers pay with a credit or debit card.

As alleged in the complaint, MSD sales agents typically call small businesses and lead them to believe they are associated with the businesses’ current card processor, Visa or MasterCard, or their bank. The sales agents allegedly promise substantial savings on credit and debit card processing. They specify a much lower rate than the businesses currently pay, and quote one fee, a fixed per-transaction cost, without mentioning all the other fees the businesses will have to pay. Merchants who ask if there are other fees allegedly are told there are none.

According to the FTC’s complaint, MSD agents also dupe customers into leasing new card processing terminals for two to four years, falsely claiming their current “swipe” terminals are outdated or incompatible with its services. Sometimes they even claim the terminals are free. 

Agents persuade merchants to sign fine-print, binding contracts on the spot by telling them the documents are merely applications – a ruse made easier, according to the FTC, by the fact that the contracts are labeled “applications.” Merchants are often falsely told they can cancel any time. Many victims discover their new lease obligation only after being billed, still owing the balance of their previous lease, which can be thousands of dollars.

Defendants also tout on various versions of their Web site “Guaranteed Lowest Rates,” claiming merchants could “save 30%” with “whole sale [sic] processing” or have “anywhere from 20% to 30% savings when switching to” MSD. In fact, according to the FTC, there are no wholesale rates, as third parties process card payments, not MSD.  

As alleged in the complaint, those who call MSD’s customer service department reach employees who either do not help them or say they will waive fees or provide refunds but don’t.  Customers who were promised they could cancel the “applications” they signed with no penalty are charged substantial cancellation fees, according to the FTC’s complaint. Generally, only in response to complaints filed with the Better Business Bureau and state attorneys general have the defendants refunded money or waived fees.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry