Are your processing fees considered junk fees?

FTC launches Junk Fees’ crackdown

The Federal Trade Commission (FTC) has launched a ‘Junk Fees’ crackdown by currently seeking public comment regarding the negative impact of junk fees, as well as any companies that use underhanded methods to charge these hidden costs.

The FTC announced that it will be seeking a rule that would bar against unfair and deceptive practices companies use to impose on their customers.  From airlines and hotels, to banks and cell phone services, the list is not exhaustive and includes any fees added in fine print through hidden fees, recurring billings, deceptive overpricing or by deploying “digital dark patterns” and other “tricks” to deceive customers.

What constitutes unfair and/or deceptive junk fees?

The types of junk fees the FTC is seeking comment on include:

• Unnecessary charges for worthless, free, or fake products or services;
• Unavoidable charges imposed on captive consumers;
• Surprise charges that secretly push up the purchase price.

7 Payment Processing Fees which may be considered junk

Many payment processing providers secretly raise rates and add “junk fees” without any notice. For many of these processors, this is part of their business model—gradually adding hidden fees so the merchant doesn’t catch on.

While there are legitimate costs associated with payment processing, many companies take advantage of this model to hide illegitimate fees from their customers. Some merchant processing companies hide fees in their statements that are purposely complicated to make it difficult for consumers to question them. Here are 7 common terms to watch out for:

1.  Miscellaneous Fees

There are a variety of fees that processors charge in addition to processing fees, which can fall under the umbrella term “miscellaneous fees.” These might be one-time or monthly charges.  Nevertheless, it is important to know all the costs upfront.

2.  Annual fees

Payment processors charge a markup for their services on top of the rates set by credit card companies and associations, like Visa and Mastercard. This markup is to make sure the processor can cover its own costs and make a profit. If you’re being charged an additional annual fee on top of that, it’s called a junk fee, and it’s just another way for the company to line its own pockets at your expense.

3.  Terminal and gateway fees

Some payment processing companies add a markup to credit card rates and then charge an extra fee for accepting credit cards. Gateway fees are charged to online businesses in the same way that terminal fees apply to brick-and-mortar stores. Why should vendors who already process payments be allowed to overcharge businesses simply for using their services?

4.  Statement fees

Statement fees is when a payment processor charges you a fee to cover the costs for printing and mailing you your monthly statement. Sure, it costs a bit of money to print and mail statements, but this is one of those fees. The reason this is so misleading is that companies add these costs to your bill after you’ve already signed up, without any warning. By not including the cost in their initial quote, they have misled you and now you’re stuck paying more than expected.

5.  Monthly minimums

Payment processing companies typically charge you based on a monthly transaction volume and per-transaction basis, which means that if your business does well, they do too. Unfortunately, not all of these providers are honest, and even when your company has a rough month financially, they make sure to get their money anyway.

6.  Early termination fees

Once you sign a long-term contract with a payment processing vendor, you’re agreeing to pay penalties if you cancel prematurely. Companies sometimes require these contracts that last anywhere from four to five years, and the early termination fee can be costly. In fact, if you decide cancellation is best after seeing your first bill – which often includes hidden fees not displayed in the initial stages, you could spend thousands on penalties additionally include service charges for each month remaining in the term of your agreement.

7. PCI Compliance Fee, Non-Compliance Fee, Data Breach Insurance

Many businesses charge a fee for PCI compliance, even though this should be something that is provided as standard. This non-standard fee can fall under many different names, but the purpose of the fee is always ambiguous. In other words, it doesn’t usually correspond to a specific service.  Some stores might also be charged with a PCI non-compliance fee for not appropriately securing consumer information. These fees are often junk fees, and you might not even notice they are on your statement.

What steps you can take?

It is vital to consult with an experienced electronic payment’s attorney to check whether or not your fees could be classified as junk fees. If you think your business might be susceptible to “junk fees,” take steps to protect yourself. The goal is not be an easy target, but have a solid plan so that if there’s ever a complaint or inquiry, you’re prepared with a rapid response.

At Global Legal Law Firm, our lawyers are familiar with the rapidly changing nature of electronic payments processing, and the ever changing regulations involved, with decades of expertise in ISOs, processors, commercial collections, credit card brands, and other forms of electronic payment processing litigation. Let us guide you through this new and volatile environment, rather than attempting to navigate it on your own.