Practical Ecommerce

Credit Card Provider Sued for ‘Deceptive’ Tactics

Heartland Payment Systems, one of the largest credit card providers in the U.S., stated in a press release that it has filed a federal lawsuit against Mercury Payment Systems, also a provider in the U.S.

According to the release, the suit, which was filed in U.S. District Court in the Northern District of California, accuses Mercury of “false advertising, unfair competition, intentional interference with contractual relations, and intentional interference with prospective economic advantage. The suit alleges that Mercury is illegally competing against Heartland with deceptive trade practices. Heartland contends that Mercury is misleading merchant customers by deceptively hiding its excess profits in the interchange fees charged by credit card networks and their issuing banks.”

Robert Carr, chairman and CEO of Heartland, stated in the release, “The deceptive pricing practice of falsely inflating pass-through interchange fees not only constitutes unfair and illegal competition, it also costs even the smallest of merchants hundreds, or sometimes even thousands of their hard-earned dollars each year without their awareness. Industry-wide, the cost of deceptive interchange practices runs into tens of millions of dollars, and has caused great harm to the reputation of the entire electronic payments industry.”

The release continues, “Today, Mercury and other payment companies are avoiding interchange plus pricing transparency by building their markup into what they purport to be interchange fees. In the complaint, Heartland states that it has reviewed hundreds of monthly statements from Mercury for different merchants throughout the U.S., which indicate that Mercury repeatedly and regularly engages in a practice of charging its customers inflated interchange fees without disclosure. For example, instead of charging merchants Visa’s acquirer processor (APF) and MasterCard’s access and brand usage (NABU) fees — both less than two cents per transaction — Mercury sometimes charges customers up to nearly six cents per transaction without informing them of the markup.”

Mercury, in its own press release, said it “will vigorously defend against the lawsuit.”

Suit May Have Far Reaching Impact

If you have been reading my articles over the last two years, the types of alleged practices mentioned above are probably not surprising. I have addressed the alleged misleading tactics and pricing issues mentioned in the press release and more. However, my articles have never focused on one specific provider. The numerous examples I have shown in my articles have come from a number of different providers.

Also, I am not endorsing or condemning either of the providers mentioned in the press release. The main reason I wanted to share the release is because I believe it could have a far reaching impact in adding needed transparency to a very convoluted and sometimes misleading industry. Most importantly, in the end it may benefit merchants no matter which provider they use. I was disappointed that the courts did not add the needed transparency in the recent lawsuit by merchants against Visa, MasterCard and others — see “$6 Billion Visa, MasterCard Settlement Final; How to Claim.” Perhaps the way to add such transparency in this industry is to have providers sue each other. I will follow this lawsuit closely. I’m interested to see if there will be additional provider lawsuits to come.

Perhaps the way to add such transparency in this industry is to have providers sue each other.

Merchants Still Need to be Informed

Keep in mind that not all providers use misleading tactics. However, many will still try to obtain as much profit from the merchant as possible. And, in this convoluted industry with hundreds of interchange rates, it is very easy for a merchant to overpay. Merchants must continue to keep informed on the card processing industry because of the financial impact it has on their bottom-line.

If you believe you are overpaying or if you are looking for another provider, read my 4-part series “How to Lower Credit Card Processing Costs and Obtain Better Terms” before renegotiating with your current provider or seeking a new one. The series not only provides the methodology to obtain a competitive processing cost, but also walks through the verbiage and verification needed to ensure the merchant actually gets the pricing he negotiated.

Update on $6 Billion Settlement and Process for Filing a Claim

Several merchants have contacted me regarding the claim process for this settlement, which, again, I addressed last month. As of this writing, the claim process has not yet been finalized. Visit the official website periodically to learn more about the settlement and how to file a claim.

Phil Hinke

Phil Hinke

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  1. Ben February 14, 2014 Reply

    I agree that this lawsuit has the potential to have a broader impact on the industry as a whole, but I don’t think it will play out very simply.

    Mercury, like most ISOs and acquirers uses a large network of resellers. Many of these resellers are independent agents that have the ability to dictate pricing, including how the base costs on interchange and assessments are passed, and whether they’re passed at true cost.

    I have personally analyzed thousands of Mercury statements through CardFellow, so I know for a fact that hiking assessments is common practice for the company, but not all of Mercury deals are written through corporate channels. That opens the debate for scope of liability, specifically in terms of resellers’ exposure — where much of the gouging in this industry takes place.

    The results of the suite may simply result in ISOs and acquirers passing liability of opaque pricing and unethical tactics to resellers and agents. In which case, the ISOs and acquirers will maintain the ill-gotten profits gained through such unscrupulous tactics while shedding the risk.

