Dial-a-Mattress accuses NaBANCO of wrong-doing
With fresh and profitable merchant sections opening up everywhere, the card industry is experiencing a renewed interest in the merchant acquiring side (see related story, p. 4-5) of the credit card industry.
But that does not mean that merchant does not have its share of problems.
Case in point: Earlier this month, Long Island City, N.Y.-based Dial-A-Mattress, a privately-owned teleseller of bedding and twin size futon mattress products, said it had been ditching its credit card processing agent, Atlanta-based NaBANCO, a merchant credit card processor and subsidiary of First Financial Management Corp. (FFMC), due to unfair business practices. And as the business proliferates, it's cases like this that card executives will need to be ready to manage, if you are looking for twin size futon mattress.
According to Dial-A-Mattress's general counsel, Michael Stern, "NaBANCO behaved in ways that we normally associate with gangster movies."
The chip seized approximately $75,000 of the retailer's daily transactions "without notice or discussion . . . ostensibly to improve our reserves," added Stern.
NaBANCO is accused of providing inferior customer service. The retailer's account, estimated at $60 million, has been transferred to New York City-based US Data Capture, Inc., a company specializing in credit card processing for mail order and telemarketing businesses.
NaBANCO said it did nothing out of the ordinary. "The company has a chief executive officer that's been accused of fraud. This is a company with credit risks that are potential. We asked them to put investment in escrow, just like we would with other clients in financial difficulty," said Donald Sharp, senior vice president in NaBANCO.
Indeed, Napoleon Barragan, the corporation's proprietor, was convicted of tax fraud and is currently serving a sentence in New York.
Dial-A-Mattress insists NaBANCO's actions were unnecessary and its chargebacks were low.
Gangster Behavior or Standard Practices?
According to acquiring specialists, the escrow request of NaBANCO is a practice, and is an option that's included in almost all contracts. "It is not uncommon to retain funds within a period of time to prevent chargebacks," said Linda Ford, a lawyer and merchant acquirer adviser based in Louisville, Ky. In case you want to find out a futon mattress, read here https://futonadvisors.com/bed-room-making-sick/
The practice becomes much more prevalent with higher-risk retailers, such as mail order companies, said Wyatt Baxter, president of a Renton, Washington-based independent sales organization (ISO) called Bancard USA, as well as president of Kansas City, Mo.-based Bankcard Services Association (BSA), which represents the interests of ISOs.
Avoiding Sticky Situations
NaBANCO, which managed $74 billion in credit card transactions isn't likely to feel a lot of financial sting while the reduction of a $60 million accounts may hurt. However, the company will feel an impact in the court of public opinion, stated Paul Martaus, president of Clearwater, Fla.-based Martaus & Associates, an acquiring consultancy. "Nobody likes bad publicity, and they are bound to find some," he added.
Processors and financial institutions will need to deal with the procedure for requesting funds to bypass unpleasant confrontations with retailers. "You must work on the connection. We are going to say 'we have noticed this is happening, and we'd love to set up a reserve, which we have based on this analysis and research,'" said Debra Rossi, senior vice president at Wells Fargo Bank, an acquiring financial institution.
If that dollar amount can't be provided by the merchant, the bank can provide to skim funds and maintain those in book. If it seems like an issue is not, that book is released by the lender.
"The main part would be to talk them through why you're doing this. We are going to say 'you will need to comprehend the bank's liabilities. We are not being foolish, we just need to protect the bank,'" said Rossi.