SEATTLE – The Washington State Attorney General’s Office today announced a settlement in its case against three Oregon companies accused of using deceptive tactics to sell credit and debit card processing services to small businesses in Washington state.
Merchant Processing, Inc. (MPI), of Beaverton, and its associates Vequity Financial Group, of Beaverton, and Direct Merchant Processing, of Tigard, did not admit to any wrongdoing but agreed to the terms of a consent decree filed Tuesday in King County Superior Court, including injunctive provisions that restrict how they do business.
“Merchant Processing and its affiliates promised merchants they would save money and receive payments faster if they switched from their current card processor,” said Assistant Attorney General Shannon Smith. “Our settlement prevents the companies from making similar misrepresentations should they resume business in the future.”
Because the defendants are also being sued in federal court, the state’s settlement includes a provision that they must refund Washington merchants if the court requires such restitution.
The Attorney General’s Consumer Protection Division began its investigation into MPI’s practices in October 2005 and filed suit against the companies in April 2007, naming MPI’s president Aaron Rian and vice president Michael DeGroat as additional defendants. The suit alleged violations of the state’s Consumer Protection Act.
Around the same time, the Federal Trade Commission filed suit against the defendants in Federal District Court in Oregon, alleging violations of the Federal Trade Commission Act. At the agency’s request, the court issued a temporary restraining order freezing the assets of MPI, Vequity Financial Group, Direct Merchant Processing and Rian. The court also appointed a receiver temporarily to take control of the business and ordered a temporary halt to business practices the FTC alleges are deceptive. The Attorney General’s Office assisted the FTC with its case, which is still pending.
The state’s suit alleged that sales agents for MPI, Vequity and Direct Merchant Processing promised they would save small businesses money by offering lower rates than a merchant’s current credit card processing service and that they would buy out the merchant’s existing equipment lease. Merchants were told they would receive funds from bank card transactions within 24 hours.
But according to the state’s complaint, many merchants discovered that they didn’t need to buy new equipment, they were paying more for the services and payments didn’t arrive on time. Moreover, because MPI did not buy out the businesses’ previous equipment leases, merchants were forced to pay substantial penalties to terminate leases or continue paying for machines they no longer used.
Under the settlement filed Tuesday, MPI, Vequity and Direct Merchant Processing are prohibited from misrepresenting that merchants who purchase their card-processing goods or services will save money or
that the defendants will purchase the remainder of the customer’s equipment lease; failing to disclose fees, and misrepresenting that customers will receive funds from transactions within a specified time.
They also agreed to pay $26,000 in civil penalties and reimburse the state $21,000 in attorneys’ costs, but only if those penalties and costs are approved by the federal court as part of the outcome in the FTC’s lawsuit.
The Attorney General’s Office reached separate settlements with Rian and DeGroat in November 2007, in which the men agreed to similar injunctive provisions and to refund Washington merchants if the federal court orders them to pay restitution. Both also agreed to pay $26,000 in civil penalties, suspended provided they comply with the terms. Rian paid $6,500 attorneys’ fees and DeGroat paid $1,500.
Merchant Processing, Inc., Complaint
MPI Consent Decree
Rian Consent Decree
DeGroat Consent Decree
Federal Trade Commission news release and case documents
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Media Contacts: Kristin Alexander, Public Information Officer, 206-464-6432
Shannon Smith, Senior Counsel, 206-389-3996