    I also can’t help but to point out the irony that I have seen statements from Heartland Payment Systems where it is guilty of the exact practices for which it is suing Mercury Payments. I think this lawsuit is good to shine a light on these practices, but let’s not be so naive to ignore the fact that a large part of Heartland’s motivation is to use it as a PR stunt.

    We solved the root of this problem and the basis for this lawsuit over three years ago in our marketplace by providing ongoing third-party oversight backed by a legal contract. Even with our comprehensive, transparent approach to showing pricing, many business people still struggle to understand the complexities of pricing. That makes me wonder if the results of the lawsuit, even if seen as positive by industry insiders, will trickle down to the merchant level.

  2. Bob Carr February 18, 2014 Reply

    As chairman and CEO of Heartland Payment Systems, I’m encouraged that Mr. Hinke and others are paying close attention to our lawsuit against Mercury Payment Systems. We, too, hope that our lawsuit will have a long overdue impact in adding honesty and transparency to payment processing industry billing and pricing practices.

    The primary objectives of our lawsuit are clear:

    One: to stop Mercury’s widespread practice of deceptively inflating pass-through interchange costs, which are supposed to be billed at cost.

    Two: to help educate small business owners about deceptive practices that damage their business.

    As for the comment from “Ben” posted on February 14, I can assure him that he is mistaken on two important points:

    First, Heartland has never engaged in deceptive pricing practices. In fact, we have consistently been an outspoken advocate for fair, transparent and ethical credit and debit card processing practices, and we initiated the Merchant Bill of Rights as an industry standard for fair credit and debit card processing practices on behalf of small and mid-sized businesses.

    Ben, we need your cooperation. If you have copies of Heartland statements with falsely inflated interchange fees or any other charges you think are incorrect, I’d like to see them because I don’t think they exist unless fabricated by a third party.

    Second, a federal lawsuit is a very serious matter, and it is certainly not a “PR stunt.” We believe that this lawsuit is not only the best, but perhaps the only way to address our objectives at this time.

    It’s time for these unethical, illegal practices to stop. Heartland’s efforts to establish fair, ethical business practice standards for the electronic payment processing industry will continue, no matter how the lawsuit turns out.

    Bob Carr, Chairman and CEO, Heartland Payment Systems

  3. Ben February 20, 2014 Reply


    My name is Ben Dwyer, and I am the founder of CardFellow is a staunch advocate for fair and honest credit card processing, and a marketplace where merchant service providers compete for businesses playing by our rules.

    Since you addressed me directly, I’ll briefly respond, but I don’t think Practical Ecommerce will appreciate its comment section being used as a forum, so feel free to contact me directly via Google+ if you’d like.

    I understand that a federal lawsuit is a serious matter, and perhaps my choice of words with “PR stunt” was a little harsh. I’m certainly not trying to belittle the basis for Heartland’s law suit. Quite to the contrary – I commend your company for taking the bull by the horns. It’s about time that someone did.

    I run a company with the same goal of increasing transparency and fairness in the processing industry, so I see the suit as a good start. With that said, dealing with unethical practices in this industry for years has admittedly made me a bit cynical, which is why I can’t help but to see the public relations angle of the suit.

    I’m glad you asked about pricing because you may be able to shed some light on a question to which the card brands have been unresponsive. Getting a straight answer on card association charges is difficult to say the least, and acquirers often have conflicting answers, so it’s unexpected but welcome that I get to ask someone in your position directly.

    Heartland Payment Systems charges a “Visa Issuer Settlement Fee” of $0.003. It’s my understanding that the cost of this card brand charge is $0.0025. I realize that the difference is literally splitting pennies, and it’s far lower than the typical hike Mercury imposes on authorization access fees, but the point is that it too is an inconsistency in what is supposed to be fixed base pricing. It’s also a difference that particularly impacts small ticket merchants.

    Am I wrong in my understanding that the issuer settlement fee is supposed to be $0.0025? Is this fee issuer specific? If I’m incorrect, I’d greatly appreciate an explanation so I can ensure we’re providing the most accurate information possible to merchants.

    To that end, I find it extremely frustrating that card association charges aren’t published like (many) interchange categories. Any idea why this is? Publishing card brand charges would go a long way to adding transparency.

  4. Bob Carr February 27, 2014 Reply

    Thanks for your response, Ben. We appreciate your shared interest in advocating for fair and honest credit card processing practice standards. Happy to take this conversation off line if you require more information, as I agree this is not the forum for a more lengthy conversation.

    Briefly, Heartland passes on charges assessed by the card brands to the smallest fraction of a cent or a basis point. Certain costs are not charged per transaction, but are charged in lump sums. Heartland combines these charges and calculates a basis point fee (based on the processed volume) that is then passed on to the merchant as close to actual cost as possible.

    An important part of our mission at Heartland is to provide as much transparency and understanding as possible to merchants and other interested parties so that they can make informed decisions.

    Bob Carr, Chairman & CEO, Heartland Payment Systems