Judge Certifies Credit Card Machine Fee Class Action Lawsuit

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A California federal judge has certified a class action lawsuit that claims credit card equipment companies charged merchants excessive fees and hidden costs.

The class action lawsuit accuses Merchant Services Inc., National Payment Processing Inc. and several other individuals and companies of participating in a scheme involving credit and debit card processing services and equipment. The plaintiffs claim that the defendants conspired to charge merchants excessive fees and other hidden costs to lease credit and debit card processing equipment.

Specifically, the plaintiffs claim in their class action lawsuit that Merchant Services convinces merchants “’through a series of deceitful misrepresentations and forged documents’ to enroll in fraudulent equipment leases.” The plaintiffs argue that the high cost of the equipment leases is unnecessary to pay for the equipment; rather, the money is used to pay commissions to Merchant Services.

The class action lawsuit names several tactics the defendants allegedly use to present their contracts as legitimate. For example, the plaintiffs claim that the defendants present them with a contract that appears to be one page long, even though there are subsequent pages that are not shown to merchants. While enforceable contracts typically have signature lines on the last page of the document, the plaintiffs allege that the merchants’ signatures were only required on the first page and that they were not made aware of the subsequent pages.

The class action lawsuit also says that the defendants failed to take measures to ensure that the merchants knowingly signed the lease and rejected any claims that the merchants were fraudulently induced to sign the documents. The plaintiffs also claim that the defendants hid their real identities from the merchants and engaged in “abusive tactics to collect on the amounts purportedly owed on the leases, including aggressively monitoring consumer credit report, making false reports to credit bureaus, and filing unsupportable collection actions in foreign forums.”

In addition, the plaintiffs claim that Merchant Services illegally collected taxes and fees that were not authorized under the leases by abusing Automated Clearing House (ACH) authorizations to take money directly from the merchants’ bank accounts. They allege in their class action lawsuit that the defendants “have created a network of shell companies that ‘ensures that their unlawful acts remain hidden and that victims and the courts are unable to identify the responsible party.”

The plaintiffs filed the class action lawsuit, bringing claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), California’s Unfair Competition Law, California business law, and negligent misrepresentation. They sought certification of a class of merchants who entered into contracts or leases for card services with any of the defendants since March 26, 2006, plus five subclasses.

On December 20, U.S. District Judge Claudia Wilken granted the plaintiffs’ motion for class certification in part, certifying two subclasses: the proposed “SKS Post-Lease Expiration Class,” which is defined as: “All persons and businesses whose lease numbers appeared on Schedule 1” to pursue an Unfair Competition Law claim; and the “Property Tax Equipment Cost Basis Class,” which is defined as: “All persons and businesses who from March 26, 2006 to the present paid any Leasing Defendants property taxes based on a cost greater than the ‘equipment cost’” to pursue a breach of contract claim. A California subclass of the Property Tax Equipment Cost Basis Class may also pursue a claim for breach of the duty of good faith and fair dealing and the Unfair Competition Law.

The plaintiffs are represented by Adam Gutride of Gutride Safier.

The class action lawsuit is Rainbow Business Solutions, et al. v. Merchant Services Inc., et al., Case No. 4:10-cv-01993-CW, in the U.S. District Court for the Northern District of California.