How to spot and report slamming scams

What is a merchant account slamming scam?

The term “slamming” refers to a deceptive sales practice intended to switch a customer’s service provider without his or her knowledge or consent. This ripoff tactic first popped up in the telecommunications industry in the 1980s, when unethical telecom providers would notify AT&T of a customer’s intention to cancel service and switch carriers without the customer’s permission. This would result in the unethical provider gaining a new customer, but it would also leave that customer dealing with unexpected fees and multiple bills for a single service.

Slamming has since spilled over into the credit card processing industry, but in a different form. Instead of filing a fake cancellation in the name of the merchant, unscrupulous merchant account providers can scam unsuspecting merchants by posing as their current provider and reprogramming their terminals.

How merchant account slamming works

In a credit card processing slamming scam, an unethical agent calls up a merchant and pretends to be that merchant’s current provider. Since it can be difficult to obtain the name of the merchant’s actual provider or sales rep, the agent will usually claim to be a representative from “merchant services,” “the processing company,” “the bank,” “Visa/MasterCard,” or some other vague entity.

The agent will then inform the merchant that his or her processing equipment is out of date, noncompliant with PCI standards, or incompatible with a new feature that the company is providing. The agent offers to send someone out to “reprogram” or “update” the merchant’s terminal for free, but this is actually an excuse for the salesperson to come out and program the merchant’s terminal to process through the agent’s own company.

By allowing his or her terminal to be reprogrammed, the merchant will start paying processing fees to the unethical agent’s company. But the merchant will also still owe the monthly fees under his or her former processing agreement, resulting in double billing. To make matters worse, the merchant may even be in breach of that original contract. This is because most merchant services agreements include clauses stating that the merchant must not process payments through any other company, often under penalty of harsh termination fees. The merchant may not receive an opportunity to explain the mistake, or worse, the merchant’s original provider may not even care to listen to an explanation.

What can be done to prevent slamming scams?

Avoiding a slamming scam might seem like a matter of simple common sense to some people, but it’s best to keep certain precautionary measures in mind to avoid falling victim to this tactic.

Verify the caller’s identity – If a sales rep identifies himself or herself as being with “Visa,” “MasterCard,” “merchant services,” “the bank,” “the processor,” or anything else besides your specific account manager calling from your specific merchant account provider, you should be suspicious. Visa and MasterCard do not directly service merchant accounts.

Don’t let jargon confuse you – If a phone representative is trying to convince you that your processing equipment isn’t compliant with PCI standards, the EMV switch, the Durbin law, or “the new regulations,” don’t be fooled. The same rule applies to any claims about how you could be qualifying for lower rates. Hang up and contact your provider on your own to ask them about any changes you should know about.

Don’t consent to a change of service over the phone – If the caller offers to schedule a visit to reprogram your terminal, or if they offer to fax you some paperwork to get a new terminal shipped to you, don’t fall for it. Slammers are notorious for sending over incomplete paperwork that obscures their identity while still legally binding you into a new processing agreement.

Report the numbers and stated identities of the callers to your state’s attorney general – Although the credit card processing industry tends to receive very little regulation as a whole, there has been a recent crackdown on companies who misrepresent themselves both over the phone and in their documentation. A pair of lawsuits filed against Merchant Services Direct, LLC (now known as Sphyra) and Northern Leasing Systems indicate that regulators are starting to wise up to deceptive tactics within the industry, meaning that they may want to hear from you about any suspicious phone calls you receive.

Do you have any experience with slamming scams? Let us know in the comment section below: